Part 5: plant and machinery
The Valuation Office Agency's (VOA) technical manual for the rating of business (non-domestic) property.
This section is written as a technical guide and the purpose of it is to outline the legal principles governing the rating of plant and machinery and discuss the valuation methodology associated with it.
A separate Practice Note, PN 1 should be referred to for discussion on the individual Classes of P & M.
1.1 The hereditament and what it consists of
A hereditament will normally be made up of more than simply land and buildings, it will also usually contain:
a. chattels, which are not plant nor machinery but which are sufficiently attached to and enjoyed with land so that its value is enhanced;
b. plant and machinery
Whilst the position as to the rateability of chattels has been established by case law the rating of plant and machinery is expressly governed by statute. This Section is concerned with the approach to and valuation of rateable plant and machinery.
2. Background and the history of plant and machinery rating
2.1 Pre 1925
Although the Rating and Valuation Act 1925 was the first legislation that made specific reference to the rating of plant and machinery, this does not imply that previously plant and machinery had not been rated.
The Domesday Book was the first comprehensive record for tax purposes, amongst others, of plant and machinery.
The law of rating stems from the Poor Relief Act 1601 (or even earlier), which required the taxation of every inhabitant and of every occupier of lands, houses, tithes, etc but which did not specify what personal property in particular should be included in the assessment. (The Poor Rate Exemption Act 1840 exempted stock-in-trade from liability to rates).
2.2 Definition of ‘plant’
Plant (and machinery) will be found in just about every business property there is, not all plant is rateable, but to investigate rateability, we first need to identify ‘plant’.
A definition of “ plant ” was set out in Yarmouth v France CA (1887) 19 QBD:
The finding in this case, that a horse was plant, has stood the test of time and is relied upon in just about every case concerning the definition of plant that followed.
“ in its ordinary sense, (plant) includes whatever apparatus is used by a business man for carrying on his business – not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or moveable, live or dead, which he keeps for the permanent employment in his business ”
Case law has added further parameters to the extent of plant:
Hinton v Maden & Ireland Ltd HL ( 1959 ) 1 WLR
“ But the word [plant] does, I think, connote some degree of durability, and I would find it difficult to include articles which are quickly consumed or worn out in the course of a few operations ”
A distinguishment between “ plant ” and “ part of the setting ” was made in several cases, a leading case being :
Jarrold v John Goode & Sons Ltd ( CA) 1963 1 WLR
“ whether [it] is part of the premises in which business is carried on, or part of the plant with which the business is carried on ”
If an item is used in the business, functions as plant and is not ‘premises’ or ‘setting’, then it is probably ‘plant’.
2.3 The rateability of plant
Once a decision has been made that one is dealing with ‘plant’, it is necessary to go on to consider rateability.
Historically, plant which was so fixed or annexed to the land and buildings as to become a landlord’s fixture could properly be taken into account, but the position was far from clear both in law and in practice as to plant which was not so fixed.
Tyne Boiler Works Company v Longbenton Overseers & Others (1886) 18 Q.B.D. 81 (and in the Court of Appeal) found that:
1) fixtures (whether landlord’s tenant’s or trade) directly increase the value of the hereditament because they become part of it;
2) loose chattels (such as office furniture) must be ignored;
3) other objects, though not attached in any way to the premises, which are on the premises for the purpose of making them fit, as premises, for their particular purpose and which would pass on letting of that particular kind of factory as such (e.g. “as a boiler works”) are to be taken into account.
There then followed a number of cases which gradually extended the types of plant and machinery which could be taken into account or included in the assessment.
These cases culminated in Kirby v Hunslet Union HL (1906) AC 43 and Smith & Sons Ltd v Willesden KBD (1919) 89 LJKB which clearly laid down that the full annual value of all the plant and machinery upon the premises had to be ascertained as if it were the property of the landlord and actually let as part of the premises.
Smith and Sons Ltd v Willesden: Darling J :
“ you must assume a landlord who provides the tenant’s machinery, and the machinery must not be rated because it is chattels; but a greater rateable value must be put on the hereditament, because it must be taken into account that there is tenant’s machinery, which hypothetically is provided by the landlord ”
In practice, however, there was no uniformity throughout the country in applying the law as established by these two decisions. In many cases the valuation took no account of the decisions or took any account of plant and machinery at all.
Both the ability to rate plant and machinery and the inconsistency of application in practice resulted in considerable dissatisfaction amongst industrialists who demanded the exemption from rating of process plant and machinery.
