Rating Manual section 5a: valuation of all property classes

Retail warehouses — practice note 2026

This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.

Practice note 1: 2026 — retail warehouses

1. Market appraisal

1.1 This practice note applies to retail warehouses, including the following:

• older premises converted or adapted from a previous a use and now occupied as a retail warehouse

• single let or owner occupied standalone solus retail warehouse sites

• retail warehouses situated on retail and leisure parks

• shell retail warehouses

• fully fitted retail warehouses

• retail warehouses converted or adapted to accommodate ‘food store operators’

1.2 Retail warehouses and out-of-town parks are predominately situated on the periphery of large towns and cities They are generally easily accessible, occupying strategic locations and benefit from convenient links to major roads. Car parking is usually free but can be time restricted.

1.3 Historically retail warehouses and out-of-town retail parks were favoured by large DIY operators, in addition to furniture retailers and occupiers selling electronic goods. The characteristics of such sites and accommodation enabled retailers to offer the consumer convenient access to an enhanced product base over a larger and functionally effective floor area, generally at reduced levels of value compared to inner city and town centre rental values.

1.4 The rise of internet shopping has influenced structural change in the retail market. Landlords of out-of-town parks have responded to this by integrating established multiple retailers to the tenant mix. The introduction of such operators saw further evolution in the sector, with leisure, fitness and food and beverage operators following established retailers. The collective mix of occupations and associated offerings have enhanced the consumer shopping experience, increasing dwell time and consumer spend.

1.5 Economic headwinds and austerity in general has led to the tempering of consumer spending and a subsequent focus on achieving value for money through weighting available spend towards essential items. As such, it has generally been discount operators and competitive foodstore operators focusing on essential product lines that have been driving acquisitions, footfall, and lower vacancy rates associated with retail warehouse and out-of-town parks.

1.6 Vacancy rates have been declining on retail parks since the peak of the COVID-19 pandemic, with the class reflecting low vacancy rates, stabilising broadly at 2% in Q2 of 2024. The acquisitive nature of discount and foodstore operators, coupled with supply and demand dynamics has created opportunities for rental growth, particularly in respect of parks with a stronger and more diverse occupier blend. As such, net effective rents for retail warehouses are generally projected to strengthen in the short to medium term.

1.7 Prime parks with low vacancy rates and anchored by grocery occupiers with strong weighted average unexpired lease terms (WAULT) have been attracting strong levels of investor demand. Weaker parks reflective of a less diverse tenant blend and more restrictive planning consents, are considered as likely to be attractive to opportunistic investors from an asset management perspective.

1.8 Historically, foodstore operators have held a limited presence on retail warehouse parks. The sale of groceries has generally been restricted by conditions attached to A1 planning consents under The Town and Country Planning (Use Classes) Order 1987 (as amended). For a foodstore operator to occupy space on a retail park, planning permission is typically sought for a relaxed non-restrictive A1 planning consent, enabling the sale of groceries. This may be in the form of an application for the lifting of an existing restriction where the unit was formerly occupied by a non-food operator, or in the case of a new development, a non-restrictive A1 use being granted from the outset. The Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020, and further amendments to the Town and Country Planning (General Permitted Development) (England) Order 2015, confirm retail warehouses fall within Class E. This enables them to offer a wide range of retail and lifestyle goods which in turn attract a wide range of custom. There may still be restrictions on the types of goods sold, or the amount of space devoted to certain products (e.g., bulky white goods or food).

1.9 Increased operational expenditure has been a significant challenge for retailers and has led to tighter operational controls. This in turn, however, has led to enhanced business and operational efficiencies. As such, some retailers are reporting inflationary impacts have been limited. This trend is expected to continue as retailers continue to adapt to evolving economic conditions.

1.10 Retail warehouses tend to provide accommodation more adaptable and flexible compared to their counterparts. This futureproofs them to an extent an enables them to be more readily reconfigured or redeveloped according to market demand. Retailers are also adapting to evolving consumer habits by experimenting with technological advancements and integrating technology such as augmented reality (AR) and artificial intelligence (AI) into their stores, driving an experiential shopping experience.

2. Changes from the last practice note

2.1 The market appraisal and valuation scheme sections have been updated.

3. Ratepayer discussions

3.1 There have been limited discussions with industry representatives.

4. Valuation scheme

4.1 Retail Warehouses should be measured to gross internal area (GIA). The advice provided in Rating Manual Section 4: Valuation Methods — Part 1: Practice Note 1 2026 — Rental Adjustment should be followed where the adjustments required to the rent, if any, are explained in detail. The adjusted rent is expected to be analysed adopting the appropriate area (in terms of main space (ITMS)) to produce a rate per m2. This will enable comparability with similar properties.

