Docks and harbours
This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.
This section deals with the assessment of statutory and non-statutory dock and harbour undertakings.
For the purposes of this guidance Docks and Harbours are categorised as follows:
| Type | Description | Description Code | SCAT | Suffix |
| Docks and Harbours (Statutory - Prescribed hereditament) | Dock Hereditament and Premises | FD | 434 | S/U |
| Docks and Harbours (Statutory – non-prescribed hereditament) | Dock Hereditament and Premises | FD | 435 | S/U |
| Docks and Harbours (Non-Statutory) | Non-statutory Dock and Premises | NT3 | 089 | G/S/U |
| Container Terminal and Premises | U | |||
| Wharf and Premises | G/S/U |
Responsibility for this class is as follows:
| SCAT | Description | Definition | Basis of valuation | Definition | Suffix |
| 089 | Docks and Harbours (Non-Statutory) | Non-statutory undertakings | Rentals | Valued by reference to the local tone | S |
| Valued by reference to a national tone | S/U (1) | ||||
| Receipts | Receipts – adopted turnover less than £1,000,000 | S/U (2) | |||
| Receipts – adopted turnover greater than £1,000,000 | U (2) | ||||
| 434 | Statutory Docks and Harbours (Non-Formula, Prescribed) | Statutory undertakings qualifying as a prescribed hereditament (Reg 5) (3) | Receipts | Statutory undertakings qualifying under Reg 5 (3) (Prescribed Heredit - cumulo) | U |
| 435 | Statutory Docks and Harbours (Other) | Statutory undertakings NOT qualifying as a prescribed hereditament (Reg 5) (3) | Receipts | Statutory undertakings NOT qualifying under Reg 5.(3) Adopted turnover below £1,000,000 pa. | S/U (2) |
| Statutory undertakings NOT qualifying under Reg 5 (3). Adopted turnover below £1,000,000 pa. | U (2) |
Notes
(1) Potential case for larger hereditaments valued by reference to rents to be handled by the National Valuation Unit Utilities and Transport Team (UTT). To be discussed on a case specific basis.
(2) Receipts threshold. This should not be considered to be prescriptive. Individual cases will need to be discussed with the CCT in order to determine ownership.
(3) Non-Domestic Rating (Miscellaneous Provisions) (No 2) Regulations (SI 1989/2303)
The Ports class co-ordination team has overall responsibility for the co-ordination of this class. The team is responsible for approach, accuracy and consistency of valuations. The team will deliver Practice Notes describing the valuation basis for revaluation and provide advice as necessary during the life of the rating lists. Caseworkers and referencers 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 class co-ordination team
- seek advice from the class co-ordination team before starting any new work
5.1. Definition of a harbour.
5.1.1. The relevant rating regulations do not define dock or harbour but according to the Harbours Act 1964 a harbour is defined as follows:
“except where used with reference to a local lighthouse authority, means any harbour, whether natural or artificial and any port, haven, estuary, tidal or other river or inland waterway navigated by sea-going ships and includes a dock, a wharf…… and ……. has the meaning assigned to it by s.742 of the Merchant Shipping Act 1894”.
5.1.2. The Merchant Shipping Act 1894 (s.742) definition is:
“to include harbours properly so called, whether natural or artificial, estuaries, navigable rivers, piers, jetties and other works in or at which ships can obtain shelter or ship and unship goods”.
5.1.3. A “Statutory harbour undertaking” is defined in the Statutory Harbour Undertakings (Form of Accounts etc.) Regulations 1969 (“the 1969 Regulations”) as:
“an undertaking or part of an undertaking the activities whereof consist wholly or mainly in the improvement, maintenance or management of a harbour in the exercise of powers vested under the Harbours Act 1964, by another Act or by an Order or other instrument (except a provisional Order) in the person by whom the undertaking is carried on (other than river works powers as defined in s.57 of the Harbours Act 1964), in the performance of duties so vested in him (other than river works duties as so defined) or in the exercise and performance of powers so vested in him (other than river works powers as so defined) and duties so vested in him (other than river works duties as so defined)”.
5.2. Identification of the Hereditament – Statutory Undertakings
5.2.1. Whilst formula rating ceased with effect from 1 April 2005, legislation remains in place governing the identification of the hereditament in respect of qualifying statutory undertakings. This is in the form of Reg 5 of the Non-Domestic Rating (Miscellaneous Provisions) (No 2) Regulations (SI 1989/2303) and is often referred to as “Regulation 5” and/or “prescription”.
5.2.2. Where a qualifying undertaker occupies any hereditament which contains both operational and non-operational land, then the part or parts situated on the operational land shall be treated as a hereditament (“the new hereditament”) separate from the remainder (Reg 5(3)).
5.2.3. Regulation 5(5) defines operational land as land which is used for the purpose of the carrying on of the undertaking, not being land which, in respect of its nature and situation, is comparable rather with land in general than with land which is used for the purpose of carrying on of statutory undertakings (within the meaning of the Town & Country Planning Act 1971).