2.4 The 1925 Act
In 1923 a committee (under the chairmanship of the Right Honourable Edward Shortt KC) was set up to enquire into the rating of plant and machinery in England, Wales and Scotland. The Committee’s report (Report of the Inter-Departmental Committee on the Rating of Machinery and Plant in England and Scotland 1925) recommended that loose tools and machines operated only by hand or foot power should be entirely exempted from rates but that all other machinery and plant, which under the existing law was required to be taken into account in valuing a property, should be deemed to be part of the hereditament.
However the Committee further recommended that rateable plant and machinery should be divided into two classes:
Class 1: to be rated in full
Class 2: all other rateable plant and machinery (i.e. not in Class 1) to be rated at 25%.
The Rating and Valuation Act 1925 incorporated, with some modifications, the Committee’s recommendations as to Class 1 plant and machinery; Section 24(1)(a) stating:
“ All such plant or machinery in or on the hereditament as belongs to any of the classes specified in the Third Schedule to this Act shall be deemed to be a part of the hereditament ”.
The 1925 Act however, contrary to the Committee’s recommendations as to Class 2, exempted from rates all other plant and machinery; Section 24(1)(b) stating:
“ subject as aforesaid, no account shall be taken of the value of any plant or machinery in or on the hereditament ”.
The Third Schedule of the 1925 Act indicated the classes of plant and machinery which were to be deemed to be a part of the hereditament and, in accordance with Section 24 (3), a committee (again under the chairmanship of the Right Honourable Edward Shortt KC) was set up in order to prepare a statement of all the plant and machinery which appeared to the committee to fall within any of the classes specified in the Third Schedule.
There were 6 Classes proposed : Class 1, power; Class 2, services; Class 3, driving motors; Class 4, lifts and elevators ( Passenger ) ; Class 5, rail tracks; Class 6, named structures.
The Committee reported in 1926 and their recommendations (subject to some modifications) were incorporated in The Plant and Machinery (Valuation for Rating) Order 1927.
2.5 The Ritson Committee
Although it was envisaged, and Section 24 (6) provided accordingly, that the original statement prepared by the Committee should be revised at appropriate intervals (as directed by the Minister), no further review of the rating of plant and machinery took place until the appointment in 1957 of a Committee under the chairmanship of Sir Edward H Ritson.
The Ritson Committee made its recommendations to the Minister in 1959 and its report made reference to and reflected the fact that litigation had related mainly to the rateability of Class 4 items, although electrical apparatus under Class 1 (a) had also been in dispute.
The Committee’s terms of reference required a revised statement to be prepared as to the machinery and plant which appeared to the Committee to fall within any of the classes specified in the Third Schedule to the 1925 Act. The Committee’s recommendations were incorporated in The Plant and Machinery (Rating) Order 1960 which amended the 1927 Order by including revised definitions under Class 1 (a) and the addition (with some deletions) of plant items in Class 4.
The Committee had considered the rateability of pipes and had recommended that “ main pipelines ” should be included in Class 4. Whilst this recommendation was not adopted, The Pipe Lines Act 1962 added pipelines as a separate Class 5.
In addition the Committee considered and made recommendations as to the exemption of:
a.process drainage plant under the Class 1(b) proviso, with the word “draining” being added to the proviso by Section 5(4) Rating and Valuation Act 1961; and to
b.Class 4 plant which was limited in size or weight and that which moves or rotates. (Section 5(1))
The Rating and Valuation Act 1961 made provision for the Minister to make orders in respect of the former and the recommendations were further considered by the McNairn Committee in 1971/72.
The General Rate Act 1967 consolidated certain enactments relating to rating and valuation in England and Wales, and Section 24 and the Third Schedule of the 1925 Act were replaced by Section 21 and the Third Schedule of the 1967 Act.
2.6 The McNairn Committee
Following the abolition of industrial derating ( in effect, a government incentive whereby between 1920 and 1960 specified industries and goods transport undertakings were relieved of a great measure of the rates burden ) in 1963, further representations were made by industry in particular as to what was considered anomalous rating of process plant under Class 4 and in 1971 the Secretaries of State for the Environment and for Scotland appointed a committee under the chairmanship of E S McNairn Esq.
Unlike the Ritson Committee, the McNairn Committee’s terms of reference were restricted to a consideration of Class 4 items only.
The Committee reported in 1972 and The Local Government Act 1974 and The Plant and Machinery (Rating) (Amendment) Order 1974 gave effect to the Committee’s recommendations (as modified) by substituting a new Class 4 which exempted from rates the specified classes of plant and machinery set out in (c) (d) and (e) of that Class.
