District heating undertakings
This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.
District heating is a system for distributing heat generated in a centralised location for domestic and non-domestic heating requirements such as space heating and water heating.
Some district heating units (DHUs) may have incorporated a stand-a-lone combined heat and power (CHP) system which should be valued in accordance with the relevant PN.
Various list descriptions have been adopted, including district heating system and premises, district heating scheme and boiler house. For clarity, district heating system and premises is the preferred description.
List Description : District Heating System and Premises.
SCAT code : 088
SCAT Suffix S
Primary Description Code is MX.
The valuation and referencing of this class of property is the responsibility of the specialist team within the Non Domestic Rating Unit.
The Specialist Industrial classes Co-ordination Team and the Industrial Valuation Panel have responsibility for this class ensuring effective co-ordination across the business units. The team is responsible for the approach to and accuracy and consistency of DHU valuations. The team will deliver Practice Notes describing the valuation basis for revaluation and provide advice as necessary during the life of the rating list. Caseworkers have a responsibility to:
-
follow the advice given at all times
-
not depart from the guidance given on appeals or maintenance work, without approval from the co-ordination team
-
seek advice from the co-ordination team in cases of doubt.
Plant and machinery
Regulations for the purposes of the 2017 Rating List are the:
Valuation for Rating (Plant and Machinery) (England) Regulations 2000 No 540 as amended.
Valuation for Rating (Plant and Machinery) (Wales) Regulations 2000 No 1097 as amended.
These regulations are considered in detail in Rating Manual: section 6 part 5 to which reference should be made for guidance as to the rateability of plant and machinery.
Domestic property
Where a DHU is held to be an appurtenance to property that is domestic, it also falls to be considered as domestic. To determine whether or not a DHU is an appurtenance to property that is domestic a careful consideration of the facts needs to be undertaken.
The relevant provision within the Local Government Finance Act 1988 (the 1988 Act) is contained within section 66 (1);
“ (1)…property is domestic if- a.it is used wholly for the purposes of living accommodation, b.it is a yard, garden, outhouse or other appurtenance belonging to or enjoyed with property within paragraph (a) above…”
There is no statutory definition of ‘other appurtenance’, and the phrase has been the subject of considerable high authority over the years.
In the Lands Tribunal case of Martin v Hewitt (VO) [2003] RA 275, a case concerning boathouses on the shores of Lake Windermere, the President reviewed the authorities dealing with what is and what is not an appurtenance, and ruled;
“In all the statutory contexts that fell to be considered in these cases, therefore, ‘appurtenance’ was held to be confined to the curtilage of the building in question. I can see no reason for treating it as not so confined in section 66(1)(b) of the 1988 Act ”, and that “ “appurtenance” in section 66(1)(b) was not intended to encompass land or buildings lying outside the curtilage of the property referred to in section 66(1)(a) ”.
In the later case of Head (VO) v London Borough of Tower Hamlets [2005] RA 177 which concerned DHUs, the President found it unnecessary to review again the cases that deal with the meaning of “appurtenance” and accepted that in the statutory context of the 1988 Act:
“It embraces property that will pass with the principal subject matter of a conveyance without the need for express mention and is confined to the curtilage of the building in question.”
This principle was followed in the case of Winchester City Council v Handcock (VO) [2006] RA 265 concerning sewage treatment works where the Lands Tribunal held that;
“It is the physical hereditament comprising the sewage treatment works that must be within the curtilage of the dwelling (or dwellings), if it is to be appurtenant to it (or them)”.
In the latest case of Allen (VO) v Mansfield District Council & Bassetlaw District Council [2008] again concerning DHUs, these definitions were again reaffirmed.
In this case, the VO submitted, and the member accepted, that the proper analysis of the decision in Head 2005 is that a DHU constitutes an appurtenance within section 66(1) (b) if:
1.It is possible to identify a principal building; and
2.This principal building is used wholly for the purposes of living accommodation; and
3.The DHU in question is within the curtilage of this principal building and belongs to or is enjoyed with that property.
It should be noted that the curtilage of a building does not necessarily equate with the boundary of the property, although in the vast majority of cases the boundary and the curtilage will coincide exactly. The curtilage of a building may on occasions be smaller than the extent of the property owned. Whilst for example a house and grounds may comprise gardens and outbuildings, it is a question of fact and degree whether the curtilage of the house would extend to include all or part of the gardens and all or part of the outbuildings. The extent of the curtilage is determined by several factors including the nature and size of the house, being the “principal subject matter of the conveyance.”