5.2.4. The Lands Tribunal considered the application of Regulation 5 in the case of Barratclough (VO) v Tees and Hartlepool Port Authority. In this case it was agreed that the port offices were used for the purpose of the carrying on of the respondent’s undertaking, and the evidence therefore related to the question whether or not in respect of its nature and situation it was comparable with land in general rather than with land used for the purpose of statutory undertakings.
5.2.5. The President stated in the decision that what was required was an overall comparison that takes both the nature of the land and its situation into account. He then examined the nature and the situation separately:
i. Nature: essentially ‘ordinary’ office accommodation (they were purpose built for the port in the nineteenth century)
ii. Situation: regard to both its location in relation to other parts of the respondent’s undertaking and to its surroundings (office located in an area where buildings were in a variety of urban uses and separated from the statutory dock undertaking)
5.2.6. In this case it was held that the building was comparable with land in general rather than with statutory undertaking land.
5.2.7. Where more than one “new hereditament” is on the relevant day occupied by the same undertaker, those hereditaments shall be treated as one hereditament (Reg 5(4)). Regulation 5 also provides that where the “new hereditaments” are located in the areas of more than one billing authority, the “new hereditaments” are still to be treated as one hereditament. This hereditament is treated as being situated in the area of the billing authority which contains, on the relevant day, the single largest “new hereditament” in terms of area, measured at ground level. Once determined, this Billing Authority remains fixed for the life of the rating list, even if an alteration or alterations mean that the largest “new hereditament” changes and is subsequently located in a different Billing Authority.
5.2.8. Occupations by the statutory undertaker that are regarded as exclusively non-operational land should be shown as separate hereditaments in the list.
5.2.9. Regulation 5 does not apply to any of the cases referred to in sub-paragraphs (a) to (f) below:
a. Non-statutory dock or harbour undertakings; i.e. those which are not carried on under authority conferred by or under any enactment.
b. Statutory docks or harbour undertakings with a relevant income of £50,000 or less in any accounting period of twelve months which ended between 31 December 1987 and 31 March 1988, or if there was no such accounting period, in the twelve months ending on 31 March 1988 (Article 3(2)(a)). Note that once exclusion or otherwise is established upon this ground, the undertaking will remain outside or within the provisions of the Regulation, as the case may be, irrespective of changes in relevant income in subsequent years.
“relevant income” in relation to a period means all income by way of revenue included or falling to be included in the revenue or profit and loss account of the undertaking for the period, whether derived from the operations carried on under the authority whether statutory or otherwise, other than –
i. income in respect of pilotage;
ii. income from –
a. investments required to be shown in the accounts of the undertaking (other than investments in subsidiary companies);
b. loans or deposits;
c. rent or other payments receivable in consideration of the grant of permission for occupation or use of any property of the undertaking, or right over such property, which is or forms part of a hereditament which is shown on a local rating list;
iii. any sum receivable in respect of the disposal of land;
c. Where the persons carrying on the undertaking uses the dock and harbour exclusively or mainly for the purpose of bringing or receiving goods of one or more of the following types:
i. goods to be used by them for the manufacture of other goods or the production of electricity
ii. goods they have produced or manufactured
iii. goods that they are to sell
iv. goods manufactured or produced by an associated body, and to be sold by that body.
d. Any hereditament occupied by persons carrying on the undertaking which does not consist exclusively of operational land. This falls to be assessed separately, irrespective of its treatment for the purposes of calculating the relevant income of the undertaking.
e. Any part of the dock or harbour undertaking that is occupied by some other person (including a subsidiary of the statutory undertaker) under the terms of a letting or licence for more than a transient period, and where the occupation is exclusive for the purpose of the occupier, should be the subject of a separate assessment. Whether or not there is a separate occupation is a matter to be decided on the individual facts of the case, and if further guidance is required reference should be made to Westminster City Council v Southern Railway Co (1936) AC 511 HL for the principles involved. Where such a hereditament, situated on land which could qualify as operational land, becomes empty, it should not automatically be deleted from the rating list. If it is the intention of the undertakers to re-let the hereditament in due course, or even if they have no fixed intention as to what to do with it, it should not be deleted from the rating list.
f. New undertakings, which would otherwise qualify to be assessed under the Regulation, will be excluded under (b) since there will be no relevant income for the accounting period in question. It therefore follows that they will not come within the scope of the Regulation unless the Act setting up the undertaking makes specific provision for the Regulation to apply.
5.3 Identification of the Hereditament – Non-qualifying statutory docks and harbours and non-statutory docks and harbours
5.3.1. Where Regulation 5 does not apply (non-qualifying statutory docks and harbours and non-statutory docks and harbours) it follows that the legal framework is that applicable to any conventional assessment for all issues including identification of the hereditament.
Security and adherence to health and safety practices will be strictly imposed by dock operators. When arranging inspections the VOA inspection policy must always be followed.
6.1 Statutory Docks and Harbours
In the majority of instances a full measured survey will not be required.
6.1.1 Where a measured survey is required it should be to gross internal area (GIA) in accordance with the VOA Code of Measuring Practice.