With minor variations in the wording (but not in the items of plant and machinery listed therein) the 1960 Order (as amended) was replaced by The Valuation for Rating (Plant and Machinery) Regulations 1989 which came into force on 7 April 1989, and which are the relevant regulations for the purposes of valuations for the 1990 Rating Lists.
2.7 The Wood Committee
In 1991 a Committee under the chairmanship of Derek Wood QC was appointed with wide terms of reference to review the rating of plant and machinery and in particular to make recommendations as to harmonising the law and practice in all parts of the United Kingdom.
The Committee reported in 1993 and its recommendations (as modified) are incorporated in The Valuation for Rating (Plant and Machinery) Regulations 1994 (for England and Wales).
2.8 The Wood II Committee
In March 1996 a second Committee under the chairmanship of Derek Wood QC was appointed with restricted terms to review the rating of plant and machinery and in particular to make recommendations as to equitably treating the “ Utility Industries ” in order that they may be brought into conventional rating. The Committee reported in March 1999 and some of its recommendations are incorporated in the current Plant and Machinery Regulations.
SI 2000 No. 540 The Valuation for Rating ( Plant and Machinery ) ( England ) Regulations 2000 and
**SI 2000 No. 1097 ( W.75 ) The Valuation for Rating ( Plant and Machinery ) ( Wales ) Regulations 2000 **
These are the respective relevant Regulations for the purpose of valuations for the 2000, 2005 2010, and future rating lists.
The DETR also redrafted certain Class pre-ambles to clarify anomalies that had been the subject of Lands Tribunal references. For example the heading to Class 2.
2.9 Combined heat and power exemptions
The 2000 Regulations were amended in 2001 by exempting from rating specified plant and machinery comprised in a combined heat and power station which is fully or partially exempt from climate change levy and which produces (at least in part) electric power.
These amendments were incorporated in :
SI 2001 No.846 The Valuation for Rating ( Plant and Machinery ) ( England ) ( Amendment ) Regulations 2001 and
SI 2001 No.2357 ( W.195 ) The Valuation for Rating ( Plant and Machinery ) ( Wales ) ( Amendment ) Regulations 2001
which made changes to the pre-amble to Class 1.
(see Practice note 3)
The 2000 Regulations were further amended in 2008 by inserting a new Regulation 2A which provides for a temporary exclusion of the value of defined microgeneration plant from the rateable value of a hereditament.
SI 2008 No.2332 The Valuation for Rating ( Plant and Machinery ) ( England ) ( Amendment ) Regulations 2008
The regulations apply to England and have effect from 1st October 2008. Similar regulations came into force for Wales, effective from 1 April 2010.
SI 2010 No.146 W21 Valuation for Rating (Plant and Machinery) (Wales) (Amendment) Regulations.
(See Practice note 2)
3 Recommended practice
(The following text is written with reference to England, if you are dealing with a Welsh hereditament the appropriate Welsh Regulations are noted above.)
If an item or structure in or on the hereditament can be classified as plant or machinery then it will be rateable if it can be identified with a Class in the Schedule to the Regulations, provided that is not subject to exemption or exception. Please see PN 1 for further discussion on the individual Classes.
3.2 Approach to Rateability
Firstly establish that you are dealing with plant (If the item is not plant, it may still be rateable, eg mezzanine floors)
If you are dealing with plant, then refer to the Regulations to establish rateability.
The valuer in considering whether an item should properly be included in the valuation needs to adopt a two-stage approach.
First it is necessary to conclude whether the item is plant and/or machinery, and the definition of plant which received House of Lords approval is to be found in Lindley LJ’s judgement in **Yarmouth v France (1887), (see para 2 above)
In Jarrold v John Good & Sons Ltd (1963), a distinction was drawn between premises in which business is carried on and plant with which business is carried on. (see para 2)
For example, in Rogers (VO) v Evans 1985 LT 275 EG 727 the Member agreed with the VO that a mezzanine floor ( supported first floor ) was not plant but “ more a part of the setting than part of the apparatus for carrying on the trade ” and that “ Its function is …. to provide places in which the business is carried on, not to be plant with which it is carried on ”.
If it is concluded that the item is plant and/or machinery it is then necessary, as a second stage, to establish whether it can be identified with an item named in the Schedule to SI 2000 number 540, (the Regulations). It will only be rateable if it can be so identified.