In the case of Head (2005) the VO contended that a DHS could not be an appurtenance to domestic property that comprised more than one occupation. In his decision the President rejected this contention. The President ruled that the definition contained in section 66(1) (b) was not worded in terms of occupation nor was there any reference to the term “hereditament”.
The example cited by the President in that decision was that of a boiler house situated on the top floor of a multi storey building. The building contained several property interests; statutory tenants, long leaseholders and the freehold. The accommodation in the building was wholly residential. The building and the boiler house were in the same ownership.
The President concluded that;
“the boiler house and the associated pipework within the building would pass on any conveyance of the building. The DHU can properly be said, therefore, to be appurtenant to the residential accommodation and to belong to it. ”
In Winchester (2006) the VO advanced that a sewage treatment works serving an estate of houses all in single ownership might satisfy section 66, as it did in Head, but once the freehold of any of the dwellings was disposed of and the sewage treatment works continued to serve it, it could not be ‘appurtenant’ to them. As the VO succeeded in the principal argument that the sewage treatment works did not fall within the curtilage of any dwellings that they served, it was not necessary to consider this further submission.
The Lands Tribunal however gave an obiter view that the submission was too broad and concluded;
“It seems to us to be possible to envisage situations where a part of a curtilage is disposed of by freehold sale, and continues to be served by the sewage treatment works, yet the circumstances are such that the sewage treatment works is still capable of satisfying the words of section 66 (1).”
The member in Allen (2008) agreed with these obiter remarks.
Taking into account the effect of these decisions, the following tests should be carried out, in the order that they are shown below, when deciding whether or not a DHU is an appurtenance to property that is domestic. The DHU must satisfy all the tests to qualify as domestic property.
I. Identify the property that is served by the system. A block of flats, a terrace of houses or an individual house may constitute the, “principal subject matter of the conveyance” in question. An estate comprising a multitude of different buildings would not.
ii. Establish that the above is wholly domestic.
iii. Identify the “curtilage” of the domestic property.
iv. Establish that the DHU in the same ownership as the “principal subject matter of the conveyance”.
v. Establish that the DHU is wholly located within the curtilage of the “principal subject matter”. This will be a matter of fact and degree in every case.
vi. Establish that, by its nature the DHU would pass without mention in a conveyance of the principal subject matter.
If the DHS satisfies all of the above criteria then it is an appurtenance to domestic property, and therefore is itself domestic property. Such systems should not be shown in a non-domestic rating list.
Examples
A multi-storey building comprising flats with a boiler house for a DHU in the basement. The block is in the same ownership as the DHU. The “principal subject matter” is the freehold of the block. The curtilage extends to a small distance around the base of the block. The DHU is therefore within the curtilage and would pass without mention in the conveyance of the building. The DHU is an appurtenance to domestic property and should itself be considered domestic.
An estate comprises a mixture of terraced, semi detached and detached houses. Within the estate is an island site upon which is built a DHS boiler house. The distribution pipework extends to the houses in the estate. The DHS boiler house and houses are in the same ownership. Each of the domestic properties will have its own curtilage. The DHU boiler house, on its island site, will not fall within any of those curtilages. In this example the DHU boiler house is not appurtenant to any domestic property and therefore is non-domestic.
The nature and type of construction may vary within this category of property, however the following constituent parts are frequently present.
a. Boiler house - rateable as a building.
b. Chimney - rateable under Class 4 Table 3 Chimneys and flues
c. Main boiler - rateable under Class 4 Table 4 except where “the total cubic capacity of which (measured externally and excluding foundations, settings, supports and anything which is not an integral part of the item) does not exceed four hundred cubic metres and which is readily capable of being moved from one site and re-erected in its original state on another without the substantial demolition of any surrounding structure “. Boiler package - may be used for producing hot water for the domestic facilities on the site i.e. showers, washrooms etc - rateable under Class 2 Table 2.
d. Distribution pipe work & pumps - rateable under Class 3 (g).
e. Standby generators (Alternator / Generators (backup) (SET) - Class 1 Table 1 (c) with regard also to the advice on Combined Heat and Power schemes contained in Rating Manual section 6 part 5 Plant and Machinery.
f. Oil storage tanks - If used in connection with the generator, rateable under P & M Order - List of Accessories 2(v). Also rateable under Class 4 Table 4 except where “the total cubic capacity of which (measured externally and excluding foundations, settings, supports and anything which is not an integral part of the item) does not exceed four hundred cubic metres and which is readily capable of being moved from one site and re-erected in its original state on another without the substantial demolition of any surrounding structure “.
g. External works - land development, roads, landscaping etc.
h. Settings and foundations for plant and machinery - rateable under Class 4 table 3. See also List of Accessories 2(i) - 2(viii).