4.2 Retail Warehouses are valued on a comparative basis using rates per square metre derived from local rental evidence. There is sufficient rental evidence available to establish a basis for the standard retail warehouse unit. When valuing retail warehouses, great care should be taken to compare ‘like-with-like’.

4.3 The valuation scale to be adopted is V1SRETWAR1.

4.4 It is anticipated that a rentals approach using GIA establishes a relationship or pattern in comparable retail warehouses that confirms or underpins a scheme of valuation.

Tenant Added Supported First-Floors (Mezzanines)

4.5 Valuation advice for tenant added supported first floors in retail warehouses can be found in Rating Manual: Section 5a: Valuation of all Property Classes — Practice Note 2: 2026: Tenant Added First Floors in Retail Warehouses.

Air Conditioning

4.6 Air conditioning is not reflected in the basic level of value determined for retail warehouses and should be included as a separate addition. Valuation advice for air conditioning in retail warehouses can be found in Rating Manual: Section 5a: Valuation of all Property Classes — Practice Note 3: 2026: Air Conditioning in Retail Warehouses.

4.7 However, to establish the appropriate addition for air conditioning, regard must be had to the Supreme Court decision in Iceland Foods Ltd v Berry (VO) [2018] UKSC 15 to clarify whether the system is rateable.

Plant and Machinery

4.8 The prescribed assumptions under paragraph 2 of the 2000 Regulations (as amended) include the assumption that any plant or machinery, if it belongs to any class listed in the Schedule to the 2000 Regulations, is assumed to be part of the hereditament in or on which it is situated. Class 2 in the schedule consists of:

Plant and machinery which is used or intended to be used in connection with services to the hereditament or part of it, other than any such plant or machinery which is in or on the hereditament and is used or intended to be used in connection with services mainly or exclusively as part of manufacturing operations or trade processes.

4.9 The Supreme Court in Iceland determined that ‘a trade process is simply a process (in that wide sense) carried on for the purposes of the trade’. Where the services provided by the relevant plant are used ‘mainly or exclusively’ as part of the trade process, they should not be considered rateable. When considering this issue, the Supreme Court comment should not be taken in isolation but must be understood in the context of the whole decision.

4.10 In the case of Iceland, the services provided by an air handling system, used in connection with refrigerated goods at the property, were determined to be classed as part of the ‘manufacturing operations or trade processes’ and therefore not rateable.

Parking

4.11 Modern purpose-built retail parks are normally served by adequate common car parking facilities and these facilities may be wholly reflected in the rents passing for the retail units. Under these circumstances, no addition to value should be made for parking and no separate entry should be made. Any incremental value arising from the parking being within the same occupation may need to be isolated when comparison is being made with other units without such facilities.

4.12 Care should be taken to identify car parks for which parking charges are made or where there is significant use by other users (such as local offices) in which case, a separate entry in the valuation list may be appropriate. There has been a recent increase in the number of car parks that are managed by private firms that include ANPR with payment machines, limited free stay or mixture of both.

The Interface between Retail Warehouses and Large Shops

4.13 There is a presence of large units on retail warehouse parks that focus their sales on items for the home. These are typically larger than other units on a park (ranging from 3,000 m2 to 6,000 m2) and their external appearance is usually atypical of a traditional profile clad retail warehouse, but rather of concrete and glass. All the interiors are well fitted out. Comparison of the rent against both classes in the locality and further afield should be undertaken, as should any restrictive nature of the planning permission for the unit under consideration. The interchangeability of comparables is a key consideration, as envisaging anything more than minor alterations will offend the reality principle.

Practice note 2: 2026 — tenant added first floors in retail warehouses

1. Market Appraisal

1.1 Introduction

This practice note provides valuation guidance on the treatment of tenant added first floors in retail warehouses for the 2026 Rating Lists (such floors are commonly referred to as ‘mezzanines’). It outlines the steps to be taken when considering such floors and recommends using ‘backstop’ figures where no better evidence or indicators of value are available.

1.2 The use of Mezzanine floors

Over time, the design of mezzanine floors reflects the occupier’s corporate style and image. Most modern retail warehouses are built and offered with ‘mezzanines in mind’, allowing occupiers to fit them out with mezzanine floors designed to their own specification. Having said that, mezzanine floors are not yet a universal feature in retail warehouses.

1.3 The cost of Mezzanine floors​​​​​​​

Mezzanine floors are often part of a wider fitting out of the retail warehouse. It is important that the costs of mezzanine installation are considered in that context. Whilst the costs of more modular or ‘system built’ floors can be modest, bespoke, higher quality floors cost more by comparison and are more likely to have higher specification mechanical equipment, such as lifts and escalators. When examining costs of installation, it is important that all fitting out that must be taken into account for rating purposes is included, such as CCTV, lighting, floor finishes, ceiling finishes, fire protection. It forms part of the hereditament and must be included in the assessment.