It should be noted that the Regulations only apply to plant and machinery. If a chattel which cannot be defined as either plant or machinery is sufficiently attached to or enjoyed with the land, it can be rated as enhancing the value and forming part of the rateable hereditament. ( Storehire ( UK ) Ltd v Wojcik LT 1991 RA 39 )
4. Identification of rateable plant and machinery
The Regulations list items of plant under four headings, or Classes. Class 1 deals with ‘power’ items, Class 2 ‘services’, Class 3 ‘transport’, and Class 4 ‘structures’. The approach to considering rateability within each Class is considered in more detail in Practice note 1.
The Regulations comprise a comprehensive list of items, in most cases it will be clear as to whether an item is included or not. However whilst some items are described in generic terms, others have a specific description.
Classes 1, 2, and 4 have specific pre ambles which further identifies when an item can be rateable. Class 3 items are subject to their own specified limitations. The List of Accessories is only applicable to Classes 1 and 2.
In cases of doubt, the terms which are used in the Regulations and which are such that they have a clear meaning in everyday language should be so interpreted, whilst those which are familiar only to the technician should be given the meaning which would be accorded to them by a person familiar with the particular plant.
Reference should be made to Post Office v Escott (VO) & Kerrier RDC 1974 LT RA 97 in which J H Emlyn Jones referred to previous authorities on the matter, and to Elliott’s Bricks Ltd v Hartley (VO) 1990 LT RA 161 where the Lands Tribunal upheld the VO’s contentions that two cylinders used for storing liquid petroleum gas (described by the ratepayers as vessels) were tanks and therefore a named item in Class 4. ( Under the1989 P & M Regulations “ vessels ” had to be used for a specific purpose and the storage of liquid petroleum gas was not a specified use. Vessels are unqualified as to use in the 1994 and 2000 Plant and Machinery Regulations )
See also Chesterfield Tube Co Ltd v Thomas (VO)  RA 471 (
Whitfield (VO) v National Transcommunications Ltd  RA 214 and
Thames Water PLC v Handcock (VO)  RA 413.
Where it is safe to do so, and you have the ratepayer’s permission, always take photos of the plant or machinery found on site, together with any identification plate showing the type, size and output of the item. Note what the item does, (if in doubt ask). But above all, do not take risks while inspecting, measuring or taking photos. Obey all site requirements for personal protective equipment and obey any health and safety instructions given to you.
The caseworker should ensure that details of all rateable plant and machinery are recorded when inspecting the hereditament. In the majority of hereditaments, there will be an element of rateable plant and machinery in or on the hereditament which will comprise of service plant which will normally be reflected in the price or cost that is applied to the building being valued.
Recording of this service plant is essential, not only to ensure that the extent, quality and condition of the plant is properly taken into account in the valuation but also so that the caseworker can respond, if necessary, to requests to supply particulars of the plant and machinery that has been assumed to form part of the hereditament ( P and M Regulation 3 - Supply of written particulars).
In addition appropriate details will be required of all plant and machinery which is to be separately costed/valued, not only to ensure that the item has been properly recorded, but also so that the item can be matched and/or compared with similar items which are detailed in any standard cost guidance from which the caseworker can establish an appropriate cost for the item under consideration (In many cases relevant details can be obtained from the manufacturer’s name plate on the item or by enquiries of the site engineer / electrical engineer).
Thus prior to inspection it may be necessary to refer to the relevant standard cost guidance (and/or such referencing guides as may be issued) to confirm the details that are required for a particular item so that the information obtained and the unit of measure recorded on site will be compatible with the basis of the unit prices contained in the guide.
6. Supply of written particulars
6.1 Plant and machinery regulations - Regulation 3
Ever since 1925 the relevant Acts/Regulations have provided that the Rating Authority, the Assessment Committee and now, post 1950, the Valuation Officer, shall, if so required in writing by the occupier, supply to him particulars in writing showing what machinery and plant, or whether any particular machinery or plant, has been assumed to form part of the hereditament.
This requirement was contained in S.21(2) of the General Rate Act 1967 but is now included in the 1989,1994 and the 2000 Plant and Machinery Regulations as Regulation 3.
In connection with any such requirement by an occupier it should be noted:
a.no time limit is imposed for a reply to a request and whilst it should be dealt with expeditiously, due consideration should be given to the contents of the reply.
b.the VO cannot be required under the Regulations to provide any valuation information and the particulars supplied in response to a request should not include nor indicate any figures relating to value;
c.no reference should be made, in the particulars supplied, to the separate classes in the schedule to the Regulations under which the items are assumed to be part of the hereditament;
d.the particulars should include all rateable plant and machinery irrespective of whether it has been valued separately or its value reflected in the value placed on the land or buildings;
e.the particulars should not include rateable plant and machinery which is known to exist on the premises at the date of the request but which has yet to be included in the assessment; in this respect the assessment in the Rating List to be inserted on the front of the form must be that which includes the plant and machinery detailed on the form;
f.the particulars should not include nor make any reference to plant and machinery which does not fall within the Regulations and is therefore not rateable.