6.1.2 Information should be recorded in the form of an inspection note and accompanying plan detailing:
a. The leading statutory enactments under which operate the undertaking
b. The geographical extent of the statutory undertaking
c. The extent of the undertakers statutory control in terms of conservancy and pilotage
d. Details of the main operations undertaken within the undertaking
e. Details of all third party occupiers and operators within the undertaking to assist in determining which should be separately assessed
f. The plan should identify:
i. The extent of the undertaking’s statutory control in respect of both land side and seaward areas
ii. The billing authority boundary
iii. Operational and non-operational areas
iv. Existing separate assessments
v. Areas/occupations requiring review
6.1.3 All information should be saved in EDRM where possible.
6.2 Non-statutory Docks and Harbours
6.2.1 Non-statutory undertakings should be measured, where required, to gross internal area (GIA) in accordance with the VOA Code of Measuring Practice.
6.2.2 Where the undertaking is valued by reference to accounts a full survey will not be required.
6.2.3 all instances information should be recorded in the form of an inspection note and accompanying plan detailing:
a. The geographical extent of the undertaking
b. Details of the main operations undertaken within the undertaking
c. Details of all third party occupiers and operators within the undertaking to assist in determining which should be separately assessed
d. The plan should identify:
i. The extent of the undertaking’s control in respect of both land side and seaward areas
ii. The billing authority boundary
iii. Operational and non-operational areas
iv. Existing separate assessments
v. Areas/occupations requiring review
6.2.4 All information should be saved in EDRM where possible
7.1. For statutory and non-statutory undertakings which are valued by reference to accounts the guidance set out at section 6 above should be adhered to.
7.2. For non-statutory undertakings valued by reference to rents survey information is to be saved in EDRM and input into RSA.
8.1. Statutory Docks and Harbours
8.1.1. Statutory docks and harbours were formerly valued as public utility undertakings on the profits basis although, even in the last century, the method presented problems. Decisions of the courts that certain types of income should be excluded from gross receipts, and the fact that profit was not always the prime motive of the undertakers, meant that the profits method could result in unrealistic or nil valuations and when this happened it was the practice to negotiate a “compromise” assessment.
8.1.2. This state of affairs was challenged in 1961 in the Court of Appeal in the case of British Transport Commission v Hingley (VO) (1961 RVR 150). It was held that a statutory dock or harbour undertaking must be valued as a matter of law on the profits basis and that the fact that the basis produced a nil assessment was not a special circumstance justifying the use of a different mode of valuation. Even so, in the 1963 valuation lists there were some instances of “voluntary” assessments being agreed despite a nil answer being produced by a valuation on the profits basis.
8.1.3. Provisions were included in the Rating and Valuation Act 1961 and later re-enacted in s35 of the General Rate Act 1967 allowing the Minister, after consultation with parties concerned, to make an Order for determining the rateable value of statutory docks and harbours. No generally acceptable formula evolved until 1971.
8.1.4. Subject to transitional provisions to cushion the impact of an abrupt change, the Docks and Harbours (Valuation) Order 1971 (subsequently amended by the 1973 and 1976 Orders) provided for the determination, by reference to a fixed percentage of “relevant receipts”, of the rateable values of certain statutory dock or harbour undertakings which were on operational land and occupied by the persons authorised by statute to carry on the undertaking concerned.
8.1.5. Under para 3 of Schedule 6 LGFA 1988 the Secretary of State made orders prescribing the valuation by formula of qualifying statutory docks and harbours for the purposes of Rating Lists. No such order was made in respect of the 2005 Rating List and since then all statutory and non-statutory docks and harbours have been valued by conventional methods of valuation, although the extent of the hereditament to be valued and the Billing Authority it may be entered into remains prescribed.
8.1.6. Since 1 April 2005 statutory docks and harbours have been valued by reference to the Receipts and Expenditure (R&E) basis of valuation.
8.1.7. There are no known instances where the whole or even a substantial part of an undertaking is rented at arm’s length. Should such an instance arise and the rent was fixed close to the AVD then it may provide guidance.
8.1.8. The contractor’s basis brings with it practical difficulties in costing civil engineered features which vary widely between ports according to their exposure to weather and tidal issues.
8.1.9. Further guidance on the application of the R&E basis can be found in the Rating Manual. Specific regard should also be had to the RICS guidance contained in The Receipts and Expenditure Method of Valuation for Non-Domestic Rating.
8.1.10. Particular care should be exercised when seeking to adjust accounts to accord with the rating hypothesis. Issues to be considered include:
a. Income from statutory functions such as Conservancy
b. Income from separately assessed occupations
8.1.11. Conservancy. This is a term commonly used in respect of docks and harbours and simply refers to the processes required to preserve and maintain a harbour for use by vessels. This may include dredging, lighting, and marking the channel and harbour entrance, dredging of docks and locks and repair of harbour walls, sea defences, locks, lock gates, docks, berths and so on. In rating terms conservancy is often simply repair.
8.1.12. Some statutory harbour authorities have statutory duties to undertake conservancy functions inside and outside the hereditament. In other cases there is no duty or statutory authority and there may be a separate conservancy authority with responsibility outside the statutory area of the port.
