Retail let outs
This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.
This instruction applies to separate retail assessments located within a host property. It does not cover separate assessments that are not retail use or pharmacies within health centres. It also does not cover retail let outs within supermarkets. It also does not cover pharmacies located in or adjoining health centres.
Retail let outs within supermarkets are covered in:
Rating Manual: Section 5a: Valuation of all property classes: Hypermarkets and superstores
Pharmacies within or adjoining health centres are covered in:
Rating Manual: Section 5a: Valuation of all property classes: Pharmacies
This instruction covers the following SCAT codes:
133 – Hospital Let Outs
266 – Station Let Outs
504 – Kiosks within part of a specialist property
507 – Salons / Clinics within part of a specialist property
508 – Shops with a specialist property and in the absence of a more suitable code
3.1 Retail Let Outs in a host property, covered by this Rating Manual entry are a generalist class to be dealt with by the Regional Valuation Units (RVU).
3.2 Responsibility for inspection, survey and valuation rests with references and caseworkers with specialist training and knowledge in this class within Regional Valuation Unit (RVU).
4.1 The Retail 4 General Retail CCT has overall responsibility for the co-ordination of this class. The CCT are responsible for the approach to and accuracy and consistency of valuations. The CCT will deliver Practice Notes describing the valuation basis for revaluation and provide advice as necessary during the life of the rating lists.
4.2 Caseworkers have a responsibility to:
Follow the advice given at all times - practice notes are mandatory. Please do not depart from the guidance given on appeals or maintenance work, without approval from the CCT.
5.1 There is no specific legal framework for this class.
6.1 Full investigation of the facts is required before the valuer goes down the route of a separate assessment from the host.
6.2 Occupations by third parties may meet the criteria for a separate assessment, provided they meet the four tenets of rateable occupation.
6.3 The case of John Laing & Son v Kingswood Assessment Committee (1949) 1 KB All ER 224 set out the four ingredients of rateable occupation, being:
- Actual occupation
- Exclusive occupation for the particular purpose of the possessor
- Beneficial occupation
- Not too transient
6.4 These tests must be applied to retail outlets located within a host property. Generally, actual and beneficial occupation should be relatively easy to determine however exclusive occupation and transience may require more detailed information to be obtained from the occupier.
6.5 In the light of the Cardtronics Supreme Court judgment, the approach to applying these tests, in any case where there is more than one potential rateable occupier, will be first to establish whether the ‘host’ of the site has parted with possession of it. Agreements that do not grant exclusive possession of a defined area may suggest that the host has not ‘parted with possession’ of the retail let out concerned.
6.6 However, this is a question of fact and law, and is likely to involve considering both the details of any agreement relating to the operation of the site, and the facts of occupation as they exist at the site. If the host has parted with possession of the site, then the possibility arises that the site forms a separate hereditament.
6.7 If the host has not parted with possession, it is necessary to consider whether the host remains in rateable occupation of the site. The Supreme Court found that where “Both parties derive a direct benefit from the use of the site for the same purpose and share the economic fruits of the specific activity for which the space is used” the host remained in rateable occupation of the site and there was no separate hereditament.
6.8 Even where the retail unit site is under an exclusive agreement it is still necessary to consider whether the host occupier remains the paramount occupier because the use of the site is part of the normal business activity of the host. Where the host remains the paramount occupier, no separate hereditament will exist.
6.9 Full investigation of the facts is necessary before the valuer considers separate assessment from the hoist property.
6.10 Such retail let outs need to be considered on a case by case basis.
6.11 Further information on this point can be found in the relevant Rating Manual Section which is linked below.
7.1 Inspections should be carried out in accordance with the Valuation Office Agency Code of Measuring Practice.
7.2 Survey Capture:
Rating surveys should be captured on the Rating Support Application (RSA) and plans and surveys stored in the property folder of the Electronic Document Records Management (EDRM) system.
8.1 The rental method is the primary method adopted for retail units located in host properties.
8.2 The majority of retail outlets are valued using the rentals approach, on an overall basis or on a zoned basis. When considering which basis to use, it is important to take into account the physical factors that can influence a retail units rating valuation.
8.3 J Sainsbury Ltd v Wood (VO) [1980] 256 EG 255 held that zoning was primarily devised in order to reflect the fact that: “…the front part of shops in a busy High Street are more valuable than the rear parts because of their proximity to the bustle of the city pavement and the inducement offered to window shoppers.”
8.4 Thus zoning, which as a concept originated in 1917 when most shops were of the high street variety, provides a useful basis for comparison in these instances, notwithstanding that providing one values as one devalues the result will be the same.
8.5 Therefore a zoning approach should be adopted when the position of the shop renders the front parts more valuable than the rear, ie where passing trade and window shopping are relevant, as opposed to destination shopping like that seen in many campus style shops.