Whilst there is no statutory form in which particulars have to be supplied (other than the requirement that they are in writing), they should be in the standard format indicated in the relevant Practice Note.
If the survey has been agreed with the occupier or an agent the agreed plan number should be stated where indicated. In other cases the works identification number or the plant’s serial number can be adopted.
The plant and machinery must be described sufficiently to identify specific items individually. Care should be exercised where there is more than one item in the same building or location.
The location must identify in which building or where on site the item can be found.
The standard format sets out a form of words to be used to cover that plant and machinery which may not have been specifically separately identified and which has been reflected in the value placed on the land or buildings. This form of words should not be used to circumvent listing of plant and machinery that has been individually identified and valued. A common sense approach should be adopted so that substantial items, in terms of size or value, are separately listed while minor items need not be, if included in the standard form of words at the end.
In cases where the use of the standard form of words is appropriate and there are no additional items, the form should still be completed and returned even though the spaces in the columns remain blank.
In general the same principles which apply to the valuation of land and buildings are relevant to the valuation of plant and machinery.
Thus, subject to the reliability of the evidence, where the P & M is reflected in the base price / sq. m. the direct or comparative rentals approach is normally to be preferred.
Where the P & M is not reflected in the basic price / sq.m. it will usually be valued by reference to cost following the Contractor’s Basis of Valuation.
7.2 Service plant
In the majority of cases the plant and machinery which is assumed to form part of the hereditament will be service plant, that is plant which provides the basic services to a building (or land) ( heating, lighting, draining and supplying of water ) and which will be fundamental to, and inseparable from, the use and occupation of that building.
Normally such plant will be reflected in the value of, and the rent paid for, the building and thus it is neither necessary nor appropriate to endeavour to value such plant and machinery other than as part of the building.
Service plant used for cooling ( air management ) and protection from trespass, criminal damage, theft, fire or other hazards may be reflected in the value of the building but only in part. In such cases the correct assumptions as to the extent of the addition must be noted and further additions should be made for those items used in connection with the service provided.
ie An addition to the tone rental value may be made for a fire protection sprinkler system but this assumes a mains water connection only. Where the pressure in the mains water supply is unreliable or where certain trades are undertaken, by law, for a particular type of occupation, a firewater storage tank together with pumps and power generator to operate the system, is required. These items appear in the Plant and Machinery Regulations under the List of Accessories and as they are used in connection with “services” to the hereditament, or part of it, must be separately valued.
7.3 Rental evidence
When considering rental evidence it is always necessary to keep in mind that the rent paid may include or reflect the value of some non-rateable plant, in which event the rent will need to be downward adjusted. Alternatively the rent may not include some additional rateable plant which has been provided by the occupier and the rent would then require to be enhanced accordingly.
Whilst rents will usually reflect the value of the service plant or machinery which is present in a building, it is not usual for rental evidence to be available for plant or machinery (whether service or process) as a separate item. Thus where rateable plant which cannot be related to the rental evidence, is present, it will normally be appropriate to value such plant by use of the contractor’s basis even though the main part of the hereditament may be valued on the rentals basis see also RM Section 4: Pt 3 Practice Note 1: 2.2.
7.4 Contractor’s basis
This method of valuation may be used for the valuation of separately identified items of plant or machinery either where the remainder of the hereditament is valued on the contractor’s basis or where the item is to be included in an otherwise rental based valuation and reference should be made to RM Section 4 Pt 3 as to the contractor’s basis generally.
In separately valuing an item of plant on the contractor’s basis, it is still necessary to consider the various stages of the method although, in an otherwise rental based valuation, it may be appropriate to omit Stage 3 being the value of the land. Thus, for example, if the plant item is within a building the land element will already be included in the rental valuation. However this may not be the case if the plant is located on additional land the value of which cannot be said to be reflected in the rental basis.
7.5 Approach to valuation
In all cases but in particular where the plant item is valued on the contractor’s basis in an otherwise rentals valuation, the caseworker should be mindful that it is not appropriate to treat the value of the plant merely as an add on at the end of the valuation. The plant is deemed to be part of the hereditament and it is the rental/rateable value of the whole that is required. Thus, depending on the circumstances, there may be cases where the presence of rateable plant either enhances or even diminishes the value of the remainder.