8.1.13. In the case of Commissioners of Improving the Harbour of New Shoreham v The Overseers of the Parish of Lancing (1869-70) L.R. 5 Q.B. 489 it was held that the Commissioners were not liable to pay rates on the dues collected. Blackburn J. observed that the law was clear that “tolls are not per se the subject of a rate” (p496). It was equally clear that “tolls, though not rateable, may be considered as enhancing the value of the occupation of the land, whenever it appears that the occupation of the land is so connected with them that it can be said that the tolls and rates are levied on account of the occupation of the land; or perhaps, though not levied on account of the occupation of the land, where they could not be received without an occupation of the land.”
8.1.14. It is important to have regard to both the specific enabling statutes underlying the port’s occupation and functions when determining the receipts and expenditure that are relevant in a R&E valuation of a port.
8.1.15. As a result conservancy income and expense will be included in the R&E valuations of some statutory ports where this is inextricably linked to the occupation, even if the expenditure is on items outside the hereditament. In other cases where conservancy is not inextricably linked it will be excluded.
8.1.16. The impact of including conservancy income and expenses may be to enhance the value of the hereditament or where costs are onerous relative to income may reduce the value.
8.1.17. Income from separately assessed occupations. In its most basic form this may simply be income in the form of rent for a warehouse, storage land or office. In such instances it is reasonable to strip out 100% of the income derived from the lease arrangement as all of the income relates to the letting. It is common for third party occupations to be secured under the terms of several agreements which may include a lease and commercial agreement or alternatively a composite agreement which extends not only to cover the occupation of a defined property but also addresses commercial arrangements linked to the import/export of cargo through the port. Such agreements are very difficult to adjust because of the non-rent payments which are often linked to guaranteed throughputs and/or capital investment undertaken by either the port operator or the actual occupier.
8.1.18. Some ports will operate at a loss. Others will operate at a loss once their accounts have been adjusted to accord with both the rating hypothesis and the rateable hereditament. In both instances such ports still merit a substantive rateable value due to the wider socio-economic benefits which the hypothetical tenant would pay a rent to secure. The rateable value of such ports should be defended on a comparative or contractor’s basis but, as a shortened method, 5% of turnover may provide a rateable value.
8.1.19. For smaller undertakings within statutory docks and harbours there may be rental evidence available which will enable valuation by reference to rental evidence.
8.1.20. For all valuations undertaken by reference to the R&E basis it will be necessary to secure accounts information for the last full three years immediately prior to the AVD.
8.1.21. Form of Return VO 6037 should be used for all statutory ports where the R&E basis is to be adopted.
8.2. Non-statutory Docks and Harbours
8.2.1. As with the statutory docks and harbours at 8.1 above there are likely to be grounds for adopting the R&E basis of valuation. Where this is the case the guidance set out at points 8.1.9 to 8.1.10 should be followed.
8.2.2. For smaller undertakings within either statutory or non-statutory docks, and harbours there may be rental evidence available which will enable valuation by reference to rental evidence.
8.2.3. For all valuations undertaken by reference to the R&E basis it will be necessary to secure accounts information for the last full three years immediately prior to the AVD.
8.2.4. Form of Return VO 6037 should be used for the majority of the statutory and non-statutory ports where the R&E basis is to be adopted.
8.2.5. Form of Return VO 6056 should be used in respect of all ferry terminal assessments.
9.1. All R&E valuations are to be held on valuation spreadsheets provided by the CCT and are to be saved in EDRM.
9.2. All rentals based valuations are to be held in RSA.
1. Market Appraisal
1.1 Commercial demand for docks and harbours has remained fairly strong through the recessionary years.
1.2 A notable exception to this general observation relates to the those ports handling coal imports where volumes have fallen significantly as coal fired power stations have been decommissioned. Some ports have been able to take advantage in the growth of biomass fired power stations but this has required significant investment in infrastructure capable of storing and transferring biomass. Such investment has been difficult to secure due to uncertainties around government policy.
1.3 Other areas of growth include the development of operation and maintenance bases necessary to support the increasing number of offshore windfarms.
1.4 The latest statistics published by the Department for Transport for the year ending 31 December 2014 show that volumes (by tonnage) were down from 455,600,000 tonnes for the year ending 31 December 2007 to 406,716,000 tonnes for the year ending 31 December 2014, a reduction of 10.7% over the period.
2. Changes from the last Practice Note
2.1 Whilst there are only minor changes to the scheme of valuation adopted for Reval 2017 it should be noted that there are substantial changes to the Practice Note.
3. Ratepayer Discussions
3.1 Central discussions have taken place with both the British Ports Association and the UK Major Ports Group. Both industry bodies were professionally represented.
3.2 The VOA and the industry bodies were in broad agreement that the approach adopted for 2010 had worked and that only minor adjustments may be required for 2017.
3.3 The guidance below reflects this broad agreement. Whist at this stage it cannot be taken as a formal memorandum of agreement it is not anticipated that this approach will be subject to challenge.
4. Valuation Scheme
Statutory Docks and Harbours
4.1 As advocated in the Rating Manual guidance it is considered appropriate to value statutory docks ad harbours by reference to the Receipts and Expenditure (R&E) basis of valuation.
4.2 The valuation approach is based on the EBITDA (Earnings Before Interest, Tax and Depreciation Adjustments) of the actual undertaking.