8.6 If it can be established that rents were agreed on either a zoned or overall basis then that’s clear evidence that the circumstances apply.
8.7 If it becomes known that a retail outlet rent has been agreed on any other basis, for example, on a percentage of the rental value of the host property, then advice must be sought from the CCT.
8.8 The Code of Measuring Practice Section 3.1 Shops for guidance on how to apply a zoned approach or overall (GIA) approach.
8.9 Code of Measuring Practice - Section 3: Application
8.10 The following value significant factors must be considered before arriving at a valuation:
- Value Significant Factors include:
- Location – examples of prime locations include:
- Railway stations / transport Hubs:
Railway stations:
- Retailers will be prepared to pay higher rents for units located where they can achieve maximum footfall.
- Station Operators will be paying attention to the retail mix and want to attract retailers that meet the needs of a transient population.
- The valuer needs to pay attention to the types of retail unit available at stations and where they are located.
- For example:
- Retail units on entry to and main concourse - what type of unit i.e. kiosk or in line unit
- Inline units are built into the station usually on the perimeter and flush with the station concourse. They can vary in size from 6m2 to 1900 m2.
- Inline units can also be fronting the station approach - what other amenities are available i.e. taxy ranks, bus terminus.
- What retail offer are located on platforms i.e. coffee shops, newsagents.
- Is there a retail outlet on all platforms or just the busiest?
- What is the direction of travel from the busiest and quietest platforms?
- Are there coffee shops on bridges or walkways between platforms? What is the footfall like?
- In regional / minor train stations with just two platforms - the valuer needs to make note of where any retail outlet is located?
- A mainline platform will command higher rents as opposed to a branch line platform.
- Areas of the station with the highest footfall are likely to attract the highest rents.
- Affluence will also be a driving factor with busy national rail stations attracting more affluent clientele for example commuters, international travelers, rather than minor train stations which serve the local areas.
- There is a hierarchy of values. Major rail London based rail stations will attract the highest rental values, followed by the busiest city center rail stations outside London, then regional stations and so on.
Hospital Retail let Outs:
- Footfall is the driving factor with retail units often located in the atrium, close to the main entrance of the hospital capturing the influx of visitors, outpatients, staff and will also be easily accessible for patients.
- Retail let outs within these areas are likely to attract higher rents than shops that are no so visible and possible located on a different floor.
- Some major hospitals also offer a range of restaurants and cafés in different parts of the hospital, with varied menus, catering for all culinary needs which will be well advertised on the hospitals web site.
- The valuer will need to ascertain how well these are advertised and signposted within a hospital, where they are, opening times and menu offer.
- There is likely to be a greater retail offer in major, trauma or university hospitals than in day small regional or day patient hospitals, where opening times may be limited to when clinics are running.
- When considering the value of retail units in hospitals, the valuer may need to consider the size of the hospital and the demographic area it is serving.
- The valuer may need to spread the net and consider values in like for like hospitals.
- Prevailing retail values in the surrounding areas may also be considered.
- Retail let outs in universities and other higher educational establishments.
- Provide a resident population within the immediate locality during term time.
- Retailers will tailor their offer according to the demographics of the locality.
- The valuer may need to consider values of similar units in the surrounding locality.
8.11 The above list is not exhaustive, and the valuer will need to pay attention to more individual characteristics that can affect the premises retail use.
8.12 A turnover rent is one where the rent payable is determined by the actual turnover achieved by the tenant. Turnover leases are most often used in relation to retail operations, including catering leases and franchises, food courts, factory outlet villages and concessions within department stores. Their use is becoming more common.
8.13 Care should be taken by the valuer to establish the precise details of the rental agreement and Rating Manual guidance should be followed at all times in respect of rental adjustment and analysis. A link to the relevant section is provided below:
8.14 Following a 2022 VT decision Select Service Partner v Ricketts (VO) In the VT decision, Select Service Partner v A Ricketts (VO), the panel held that the RV of a concourse retail unit should reflect only the minimum guaranteed rent (MGR) and additional rent paid in a top-up should be disregarded as it is attributable to the individual occupier rather than the hypothetical tenant.
8.15 Following the decision, there have been a number of consequential proposals on concourse
retail units requesting that the decision be followed and RV’s agreed in line with the MGR.
8.16 Rating Manual Guidance Section 4, Part 1 should be followed at all times in relation to rental adjustment and analysis and the treatment of turnover rents.
8.17 Where caseworkers are in receipt of such a Challenge, full details of the rent including a copy of the lease should be obtained. Appeals to VT where the use of turnover top up rents are disputed should be flagged via your CCT lead to the relevant CCT.
8.18 Material Change of Circumstances (MCC)
8.19 Rating Manual: Section 2 – Valuation Principles: Part 7 Material Change of Circumstances should always be followed when considering MCCs on this class of property.
- Rating Support Application
- Survaid