In addition it should be noted that all rateable plant and machinery is deemed to be a part of the hereditament which must be valued accordingly. This remains the position even though the plant may be derelict and thus (or for any other reason) is of no added value. For example, it may be that a building, even though sound and of value in itself, may be rendered of less or even of no value if its function is to house an item of rateable plant which is derelict and of no value.
This would not, of course, necessarily be the case where the building houses derelict non-rateable plant or plant which whilst formerly rateable has become derelict and non-rateable either because it no longer fulfils the requirement under certain of the classes of being “ used or intended to be used ” or because it has lost its identity as the named item.
In any event it is not correct to delete an item of rateable plant from an assessment if it becomes of nil value. Providing it technically remains rateable it is still assumed to be part of the hereditament (even though included at nil value) and should still be included in particulars supplied to an occupier (see para. 6).
On the other hand non-rateable plant does not form part of the hereditament and its value is therefore assumed to have no effect on the rent (Regulation 2(b) - see Practice Notes).
This applies irrespective of whether or not the plant is derelict or of limited value or even an encumbrance (Edmondson v Teesside Textiles Ltd 1984 CA RA 247).
This case was concerned with the valuation of a factory which was involved in the processing of artificial fibres. The factory ceased production but for a time the non-rateable process plant and machinery remained.
The VO contended that in accordance with s. 21(1) of the GRA 1967, the presence of non rateable plant and machinery was deemed to be removed and not part of the hereditament. The factory should be valued as though it was available for factory use, the non-rateable process plant and machinery having no valuation effect.
At LT the VO’s position was preferred. The ratepayers appealed to the C of A ( Even though it is the VO’s name that appears first ) .
There it was decided that the correct interpretation of s. 21 GRA 1967 was as the VO had argued and the section involved an assumption that process plant and machinery is to be ignored and treated as if it were not there whether the effect of its presence on the valuation of the hereditament was positive or negative.
The intent of s. 21 is embodied in the 1989, 1994 and 2000 P & M Regulations and although the wording differs the position does not appear to be materially altered. The Regulations do not, however, envisage the removal of the non - rateable P & M but that any value effect of its presence is to be ignored.
However, it must be born in mind that the value of a hereditament should reflect the ability of the hypothetical tenant to utilise non rateable items on the hereditament. See Hays Business Services Ltd v Raley (VO)  1 EGLR 226.
7.6 Value to actual occupier
Since separately identified and valued plant and machinery is usually provided by an occupier or an owner/occupier, it often follows that the item has been provided to meet the specific requirements of that occupier to the extent that it may be difficult to envisage any other occupier paying other than the basic rent for the land and buildings without enhancement for the additional plant item(s).
However, providing the actual occupier can still be regarded as being in the market, then no adjustment should be made on the basis that if the occupier/tenant requires the plant he would be prepared to pay an enhanced rent calculated having regard to a reasonable return on the estimated replacement cost of the item.
7.7 Second-hand costs
Many items of plant are advertised and are available on the second hand market so that the actual second hand cost of an item, or reference to the availability (as at the AVD) of similar plant at a particular cost level, may be introduced as being relevant to the estimated, or more properly, the adjusted, replacement cost of the item.
Items on the second hand market are speculative and the costs are related to the specific items which may or may not at a particular time create a false level of value. They may be available to limited number of purchasers ( as there are only a few available ) and may only be available for a limited period of time.
There is uncertainty to the past use, maintenance of the item and in most cases the manufacturers guarantee is invalid on resale.
Particular care needs to be taken where specialist plant is involved as this has a limited second hand market, in many cases equating to scrap value only. Furthermore under Class 4 such plant may comprise both rateable and non-rateable elements and obsolete or potentially unreliable, non-rateable, control equipment which would be costly to renew could result in a large discount on the cost of the second hand cost whole. It is the structure which is rateable under Class 4 and the assumption is that the incoming tenant will provide controls and non – rateable items.
No evidence should be dismissed outright; equally it should not be adopted without consideration being given to all the circumstances. These should include the nature and activity of the plant item, the date of, and the circumstances surrounding the sale, whether the price quoted includes all relevant costs (eg transport, installation and testing), etc. Requests to adopt the second hand value should be resisted.
The caseworker needs to keep in mind that the object of the initial costing exercise at Stage 1 of the contractor’s basis is to establish an estimated replacement cost of the item as new as at the AVD. The hypothetical tenant is only concerned that his rental bid reflects current worth of the item ( hereditament ) with only an obligation to repair and not renew.