4.3 This approach requires adjustments to be made to both the income and expenditure of the undertaking.
4.4 Income adjustments include:
i. Necessary adjustments to reflect the extent of the rateable hereditament relative to the statutory extent of the undertaking which may be larger or smaller.
ii. Income derived from separately assessed occupations within the undertaking.
iii. Income from statutory operations such as conservancy and pilotage in instances where this is NOT directly linked to occupation of land
iv. Income derived from swinging moorings – Local Government Finance Act 1988 - Sch. 5 para 18
v. Income in the form of interest
4.5 Expenditure adjustments include:
i. Exclusion of costs in the form of taxation and depreciation
ii. Costs not derived from the occupation of the hereditament i.e. those incurred outside the hereditament which are not directly linked to the occupation of land
iii. Costs associated with the management of separately assessed occupations i.e. estate management costs
4.6 The actual EBITDA of the undertaking is calculated by taking the adjusted income and deducting the adjusted expenditure. The EBITDA is then capable of being expressed as a percentage of the adjusted income thereby enabling comparison with other ports.
4.7 The EBITDA percentage can be either negative or positive depending on whether the rateable port undertaking is loss making or profitable.
4.8 A rising percentage is then applied to the adopted turnover having regard to the level of EBITDA as follows:
i. Negative EBITDA % - 5% of adjusted turnover ii. EBITDA 0% to 20% - 5% of adjusted turnover iii. EBITDA 20%+ to 50% - 5% to 12% of adjusted turnover (interpolated) iv. EBITDA greater than 50% - 12% of adjusted turnover
4.9 In the event of any appeals being received the VOA has made it clear to the industry that any valuations necessary will be on the basis of a full R&E valuation. This will require the provision of more detailed accounts information along additional information in the form of asset registers which will be required to establish the correct depreciation charge and to assist in calculating the tenants share.
Non-statutory Docks and Harbours
4.10 Where considered appropriate to do so the rental method of valuation should be adopted. All valuations should be saved in RSA.
4.11 There will be instances where there is no rental evidence available. Where it is considered that there is no reliable rental evidence then an R&E based approach should be adopted where reliable accounts information is available in line with that set out in paras 4.2 to 4.9 above.
4.12 It is recognised that in certain instances there will be neither rental evidence nor full accounts information available. In such instances a contractor’s basis valuation should be adopted. This is likely to be the case for ferry terminals where crossings are to the continent and Ireland. All valuations should be saved in the NBS.
1. Preliminary.
This practice note applies to all Docks and Harbours. In common with the 2005 Rating Lists, no Order has been made for the purposes of the 2010 Rating List for the prescription of rateable values by formula. Conventional valuation methods should be applied for all Docks and Harbours in the 2010 Rating List.
Whilst no Order to prescribe rateable values by formula has been made the legal distinctions governing the extent of the hereditament still apply.
a. Statutory Docks and Harbours that satisfy the criteria in Regulation 5 of The Non –Domestic Rating (Miscellaneous Provisions)(No 2) Regulations 1989. SCat CODE 434 NX and 433 FD
b. Statutory Docks and Harbours that do not satisfy the criteria in “Regulation 5”. SCat Code 435 NX.
c. Non-Statutory Docks and Harbours of any description (i.e. those which are not undertakings carried on under authority conferred by or under any enactment). SCat Code 089 NX.
2. Identification of the Hereditament.
2.1 Introduction
In category (a) above the hereditament remains prescribed in accordance with LGFA 88 sec 64(3) and “Regulation 5”.
In category (b) and (c) the normal rules of identifying a hereditament apply.
2.2 Identification of the hereditament-
Premises occupied by Statutory Authorities in Docks and Harbours.
Statutory Authorities may often be found within Docks and Harbours. Examples of Statutory Authorities include H M Revenue & Customs, Port Health Authorities, Police, and departments within DEFRA.
Where a Statute deems the presence of the Statutory Authority to be essential for the operation of the Dock or Harbour then there will be a requirement on the owner of the facility to provide accommodation. The Act may require the accommodation to be provided free of charge.
These occupations will form separate hereditaments under the conventional principles of rating, (actual, beneficial, exclusive and permanent) - see John Laing and Son Limited v Kingswood Assessment Committee [1949] 1 All ER 224 and Atlantic Steam Navigation Company Ltd v Mondon (VO) 1983 RA 55
When ascertaining the extent of the separate rateable occupation reference should be made to Holywell v Halkyn [1895]AC 177, 125: - “The question whether a person is an occupier or not within the rating law is a question of fact, and does not depend upon legal title. The person legally possessed may not occupy. On the other hand, a person may be occupier either with or without the consent of the owner.”
Contentions that because the accommodation is provided free of charge it is not separately rateable should not be accepted. The four tests of rateable occupation are capable of satisfaction without the need for a specific payment of rent.
It may also be contended that paramount control of these premises resides with the owner of the Dock or Harbour rather than the occupying Statutory Authority. Recourse should again be had to the four tenets of rateable occupation. It is likely that the Statutory Authority will be in paramount control for their statutory purpose and that all four tenets of rateable occupation are therefore satisfied, demonstrating a separate hereditament.