1.4 Value to occupier

It is often difficult to discern the impact of mezzanine floors on the rents passing in retail. It is often a feature of the overall tenant’s fitting out and, whilst it can probably be incorporated in a new fit out and therefore used by a subsequent occupier, it might just as easily be removed as part of any new fitting out.

However, care should be taken not to be persuaded by such a dismissive approach to previous occupiers’ ‘fitting out’. The mezzanine floor is of value to the actual tenant, and the hypothetical tenant fresh on the scene not only wants the retail warehouse as it is, but he or she includes the actual tenant who does very much value the fitting out. In other words, it is of value to the occupier. It follows that it is of value to the hypothetical landlord.

The decision in Berry (VO) v Iceland Foods Ltd [2015] UTLC 0014 UC RA 201 provides some guidance on this point. The UT considered the value of a bespoke AHS fitted by the respondent. The Iceland decision should be considered in full and in context, however, at paragraph 122:

“The issue is therefore whether the parties to the hypothetical letting of the appeal property would agree a higher figure to reflect the presence of Iceland’s bespoke air handling system. We are satisfied that they would so the remaining question is how much higher a figure would they agree? Both parties must be assumed to be willing to transact for the premises including the system, but neither party can be assumed to have a whip hand. The notional landlord must be taken to appreciate that the system is too powerful to meet the needs of most tenants in the market for a retail warehouse, and who would be unlikely to be willing to pay more than the £4 per sqm at which they would value the more modest system which would satisfy their requirements. The prospective tenant who wished to trade in Iceland’s style (and there was evidence that Iceland was not the only such trader, although its direct competitors are relatively few in number) would realise that if it did not take these premises with a suitable air handling system already installed, it would be necessary for it to install its own system at a cost to it of £4,384 a year. In addition to that cost the hypothetical tenant would incur the time and inconvenience of fitting out, for which no rent free allowance can be assumed, and the likelihood that the system would have to be removed at the end of the term. In our view the landlord would be in the stronger negotiating position, and would argue that £4,325 was too low a figure to reflect the value and convenience of the existing system.”

The approaches and principles applied to air handling systems in Iceland just as readily apply to mezzanine floors, which are a part of tenant’s improvements.

2. Changes since last practice note

There is no change in practical terms to the guidance provided in the previous (2023) practice note. This 2026 practice note provides valuation guidance on the treatment of tenant added supported first floors (mezzanines) for the 2026 Rating Lists. It outlines the steps to be taken when considering mezzanines and recommends using a range of ‘backstop’ figures as appropriate should no better evidence or indicators of value be available.

3. Ratepayer discussions

There have been no ratepayer discussions.

4. Valuation scheme

4.1 General

In most cases, this class of property is valued on the rental basis. When considering evidence in arriving at values to be placed on any mezzanine, it is important to follow the guidance found in the rental adjustment practice note at rating manual: section 4 part 1—- practice note 1 2026 Rental Adjustment section 14 — Improvements.

Mezzanine floors in retail warehouses are constructed to varying standards of quality and finish, comprising typically tenants’ additions or improvements frequently built over large areas of the available ground floor space. The approaches and figures suggested for the valuation of mezzanines reflect the restricted headroom of the ground floor.

This note provides guidance regarding the valuation of mezzanine sales, storage and office areas within retail warehouses. This note does not deal with purpose built floors in retail warehouses, nor does it cover mezzanines located in buildings used other than as retail warehouses.

In the absence of better indicators of value, ‘backstop’ figures are recommended for sales mezzanines of a defined specification. These figures cater for mezzanines installed with value significant features such as escalators, large passenger lifts or wide spans between columns. Similarly, ‘backstop’ figures are also recommended for mezzanines installed for use as storage. In some instances, it may be necessary to obtain full costs of installation of the mezzanine and use these to derive a virtual rent on a case-by-case basis. Any such details of costs obtained for mezzanines should also be copied to the Head of the Commercial team within the National Valuation Unit (NVU).

Whilst mezzanine floors subsequently installed by landlords as part of the initial letting arrangements for a particular tenant are covered by this note, floors that are built into the property as part of the original construction are not.

4.2 Terms and definitions

The following terms and their definitions should assist when considering this note:

Mezzanine — Tenant Added (or ‘Independently Supported’) First Floor in a Retail Warehouse, defined as an inserted partial storey between two stories, or an inserted intermediate floor or floors within what would otherwise be a single storey.

Hereditament — This may include small block-built floors but the fundamental difference between mezzanine and purpose built floors is that the former can be readily removed without affecting the structural integrity of the retail warehouse.

Virtual rent — Essentially a rent that differs than the rent actually paid once adjustments (for example for incentives and improvements) have been taken into account. For the purposes of this note, it is the rent that would have been paid had the actual tenant’s occupation been exactly to his or her specification on the valuation date. In respect of a mezzanine floor, it is capable of being arrived at by amortising the individual capital cost of providing the mezzanine floor so as to derive an annual equivalent that contributes to the ‘virtual rent’ an occupier would pay.