Survey details should be measured to GIA with plan and survey details placed in EDRM.
The process to undertake when valuing a DHU may be summarised as; first to identify the hereditament, identify the rateable constituent parts including Plant and Machinery, undertake a valuation.
This class of property should be valued on the “Other Valuations on Generic Contractors Basis” spreadsheet which is available on the non-bulk server.
Costs are taken from the cost guide but where evidence of actual costs for recent schemes is more readily available they should form part of a Contractor’s Basis valuation once suitably adjusted.
Actual costs must be passed to the BAMS team for analysis and should not be used in preference to the Cost Guide figures without the assurance of the class co ordination team.
Valuations for DHUs are held on the NBS. Plans and surveys should be stored in an appropriate folder within the Electronic Document Records Management (EDRM) system. Guidance on this class can be obtained by raising a query via the NVU inbox.
1. Market Appraisal
District Heating Undertakings (DHU) schemes continue to be built.
In operation, DHU schemes must compete, at the point of heat supply, with other available sources of heat provision, such as gas or electricity.
Currently, most (if not all) DHU schemes require some element of financial incentive in order to be commercially viable.
2. Changes from the last practice note
Changes have been made to comply with information disclosure law.
3. Ratepayer discussions
No discussions have been undertaken with ratepayers or representatives for this class.
4. Valuation scheme
Choice of valuation method
There is no identifiable rental market for DHU’s, nor is there evidence of open market sales transactions. The comparative method of valuation is therefore not appropriate.
Historically, (and currently), unavailability of accounting information for operational DHU schemes makes application of the receipts and expenditure method of valuation impractical.
The recommended valuation approach is therefore by reference to the cost of construction, via the contractor’s basis of valuation. This approach is ratified by case law (please see the main rating manual entry.)
Application of the contractor’s basis of valuation
Costs for the component elements of DHU’s can be found in the rating cost guide 2023.
These will relate to:
The energy centre building or boiler house.
The insulated distribution pipework and any associated rateable equipment. (See Class 3 (g) to SI 2000 No.540)
Other rateable plant such as Class 4 settings and Class 1 electrics.
All valuations must be carried out using the “Other Valuations on Generic Contractors Basis” spreadsheet which is available on the non-bulk server.
The Rating Manual section 4 part 3 contains general guidance for undertaking a contractor’s basis valuation and should be followed.
Pipework
Particular consideration should be given to the cost estimation of distribution pipework within a DHU.
The most effective and accurate way of valuing the distribution pipe work is to obtain details of the pipe runs and their diameters. The information can often be scaled from plans available from the DHU operator, and the Estimated Replacement Cost of the actual pipe lengths can then be calculated using costs published in the Cost Guide or obtained from the relevant member of the BEAMS Team.
Where the above information is not available then the cost can be estimated depending on the proportion of the pipe work that is underground and how much is surface mounted or hung below the soffit of a building.
Please note that if the actual item being costed is of a different specification to the description that goes with the Rating Cost Guide code then you should select a cost code which best matches the actual item.
Land
Land values should be estimated having regard to the locality in which the energy centre is situated, and the guidance contained within the 2023 Practice Note “Land Values for Contractor’s Basis Valuations”.
Consideration should be given to any land acquisition or wayleave costs arising from the installation and running of pipework below ground.
Decapitalisation rate
The relevant Statutory Decapitalisation Rate for this class of property must be adopted.
1. Market appraisal
District heating is a system for distributing heat generated in a centralised location for domestic and non-domestic heating requirements such as space heating and water heating.
A few schemes originated after 1945 but the 1980s saw an increase in numbers around the UK, with areas of large public sector housing estates in London, Manchester, Newcastle-upon Tyne, Nottingham, Sheffield, Southampton and other large conurbations constructing coal-powered schemes. Some of the larger systems also incorporated non-domestic properties such as leisure centres, libraries, shopping centres and community centres.
The older district heating undertakings (DHUs) powered by coal were later converted to a natural gas fuel source, with a small number incorporating some element of bio-mass bi-fuel ability. The economic efficiencies of communal heating and hot water came under pressure in the 1990s and early 2000 when the social/welfare rationale behind the provision of subsidised provision became increasingly expensive and this led to many private residences preferring or being incentivised to install individual heating systems.