The rateable occupation of the Statutory Authority should be identified as any other Dock or Harbour users such as warehouses let to shipping lines. The premises should be valued under the normal considerations of the hereditament and hypothetical tenancy, having regard to the principles of vacant and to let within the appropriate mode or category.
Where the premises includes both buildings and land careful regard should be made to the application of the four tenets of occupation in ascertaining extent of the hereditament.
Where the rent paid on the premises is restricted by Statute this should not be taken as a material factor that influences the ascertainment of the hypothetical rent. See Orange PCS Ltd v Bradford (VO) [2003] RA 141.
2.3 Occupation by other parties
In order to determine the extent of the undertaker’s hereditament, it is necessary to determine which areas have been so let out as to constitute separate hereditaments in the occupation of other parties. Where another party is in actual occupation of land or buildings, it may in the context of dock/quayside property normally be assumed that the occupation is beneficial. But before it can be concluded that rateable occupation has been relinquished by the undertakers, it is necessary to discover whether: - a. the occupation by tenants/licensees is not too transient. There is no judicial authority which establishes a minimum length of rateable occupation in all contexts, but in practice GVOs are advised to regard quayside/dockside occupations which are anticipated to last for less than 12 months as not justifying separate hereditaments; in such cases rateable occupation should be considered to remain with the landlords. Equally, several operators may have a right to use port land at particular times of the day without one single operator having paramount control. In such cases the landlord will again be in rateable occupation. b. the occupation by tenants/licensees is exclusive. Within some ports there is an arrangement between the undertakers and their tenants/licensees that the latter’s occupation can be disturbed at any time if the undertakers require the relevant land or buildings for the urgent need of the business of the port. Where such disturbance takes place, caseworkers will need to decide whether this interference with the tenant’s enjoyment of the land is such that they are no longer in rateable occupation. Where the disturbance is rare and has little impact on the tenant’s operations then it should not affect rateable occupation by that tenant.
2.4 Premises that are vacant and to let
Within some ports particular premises, for example warehouses, may habitually be so let out as to give rise to separate rateable occupation. When an occupier vacates, leaving such premises vacant, and there is a clear intention on the part of the undertaker to re-let the premises on similar terms, then they should continue to be treated as a separate rateable hereditament, rather than being allowed to “fall back” into the dock hereditament.
The other difficulty likely to arise relates to occupations by subsidiaries of the landlord. Two principles must be borne in mind in such cases:-
(i) a registered company has a separate legal identity, and it cannot be automatically concluded that it is incapable of rateably occupying land on its own account merely because it is 100% owned by its parent; but
(ii) if the use which a company makes of its property is under the close direction of its parent, it may be correct to say that exclusive occupation lies with the parent; this conclusion must be justified on the facts of any particular case. Caseworkers should consider whether the subsidiary is actually running and making operational day-to-day decisions at the property. They should have regard to matters such as the presence of management and operational staff employed by the subsidiary.
Land is only rateable if it falls within the boundary of a Billing Authority. Thus land (including land covered by water) beyond these limits, although beneficially occupied by the undertaker of a dock or harbour will not be rateable and cannot therefore form part of any hereditament. Land below low water mark usually falls outside these boundaries, but there are a number of exceptions, especially in river estuaries. OS plans normally record exact boundaries, but do not necessarily show recent revisions.
2.5 Identification of the Hereditament - Statutory Docks and Harbours satisfying “Regulation 5”.
In category (a), undertakings remain subject to the provisions of Regulation 5 of the Non-Domestic Rating (Miscellaneous Provisions) (No 2) Regulations (SI 1989/2303). The effect of this provision is to create an “artificial” aggregated hereditament which will include all the qualifying lands and buildings of the undertaker so far as they lie within the limits of rateability. It should be noted that the aggregated hereditament cannot include any non-operational land (see Rating Manual section 6 part 3 - section 350), and such land (and buildings thereon) must be separately assessed. It should also be noted that the GVO has no discretion under the Non-Domestic Rating (Multiple Moorings) Regulations 1992 to merge let-out moorings in the aggregated hereditament for a Category (a) undertaking. Category (a) undertakings occupying land bisected by a Billing Authority Boundary are subject to the special provisions of Regulation 5(4); instead of allocating the aggregated hereditament to a particular Rating List on a value-based judgement, the hereditament is to be entered into the List for the Authority in which the largest area lies (measured at ground level).
It frequently happens that a hereditament, situate on land which could qualify as operational land, becomes empty. Such a hereditament should not automatically be deleted from the rating list or merged with the port assessment. If it is the intention of the undertakers to re-let the hereditament in due course, or even if they have no fixed intention as to what to do with it, it should not be removed from the rating list.
