Guidance

How non-domestic (business) properties are valued

How the Valuation Office Agency values property, including some business assets, for business rates (sometimes referred to as non-domestic rates).

This guide provides an overview of the Valuation Office Agency’s (VOA) approach to measuring and valuing non-domestic properties (properties or land that are not solely used residentially). It looks at the most common property types and how they are valued as well as explaining the most common valuation methods.

There are a number of different valuation methods but the most common one is a rentals-based approach.

This guide doesn’t cover all methods and every property type. This is because valuation is a complex process that looks at every individual property and applies unique criteria depending on type, geographic location and the attributes of the property or land.

You can view a summary of your property’s valuation using the VOA’s find and check your business rates valuation service. You can also request a more detailed breakdown of your property’s valuation data if you register to use the check and challenge service.

Non-domestic rates

Non-domestic rates, also known as business rates, cover all property consisting of land or buildings not classed as domestic property or exempt from rating.

Business rates apply to a wide range of property regardless of whether they are used for actual business purposes. They apply to, for example, beach huts and village halls as well as the shops, offices, and factories more commonly associated with business use.

If a property has a mix of domestic and non-domestic uses, it will have both a non-domestic assessment (meaning it could be liable to business rates) and a Council Tax band.

New rating lists (which contain the rateable values for non-domestic properties) are usually prepared every five years. The current list was published on 1 April 2017.

Rateable value

The VOA gives a rateable value to each non-domestic property and this is used by local councils to calculate a property’s business rates.

A property’s rateable value represents the rent the property could have been let for on a certain date set in law. It may not be the actual rent paid on this date as the law makes a number of assumptions (such as the property being vacant, to let and in reasonable repair, and that the rent excludes any other charges, taxes or insurance). The rateable value is not the amount you pay, but it is used by local councils to calculate your business rates bill. You can find out how they do this on our information page.

You can check a property’s rateable value using the VOA’s Find your business rates valuation service.

Setting a rateable value

For most properties that are rented, there are three stages to a valuation:

  1. The VOA collects rent evidence (rent and lease agreement details) for most non-domestic properties. This evidence is analysed and adjusted by VOA surveyors to ensure that all evidence is considered fairly. The approach will be different, depending on the type of property (for example, bed and breakfast properties are valued using different information from shops).
  2. For most properties, they set common basic values per square metre for similar properties in the same area. Larger properties may have a lower value per square metre, in the same way that buying items in bulk will usually mean a lower individual price per item.
  3. The VOA then adjusts the basic value per square metre to reflect the property’s individual features and applies this to the floor areas.

Some properties are not valued by using the floor area so the valuation approach uses another means of comparison, for example for a bed and breakfast property a basic value is applied to the number of bedspaces.

Valuation schemes

The VOA groups similar properties in the same area together to make sure that they value them fairly and consistently. This is called a ‘valuation scheme’.

All properties in the same scheme will be given a value from the same value range. The VOA makes assumptions about these similar properties and if a property is different from these assumptions the VOA adjusts the property’s value.

For example, in a valuation scheme the VOA may assume that the properties have no fire protection. If one of the properties in that scheme does have it, they may apply a higher value to that property because of this feature. The final value will depend on an adjustment of all of the individual attributes and factors together.

Most types of property are valued by a method known as ‘rental basis’, following accepted valuation practice. Shops are generally valued on a ‘zoning’ basis whereas offices or industrial property will be valued on a ‘main space’ basis.

Some properties that are not normally rented, such as hospitals and schools, are valued using the contractor’s test basis. This looks at the cost of replacing the building and, after adjustment, takes a prescribed percentage of that cost as the rateable value.

Property where the rental value is usually linked to turnover, such as pubs and large hotels, may be valued using their trading potential as an indicator of value (also known as fair maintainable trade). This is known as the receipts and expenditure basis.