A period of high energy prices, developments in combined heat and power technology and financial incentives has led to a revival in district heating with combined heat and power (CHPDH). Increasingly, large-scale hereditaments are being created to supply mixed use developments which incorporate commercial, civic and residential schemes operated by both the public and private sectors, for example Cofely’s, Heatline Network in Coventry city centre and Eon’s Cranbook & Skypark Energy Centre at Exeter Airport. Waste to energy (WTE) schemes have been in existence for some time and have a mixed track record, with the Byker Heating Station at Walker, Newcastle upon Tyne system being converted to a mainly natural gas fuel source with part wood-pulp secondary-feed, whilst at SELCHP (South East London Combined Heat & Power) a new WTE 5km long network was installed in 2014.
In more recent times, a period of high energy prices, developments in combined heat and power technology and financial incentives has led to a revival in district heating with combined heat and power (CHPDH); considered to be cheapest method of cutting carbon emissions, and has one of the lowest carbon footprints of all fossil generation plants. As part of carbon reduction targets, some existing DHUs may have incorporated a stand-a-lone CHP (combined heat and power) system which should be valued in accordance with the relevant PN.
2. Changes from the last practice note
The example at 2.4 of the 2010 PN has been revised at Section 4 below for R2017 purposes.
3. Ratepayer discussions
No discussions have been undertaken with ratepayers or representatives for this class.
4. Valuation scheme
The appropriate method of valuation for this class is the Contractor’s Basis, utilising cost evidence at the antecedent valuation date of 1st April 2015.
Evidence of actual costs for recent schemes should be passed to the class co-ordination team.
Costs for DHUs can be found in the Cost Guide 2017.
All valuations must be carried out using the “Other Valuations on Generic Contractors Basis” spreadsheet which is available on the non-bulk server.
The Rating Manual section 4 part 3 contains guidance for undertaking a contractor’s basis valuation.
Pipework
Particular consideration should be given to the costing of distribution pipework within a DHU.
The most effective and accurate way of valuing the distribution pipe work is to obtain details of the pipe runs and their diameters. The information can often be scaled from plans available from the DHU operator, and the Estimated Replacement Cost of the actual pipe lengths can then be calculated using costs published in the Cost Guide or obtained from the relevant member of the BAMS Team.
Where the above information is not available then the cost can be calculated depending on the proportion of the pipe work that is underground and how much is surface mounted or hung below the soffit of a building.
Example:
Please note that if the actual item being costed is of a different specification to the description that goes with the Rating Cost Guide code then you should select a cost code which best matches the actual item. The same applies to location factor and contract size adjustment. The average age/obsolescence will be derived from dividing ARC by ERC in the contractor’s basis valuation of the buildings and plant present on the hereditament.
| Description & Rating Cost Guide code | Area GIA/Size | £ per m2/m/unit | £ |
| Boiler House (m2) 40A00G | 128 | 812 | 103,936 |
| Plant; | |||
| Chimney (m) 32F15A | 10 | 2,594 | 25,940 |
|
Distribution pipework: 75 % underground (£1,590/household) 220 households |
220 | 1,590 | 349,800 |
| 479,676 | |||
| Location Factor @ 15% | 1.15 | 71,951 | |
| 551,627 | |||
| Contract size adjustment @ 10% | 1.10 | 55,163 | |
| 606,790 | |||
| Age /Obsolescence @ 13.53% average | 0.8647 | (82,099) | |
| 524,691 | |||
| Fees @ 13% | 1.13 | 68,210 | |
| 592,901 | |||
| Land 0.002 ha @ £3,000,000/ha = £6,000. Less allowance of 13.53% | 5,188 | ||
| 598,089 | |||
| Decapitalisation rate | 5.0% | 29,904 | |
| say | RV 29,900 |
The above example is only intended for illustrative purposes only and is not intended to give guidance on levels of value.
Decapitalisation rate
The statutory decapitalisation rate must be used.
1. Co-ordination
This is an SRU Class.
Co-ordination responsibilities are set out in Rating Manual: Section 6: Part 1.
The R2010 Special Category Code 088 should be used. As a class residing with SRUs the suffix letter S should follow it.
The Primary Description Code is MX.
2. Valuation guidance
2.1 Rateability
Presently, regulations for the purposes of the 2010 Rating Lists will be the;
Valuation for Rating (Plant and Machinery) (England) Regulations 2000 No 540 as amended.
Valuation for Rating (Plant and Machinery) (Wales) Regulations 2000 No 1097 as amended.
These regulations are considered in detail in Rating Manual : Section 6 : Part 5 to which reference should be made for guidance as to the rateability of plant and machinery.