2.6 Identification of the Hereditament- Non Statutory Ports and Statutory Ports not meeting criteria in “ Regulation 5”.
In category (b) and (c) undertakings should be regarded as comprising hereditament(s) identified in accordance with normal rating principles. Land which on this basis forms a part of a dock hereditament, but which is non-operational should not be excluded. In some cases the operation of normal principles may result in the occupations of the undertakers falling into several different hereditaments; these should not be aggregated. The only permitted aggregation is where what would otherwise constitute a separate hereditament is bisected by a Billing Authority boundary; in this instance normal rules apply and the GVO(s) must establish where the greatest value lies. Where the occupier of an undertaking lets out moorings within the hereditament so that all the conditions of The Non-Domestic Rating (Multiple Moorings) Regulations 1992 (SI 1992/557) apply, (see Rating Manual section 6 part 3 - section - 670:5.3), the GVO may treat those moorings as in the occupation of the undertaker and comprised in the undertaker’s hereditament.
3. Coordination between the categories.
Coordination between the MV, URT, SRUs, SVU and Group Valuation Offices should continue where there may be implications beyond the particular Docks or Harbour. There is a need to ensure that there is consistency in the level of value and approach for ports and occupations within ports.
4. Valuation Approach.
4.1 Rentals
There are no known cases where the whole or even a substantial part of a port are rented at arm’s length but should this arise and if the rent includes the fundus of the harbour as far as the limits of rateability, and was fixed reasonably close to the AVD, it may provide guidance.
Undertakings, which are wholly or mainly ship repair yards are to be valued on a rental basis (see Rating Manual section 6 part 3 - section - 911).
4.2 Contractor’s Basis
There are practical difficulties in costing civil engineering features which vary widely between different ports according to their exposure to weather. But the basis is, in most cases, unsuitable for more fundamental reasons in that few ports have been designed to meet modern requirements, their present form being dictated by the past and incorporating features which although costly, do not contribute towards the value of the hereditament. There is also a difficulty in that this valuation basis provides no guidance as to the value of land. It is therefore a method best suited to hereditaments which are wholly new developments.
It is also the method best adopted for those docks and harbours which wholly or mainly constitutes shipbuilding yards (but not ship repair yards). Any previously formula-rated docks and harbours which appear to the GVO to fall into this category should be notified to CEO (Rating), together with a brief description of the hereditament, and of the uses to which it is put, and a plan.
4.3 Receipts & Expenditure (“Profits”) Basis
This method is likely to be most widely used for statutory ports where there is a commercial landside operation, since other bases of valuation are not likely to be available in most cases, and because (with few exceptions) most ports are unique in terms of location, this is the only means of determining the value of the land on which they stand. Further advice on implementation of this basis of valuation is given below in para 7.
4.4 Comparative Approach
Comparison between different ports is rarely possible, since there is normally no common unit of comparison.
For statutory ports with limited or no commercial landside operations, an appropriate approach would be by comparison with those types of property similar to those occupied by the undertaking (e.g. harbour master’s office, store, etc). For non- statutory occupations (SCat 089), application of the comparative approach will be the most suitable method although there may be exceptions where the property is unique in terms of size or location (i.e. container terminals).
A basis of analysis has been established for those ports which are wholly or mainly used as marinas, (see Rating Manual section 6 part 3 - section - 640:3). Dry docks may also be compared on a “wetted volume” basis (see Rating Manual section 6 part 3 - section - 911:3.2).
4.5 Ferry Terminals
Ferry Terminals will come within SCat code 089, suffix S, and will be subject to their own PN in due course.
This property is valued using the non-bulk server. The manual can be accessed here.
5. Valuation Application.
The URT is in consultation with the industry regarding a valuation model based on a percentage of turnover for large statutory ports and container terminals. Properties valued by reference to a percentage of turnover may be valued using the non bulk server bespoke spreadsheet (see 2010 NBS - Docks and Harbours Class) using a range of 5-20% of adopted fair maintainable trade.
However, an assessment the subject of an appeal should be valued by reference to a full Receipts and Expenditure method.
6. Application of a Receipts and Expenditure Method.6.1 Accounts Data
Gross Receipts data is in itself insufficient. GVOs should attempt to obtain full accounts for the undertaking. See Rating Manual section 4 part 2. In the event of the undertakers’ failure to supply at least one year’s accounts, CEO (Rating) should be informed.
6.1 Basic Guidance
For basic guidance on this method of valuation see Rating Manual section 4 part 2 - Receipts and Expenditure Method The basic approach is: -
a. gross receipts from all sources, less
b. working expenses, leaving
c. a divisible balance, from which is deducted
d. the tenant’s share, leaving
e. the rental value.
These individual stages are examined below with special reference to their application to ports.
6.2 Gross Receipts
To supplement the advice given in Rating Manual section 4 part 2, GVOs should note that the first paragraph of Rating Manual section 4 part 2 qualifies the statement that income from all sources should be taken into account by excluding income which does not arise directly from occupation of the hereditament. In the case of dock and harbour undertakings the income, which should be deducted from gross receipts, includes the following: -
(i) rents received from hereditaments (land, buildings or moorings) which are separately assessed;
In practice it is very unusual for undertakers to know with any degree of accuracy which of their let-outs are separately assessed and which are not. Consequently it will be necessary to obtain from the undertakers a list of names, addresses and rents payable for the relevant properties, check that the total agrees with the total shown in the accounts (normally in a note to the profit and loss account), and ascertain which of the properties are in fact separately assessed.