On the other hand second hand prices or costs represent a purchaser’s assessment of both the current and the future worth of the item together with the owner’s need to obtain a replacement as and when necessary.
7.8 Non-rateable substitute
It may be argued that the modern substitute for an item of rateable plant would be such that, perhaps by reason of reduced size, it would not be rateable and thus the actual item on site should be treated as if it were not rateable or at least given a nil value.
It also may be argued that it would be possible to operate the plant at a lower or simpler specification ( with smaller item costs ) and this would meet the tenant’s need.
These arguments were considered in a Lands Tribunal Scotland case Shell UK Exploration and Production Limited v Assessor for Grampian Valuation Joint Board LTS/VA/1998/47. and the Members decision is very persuasive.
“……“ In most cases cost will relate to the actual property, but there may be exceptional cases where it would be appropriate to cost a modern substitute ”. We have no reason to doubt that the word “ exceptional ” was intended to convey its usual sense of something quite distinctly out of the ordinary. In other words in most cases costs would relate to the actual property. The appellants made no attempt to establish that there was anything exceptional about the subjects as a whole justifying a move to costing a modern substitute ”.
Nevertheless there are circumstances where the modern substitute should be considered. However, it is an exercise in respect of COST only and has no bearing on the rateability of the subject item on site which requires valuing.
The cost of providing the modern substitute under consideration should be the costs of that part which would replace, as near as possible, the existing item but excluding any additional features not found on the original.
The provision of the modern substitute would involve the total cost of providing a similar item which may including non-rateable items and could include foundations and controls et cetera.
The lower of the cost of the existing item and the cost of the modern substitute should be used as “ the cost of the NEW item as at the AVD ”.
Any adjustment to the original item for obsolescence should be made to the NEW AVD cost.
The hypothetical tenant in taking occupation of any premises will have to provide, or be provided with additional items to the land and buildings including chattels and rateable and non-rateable plant. None of these items will be provided free of charge and the tenant will have to budget for providing them, either by way of rent to the landlord for items that are rateable, or by way of capital or interest on capital perhaps on a loan from the bank, for non rateable plant and equipment.
Since the item under consideration will be rateable, the tenant will be aware that it will be provided by the landlord and must therefore be included in the rent to be paid. Whilst in assessing his rental bid it is in order for the tenant to have regard to a modern (possibly non-rateable) substitute, the comparison is not with a rent/cost free item but with a non-rateable item excluded from the rent but which nevertheless would have to be provided by the tenant at a cost.
This would equally be applicable when an item of rateable plant could be replaced with a smaller or less costly (but nevertheless still rateable) item but which is controlled by expensive non-rateable equipment.
Thus it is not appropriate when considering the value of the actual item to only consider the cost of the rateable element of the substitute. The measure of value of the actual item must be against the whole cost of the alternative. This would include any installation works or monitoring facilities required for the operation of the modern substitute.
7.9 Stand by plant
It is frequently argued that plant which has been provided, as a stand-by should not be taken at full value. eg a generator for use only occasionally in an emergency.
In those cases where the plant has been specifically provided for a particular purpose, and that purpose is still relevant at the AVD, then the fact that the item is rarely if ever used is no reason for making any concession in the valuation (although other allowances may be appropriate).
There may be circumstances where it is argued that the caseworker should consider it appropriate to make an adjustment to the value of stand-by plant. For example, it could be argued that the requirement for the stand-by facility is historic and is no longer relevant at the AVD or, alternatively, the plant may be present on the site not because of specific stand-by requirements but because whilst it was originally operational, it has been replaced with more modern equipment.
In these cases it is to be determined if the items are used or intended to be used ( Class 1 and Class 2 ).
A diesel generator set may have been placed on site to provide electricity as the mains supply is erratic. Today the supply is constant and the diesel generating facility is not likely to be used. The question here is whether it is intended to use the facility if the mains fail ( no matter how remote ). If it is intended to use the item, no matter how unlikely, the item is rateable.
An oil storage tank ( over 400 cu m ) may have had its connecting pipes removed. This act will not remove the item from rating for as a named structure the tank will qualify for consideration under Class 4 Table 4.
When considering the above the caseworker, although considering the item to be rateable, must consider the value of the item to the “ hypothetical tenant ” and the level of value that would be agreed between the hypothetical landlord and the hypothetical tenant. In many circumstances the equipment may have had little use and thus warrant little obsolescence allowance, in other cases the item may, historically, have had a lot of use and is only retained for emergency situations.