Assets included in valuation

The VOA will include certain business assets in their valuation. For example, plant and machinery may add value to a property and therefore certain types of plant and machinery are likely to be shown separately in a valuation.

What counts as plant and machinery?

Examples (and how they are relevant to the valuation) may include:

Shops

  • Air conditioning / air handling (floor area served by system (sq m))
  • CCTV security system (only if 4 or more cameras)
  • Fire protection / detection / alarm / suppression (area covered by sprinkler system (sq m))
  • Lifts (floors served and capacity, whether goods or passenger)
  • Renewable energy items (presence of solar panels / wind turbine, and their generating capacity in kilo Watts (kW))
  • Cold stores (whether built in or free standing as well as gross floor area)
  • Uninterruptible power supply / standby generator (size of generator in kilo Volt Amps (kVA))

Offices

  • Air conditioning / air handling (floor area served by system (sq m))
  • CCTV security system (only if 4 or more cameras)
  • Fire protection / detection / alarm / suppression (area covered by sprinkler system (sq m))
  • Lifts (floors served and capacity, whether goods or personnel)
  • Renewable energy items (presence of solar panels / wind turbine, and their generating capacity in kilo Watts (kW))
  • Uninterruptible power supply / standby generator (size of generator in Kilo Volt Amps (kVA))

Industrial

  • Air conditioning / air handling (floor area served by system (sq m))
  • CCTV security system (only if 4 or more cameras)
  • Fire protection / detection / alarm / suppression (area covered by sprinkler system (sq m))
  • Lifts (floors served and capacity, whether goods or personnel)
  • Air compressors (whether screw or piston). Free air flow capacity in cubic metres per hour, or cubic feet per minute. (CMH / CFM)
  • Renewable energy items (presence of solar panels / wind turbine, and their generating capacity in kilo Watts (kW))
  • Cold stores (whether built in or free standing and gross floor area)
  • Uninterruptible power supply / standby generator (size of generator in Kilo Volt Amps (kVA))

Measuring methods

Zoning

Zoning is a standard method of valuing and comparing retail premises. Shop or retail premises are divided into zones, starting from the window. Typically, each zone has a depth of 6.1 metres although this can vary depending on the location of the property.

Zones become less valuable the further they are from the window/entrance. Zone A, which is the closest, is the most valuable as it has the highest potential to generate business for the shop. Zone B is next, then Zone C. Anything after Zone C is usually defined as the remainder.

VOA: how we use retail zoning for business rates

Survey method

The VOA uses standard measuring methods based on the Royal Institution of Chartered Surveyors (RICS) former code of measuring practices.

There are two common methods -

The net internal area (NIA) method of measurement is generally applied to:

  • offices
  • shops
  • other retail premises, such as banks, hairdressers, restaurants

The gross internal area (GIA) method of measurement is generally applied to industrial property such as warehouses or manufacturing units.

Net internal area

The net internal area (NIA) is the total usable area of each floor within a building, measured to the inside face of the boundary walls (ignoring skirting boards).

Areas measured include:

  • kitchens
  • any built-in cupboards or units that occupy usable areas
  • perimeter skirting boards, mouldings and trunking
  • open circulation areas such as atria, corridors and entrance halls
  • Partition walls and other dividing elements

Areas that are excluded are:

  • internal structural walls
  • walls (whether structural or not) enclosing excluded areas
  • piers, columns, chimney breasts, ducts and other projections
  • cleaner’s cupboards
  • lifts, lift rooms, lift wells
  • stairwells and landings
  • stairwells, entrance halls, atria, landings and balconies used in common or for essential access
  • corridors and other circulation areas used in common with other occupiers or of a permanent essential nature
  • boiler rooms, fuel stores, plant rooms and tank rooms other than those of a trade process nature
  • car parking areas
  • spaces occupied by cooling and heating equipment, air conditioning systems and ducting which renders the space substantially unusable
  • areas with a headroom of less than 1.5m
  • toilets and associated lobbies, unless additional toilets have been installed
  • areas under the control of service or other external authorities