(ii) rents received for domestic use of property (dwellings or domestic moorings);
(iii) income received from swinging moorings (exempt under LGFA Sch 5 para 18);
(iv) income received from tolls on vessels navigating waters, which lie outside the hereditament. For this purpose waters, which lie outside the hereditament, should be regarded as constituting:
(a) all areas outside the boundary of any Billing Authority;
(b) all land covered with water in which the undertaker has no legal interest.
Such income is known as “tolls in gross” and is excluded because the right to earn it does not depend on occupation of land (it would still accrue to an undertaker which surrendered occupation of the rateable hereditament to another party). Tolls in gross will only apply to statutory ports and they generally fall into pilotage income and conservancy income.
Pilotage income will be available and should be shown in the accounts. However, most ports do not charge separately for conservancy and, therefore, an estimate should be made having regard to the conservancy expenditure.
(v) Income earned away from the hereditament (e.g. contract dredging at other ports)
6.3 Working Expenses
See Rating Manual section 4 part 2 paragraph 22, but note in addition:
(i) expenditure on pilotage, conservation and dredging beyond the limits of the hereditament (see 7.2(iv) above), should only be allowed if there are no “tolls in gross” received. If such tolls are received and have been deducted from gross receipts, it should be assumed that they will be applied to conservation/dredging beyond the hereditament, and that this burden will not fall on the hypothetical tenant. Such conservation operations are commonly carried out both within and beyond the hereditament, and it may be necessary to apportion the total cost. This can be avoided where the whole of the tolls/dues are applied to dredging (and not to maintenance of civil engineering features and provision of on-shore services); in such cases it is recommended that GVOs deduct the total toll income from gross receipts, but also exclude the total cost of dredging from working expenses.
(ii) expenditure on capital items such as plant and machinery or chattels should be assumed to be covered in depreciation (see below)
(iii) although maintenance of the hereditament is an allowable working expense, special attention needs to be given where the maintenance expenses relating to civil engineering features such as moles, jetties and quays are very considerable, especially where they appear to eliminate any profit. Expenditure on works, which constitute alterations and improvements rather than repairs, should be excluded from working expenses. Where “tolls in gross” are received and applied in part to repairing civil engineering features, it may be appropriate to eliminate such repairs from working expenditure in whole or in part, and where their elimination makes a considerable difference to final valuation the advice of CEO (Rating) should be sought.
Care needs to be taken in selecting an appropriate figure to allow for dredging. Although at many ports dredging varies little from year to year some ports need to undertake major work every few years. If possible the accounts for several years should be studied to try to arrive at a reasonable allowance under this heading.
(iv) allowance for depreciation should not be made for any part of the hereditament, but is appropriate for all items which the undertaker uses in the business of operating the port and which do not form part of the hereditament. In effect this means that an allowance is made for all non-rateable plant and chattels. Although normally referred to as a depreciation allowance, it should more properly be regarded as an allowance towards eventual replacement. The objective should be to arrive at the sum, which the tenant would set aside in order to acquire replacements when existing items cease to perform satisfactorily. Advice on approaches to this are given in Rating Manual section 4 part 2 paragraph 25. Evidence of the depreciation charge for the non-rateable items may be obtained from the fixed assets notes to the balance sheet which will illustrate the depreciation charge for the year (as opposed to the total depreciation charge) split by categories of assets. As a shortened approach, an allowance of 10% -13% of expenditure before depreciation may be sufficient for tenant’s depreciation.
6.4 The Tenant’s Share
It will not be possible to arrive at a reasoned conclusion without exploring the percentage on tenant’s capital approach (see Rating Manual section 4 part 2 paragraph 30). However, as a shortened method, 6%-9% of turnover should be adopted having regard to the extent of rateable assets at the port and the security of the income.
6.5 Loss making ports
Some ports will operate at a loss and produce a nil on the R & E method of valuation. Such ports still merit a substantive rateable value due to the socio-economic benefit, which they provide to the local community. The hypothetical tenant (most likely a local authority or trust) would pay a rent to secure that benefit. The rateable value on such ports should, most likely, be defended on the comparative or contractors basis of valuation but, as a shortened method, 5% of turnover may provide a rateable value.
7. Entry and Description in Rating List
The description to be used for a hereditament to which this Practice Note relates should include one of the words “dock”, “wharf” or “jetty” (i.e. “Dock Hereditament” or “Office, jetty and premises”) unless it is a marina, mooring(s), shipbuilding or ship repair yard, or a let-out. The property should always be described in accordance with what has actually been included in the valuation.
The table below should assist in deciding which code is appropriate:
| Legal Status</STRONG> | Prescribed Hereditament?</STRONG> | SCat Code</STRONG> | PD Code</STRONG> |
| Non-statutory port | No | 089 | NX |
| Statutory port | No | 435 | NX |
| Statutory port | Yes | 434 or 433 | NX or FD |
For fuller description of these SCat codes see Section 1, Step (D) (iii) in [R2005 IA 020604 Appendix A - Guide to applying the correct SCat Code (&suffix), Primary Description code (&description) and Rating List Description]
In the absence of formula assessment of Large Statutory Ports, the application of these SCat codes is to be reviewed.
Author – Guy Richardson, Utilities Rating Team
December 2008 (Amended August 2009)