The nature and type of construction may vary within this category of property, however the following constituent parts are frequently present.
a. Boiler house - rateable as a building.
b. Chimney - rateable under Class 4 Table 3 Chimneys and flues
c. Main boiler - rateable under Class 4 Table 4 except where “ the total cubic capacity of which (measured externally and excluding foundations, settings, supports and anything which is not an integral part of the item) does not exceed four hundred cubic metres and which is readily capable of being moved from one site and re-erected in its original state on another without the substantial demolition of any surrounding structure “. Boiler package - may be used for producing hot water for the domestic facilities on the site i.e. showers, washrooms etc - rateable under Class 2 Table 2.
d. Distribution pipe work & pumps - rateable under Class 3 (g)
e. Standby generators (Alternator / Generators (backup) (SET) - Class 1 Table 1 (c) with regard also to the advice on Combined Heat and Power schemes contained in Rating Manual section 6 part 5 Plant and Machinery.
f. Oil storage tanks - If used in connection with the generator, rateable under List of Accessories 2(v). Also rateable under Class 4 Table 4 except where “ the total cubic capacity of which (measured externally and excluding foundations, settings, supports and anything which is not an integral part of the item) does not exceed four hundred cubic metres and which is readily capable of being moved from one site and re-erected in its original state on another without the substantial demolition of any surrounding structure “.
g. External works - land development, roads, landscaping etc.
h. Settings and foundations for plant and machinery - rateable under Class 4 table 3. See also List of Accessories 2(i) - 2(viii).
2.2 Valuation method
The preferred method of valuation for this class is the Contractor’s Basis, utilising cost evidence at the antecedent valuation date of 1st April 2008.
DHUs broadly fall into two main categories.
First DHUs developed in the 1960s and 1970s in conjunction with social housing. The majority of DHUs currently assessed fall within this category. The change in social housing provision over the last three decades has seen a decline in the provision of these social housing DHUs. The DHUs in this category are often experiencing higher maintenance costs caused by their age and are suffering competition from alternative heating sources.
Second DHUs developed during the last three decades providing hot water to larger schemes, often serving a range of domestic and non-domestic properties, providing heated water, for example, to a part of a university campus, council offices and schools.
2.3 Valuation application
The process to undertake when valuing a DHU may be summarised as; first to identify the hereditament, identify the rateable constituent parts including Plant and Machinery, undertake a Contractor’s Basis valuation.
Costs for DHUs can be found in the Cost Guide 2010.
All valuations must be carried out, in accordance with R2010-IA-080814 Standardisation of Valuation Support for Non-Bulk Classes, using the “ Other Valuations on Generic Contractors Basis “ spreadsheet which is available on the non-bulk server.
2.4 Valuation of pipe work
Particular consideration should be given to the costing of distribution pipework within a DHU.
The most effective and accurate way of valuing the distribution pipe work is to obtain details of the pipe runs and their diameters. The information can often be scaled from plans available from the DHU operator, and the Estimated Replacement Cost of the actual pipe lengths can then be calculated using costs obtained from the relevant Building Surveyor (NABS Team) and the “ Other Valuations on Generic Contractors Basis “ spreadsheet.
Where the above information is not available then the cost can be calculated depending on the proportion of the pipe work that is underground and how much is surface mounted or hung below the soffit of a building.
Example:
| Description | Area GIA/Size | £ per m2/m/unit | RV £ |
| Boiler House (m2) | 128 | 768 | 98,304 |
| Plant; | |||
| Chimney (m) | 10 | 1048 | 10,480 |
| Distribution pipework: 75 % underground (£1100/household) 220 households | 220 | 1397 | 307,340 |
| 416,124 | |||
| Location Factor @ 7% | 1.07 | 29,129 | |
| 445,253 | |||
| Contract size adjustment @ 10% | 1.10 | 44,525 | |
| 489,778 | |||
| Age /Obsolescence @ 16.63% average | 0.8337 | (81,450) | |
| 408,328 | |||
| Fees @ 13% | 1.13 | 53,083 | |
| 461,411 | |||
| Land 0.002 ha @ £3,000,000/ha = £6000. Less allowance of 16.63% | 5,002 | ||
| 466,413 | |||
| Decapitalisation rate (as existing for illustration purposes) | 5.0% | 23,321 | |
| Say | 23,250 RV |
The above example is only intended for illustrative purposes only and is not intended to give guidance on levels of value or the statutory decapitalisation rate.
2.5 Decapitalisation rate
The appropriate statutory decapitalisation rate must be adopted.