Gross internal floor area

This is the area of a building measured to the internal face of the external walls at each floor level, which includes:

  • areas occupied by internal walls and partitions
  • columns, piers chimney breasts, stairwells, lift-wells, other internal projections, vertical ducts
  • atria and entrance halls with clear height above, measured at base level only
  • internal open sided balconies, walkways
  • structural, raked or stepped floors are treated as a level floor measured horizontally
  • horizontal floors with permanent access below structural, raked or stepped floors
  • corridors of a permanent essential nature (such as fire corridors, smoke lobbies)
  • areas in the roof space intended for use with permanent access
  • mezzanine areas intended for use with permanent access
  • lift rooms, plant rooms, fuel stores, tank rooms which are housed in a covered structure of a permanent nature, whether above main roof level or not
  • service accommodation such as toilets, toilet lobbies, bathrooms, showers, changing rooms, cleaners’ rooms
  • projection rooms
  • voids over stairwells and lift shafts on upper floors
  • loading bays
  • areas with a headroom of less than 1.5m
  • pavement vaults
  • garages
  • conservatories

It excludes:

  • perimeter wall thickness and external projections
  • external open-sided balconies, covered ways and fire escapes
  • canopies
  • voids over or under structural, raked or stepped floors
  • greenhouses, garden stores, fuel stores and the like in residential property
  • open ground floors

VOA: measuring properties for business rates

Adjustments and end adjustments

In certain circumstances, the VOA may make adjustments to recognise a disadvantage or advantage in the property (or parts of it) compared to other broadly similar properties. For example, an air-conditioned office might have an adjusted value if other local offices don’t. The adjustment may be on part of the assessment or the whole (as an end adjustment).

Single and multiple hereditaments

To ensure a property is correctly rated, it is important to know how many parts of the property need to be separately rated (or how many ‘hereditaments’ there are). If the property has only one occupier and all parts are contiguous (which generally means touching in some way) to one another or if over consecutive storeys the parts are contiguous by means of the floor of one lying directly above the ceiling of the other, this will normally be a single hereditament.

Buildings which have more than one occupier, and where the parts in the same occupation are not contiguous because they are separated by other occupations or shared areas such as stairwells and corridors, are treated as multiple hereditaments. This will also apply to car parking areas if they are separated from the building by shared areas.

Essentially, property which comprises multiple buildings is classed as a single hereditament if the properties are occupied by the same person or organisation and are contiguous to one another (an exception will be where one part is used for an entirely different purpose from which the other is used). Find out more about how we value non-domestic properties with more more than one occupier.

Repair and rateable value

Properties are rated with an assumption that they’re in reasonable repair. If a property is in disrepair or undergoing repair works, this may affect the rateable value if the property is considered to be ‘beyond economic repair’. This is when the cost of repairing the property is so high that a reasonable landlord would not find it financially worthwhile.

The VOA will usually request details such as a schedule of the works and the cost of each item before deciding if the rateable value can be reduced.

Read more about repair in valuation terms.

Refurbishment

Refurbishment works might include improvements, extensions and changing a property’s use. It’s important to note that the works must be much more than repairs to the property. Depending on the extent of the scheme of works, it may affect the valuation.

A reduction will usually be appropriate only when:

  • the works are to create a materially different property to the one that currently exists
  • at the point where the cost to repair the property for its original use is no longer in proportion to its rateable value (beyond economic repair)

Refurbishment may also increase the valuation to reflect the higher quality of property.

Published 5 August 2014
Last updated 1 April 2017 + show all updates
  1. Information has been added on: zoning, single and multiple hereditaments, repairs and refurbishment, and adjustments. More information has also been included for plant and machinery, NIA and GIA.
  2. Content reviewed and updated appropriately.
  3. Changed title "The Non-domestic Rating List" to "Check your rateable value".
  4. First published.