Caseworkers must make a proper assessment of the adjustment to be made in all the circumstances.
8. Rating cost guide
The Rating Cost Guide is the Valuation Office Agency’s aide memoir to ensure consistency of approach and valuation for its staff when undertaking valuations of Plant and Machinery. It contains photographs on a variety of items many showing associated trade names and through this the manufacturers of the item can be identified. The costs of specific items have been adjusted for rating purposes and are arrived at by considering many specifications and design features. These are averaged, adjusted costs, and are not those of an Authorised Dealer who would be in the market to sell the product.
Where negotiations on a specific hereditament are being undertaken, and where it is required that a specific item should be identified for valuation for rating purposes, reference to the Valuation Office Cost Guide can be made, and the relevant reference code be referred to. Specific pages may be required to be reproduced for Valuation or Lands Tribunal cases. Sections of the Cost Guide are not available on request by ratepayers or their agents unless they are relevant to specific items during negotiations on hereditaments under appeal. Since 2005 however, the general public and professional bodies have been able to purchase a copy of the Cost Guide.
The Rating Cost Guide contains guidance as to the description, relevant measurement methods and information required, level of costs, and rateability of numerous items of plant and machinery. The Guide has a section containing Guidance Notes and Adjustments and these should be read before appropriate valuation is undertaken.
When valuing plant and machinery the valuer needs to keep in mind that coordination is required at three levels.
It is important that a consistent approach is adopted to the rateability of plant and machinery. If, after consideration of the relevant Practice Note, any doubt remains as to an item of plant or machinery, no concession on the question of rateability should be made without prior reference to the NSU Crown and Industrial team.
9.2 Costs and allowances
The Rating Cost Guide is the primary means of coordinating costs including those for plant and machinery and the valuer should not depart from the guidance given without prior reference to the NSU Crown and Industrial team.
If evidence of actual costs is submitted which appears to conflict with the guidance contained in the Guide, such evidence should not be accepted and adopted in the valuation without prior reference to the NSU Crown and Industrial team.
The Cost Guide also contains guidance (the Guidance Notes, accessible from the front page of the Cost Guide) as to the allowances that may be appropriate to convert the Estimated Replacement Cost (ERC) of an item of plant and machinery to an Adjusted Replacement Cost (ARC). Such allowances may be appropriate to reflect physical deterioration and/or functional and technical obsolescence.
Any allowance for physical deterioration should reflect the condition of the item having regard to loss of reliability and efficiency and potentially higher than normal maintenance costs. The quantum of any adjustment should therefore be judged in relation to the actual circumstances and condition of the specific item.
Similarly any allowance for obsolescence should reflect the particular circumstances relating to the item of plant being considered and/or the hereditament of which it forms part.
Thus, since each case needs to be considered on its merits, it is not appropriate to automatically apply set scales of allowances particularly where, of necessity, the scale is related to age, a factor which does not necessarily have a direct relationship with the correct quantum of allowance in any particular case.
Nevertheless in an endeavour to assist the valuer in making a judgement and to achieve a degree of uniformity of approach, the Rating Cost Guide gives guidance as to the levels of allowances that might be appropriate having regard to typical plant that may be encountered and it is anticipated that normally the allowances shown will be followed. However it is acknowledged that the Cost Guide can only provide general guidance and lesser or greater allowances may be appropriate having regard to the particular circumstances on site.
Where the valuer is considering applying a greater allowance which would represent more than a marginal variation from the Cost Guide guidance, this should not be conceded without prior reference to, and consultation with, the NSU Crown and Industrial team.
10. Cost evidence
Whether or not they are adopted, it is important that actual costs are not ignored nor their relevance disregarded as the Rating Cost Guide will continue to be maintained, amended and expanded as appropriate and updated in due course for subsequent revaluations.
Cost evidence can be requested using form VO 6005 ( 04/07 ) however when applying for cost it is essential that the specific item of Plant and Machinery on which costs are required is specifically identified.
It is also essential to inform the occupier that from the total cost any apportionment between rateable and non-rateable elements ( i.e. Class 4 Table 4 items ) will be undertaken by the Valuation Office where appropriate.
It is essential that details of all costs as they become known to valuers whether authenticated or not should be submitted to the NSU Crown and Industrial team, together with relevant specifications, and where appropriate, photographs.
The NSU Crown and Industrial team or BAMS will prepare or maintain the Rating Cost Guide using, amongst other sources, the information obtained on these returns. Caseworkers are reminded that the Cost Guide will remain the main source of cost guidance for the valuation of plant and machinery for rating purposes.