Base price — The starting price for a specified type of sales mezzanine, before any additions or adjustments are made for mechanical equipment.

Backstop figure — A proposed £/m2 recommended in the absence of better indicators of value.

Escalator — Moving staircase consisting of steps driven by electrical motors, enabling people to access the mezzanine floor. Not always found in pairs, and quite common to have a single ‘up’ escalator with a fixed stair to allow assisted ascent and pedestrian decent.

Travelator — Moving walkway (similar to those seen at airports) that enables people, trolleys and buggies etc. to access the mezzanine floor. Expected to be found in pairs.

Hoists — Rudimentary one or two person lift, may be fully open or within its own shaft, but will not have a fully enclosed internal caisson or compartment. More likely to be located at the edge of average quality mezzanines.

Purpose built floors — Floors that are built into the property as part of its original construction.

4.3 Outline of Valuation Approach

In making an appropriate addition for mezzanines, an outline of the recommended approach is:

1. Firstly, to seek reliable rents which already include the value of the mezzanines, either the rent on the subject property or comparable rents elsewhere, and to adjust and analyse such rents to quantify the effect of mezzanines on the rental market being considered, and if no reliable answer is found go to step 2.
2. Secondly, where no reliable rental evidence can be found, to consider comparable evidence, and this includes additions previously accepted or agreed in respect of similarly specified mezzanine floors, and if no reliable answer is found go to step 3.
3. Thirdly, where no comparable rental or assessment evidence can be found, an addition can be calculated using the cost of providing the actual mezzanines installed in the subject property. All costs should be appropriately adjusted to align with assumptions for rating, and if so go to step 4.
4. Fourthly, once the actual, and appropriately adjusted, cost of provision is established, this will be converted to an annual equivalent and, if no reliable answer is found go to step 5.
5. Fifthly, sense check all the evidence available to see whether there is a reasonable means of ascertaining the amount to be added and, if no reliable answer is found go to step 6.
6. lastly, a ‘backstop’ approach is provided for use in the absence of any more reliable evidence.

However the addition is made, it is important to appreciate that the value of mezzanine floors is only one of several value significant factors affecting the hereditament, and as such, should not be treated as a separate issue.

The outline approach is in line with the decisions in:

• Lotus & Delta v Culverwell (VO) LT [1976] RA 141

• Edma (Jewellers) Ltd v Moore (VO) LT [1975] RA 343

• Dorothy Perkins v Casey (VO) LT [1994] RA 391

• Berry (VO) v Iceland Foods Limited [2015] UTLC 0014 (LC) RA 201

• Bunyan (VO) v Acenden Limited [2023] UKUT 17 (LC)

Those cases provide useful guidance on the hierarchy of evidence to be considered when seeking to quantify the value of improvements. Regard to cost should only be made as a last resort, in the absence of better, more direct, evidence of rental values.

For more information on the approach to rental adjustments and improvements, please refer to rating manual: section 4 part 1 — practice note 1 2026 Rental Adjustment section 14 — Improvements.

It should be noted that the Lands Tribunal in Rogers (VO) v Evans [1985] LT 2 EGLR 217; 275 EG 727-728; (Estates Gazette 24 August 1985) decided that a tenant added mezzanine floor is not plant and machinery, but part of the setting and adds value as such. In making his decision, WH Rees FRICS said “I come to the conclusion, therefore … that the mezzanine floor is part of the building and is rateable. I have no doubt that it adds to the value of the building as the occupier originally took it, particularly for his purposes.”

The rateability of mezzanine storage has been the subject of litigation in both the valuation and upper tribunal. Wilkinson (VO) v Edmundson Electrical [2017] UKUT 0390 (LC) considered whether chipboard decking supported by timber joists resting on non-rateable Dexion racking and steel staircases forms part of the hereditament. It distinguished between supported floors and those where there was decking as a part of racking systems. The UT held the decking is an adaptation of the racking system and not rateable. In making its decision, the UT confirmed that Toys R Us v. Penny (VO) VT 1999, which was subject to appeal to the Lands Tribunal and withdrawn by a Lands Tribunal consent order, correctly established the rateability of mezzanine storage. Toys R Us also confirmed that significant value is added by the provision of mezzanine floors, not just a nominal amount.

More valuation tribunal decisions may emerge. However, these would be expected to deal with valuation issues, and be determined on the particular facts of the case under consideration. Details of such decisions should be sent to the Head of Commercial Team within the National Valuation Unit (NVU) for consideration.

Other cases of interest include:

Yarmouth v France (1877) 19 QBD 647. Described plant as including whatever apparatus is used for carrying on a business, not stock in trade, but all goods and chattels, fixed or movable, live or dead, which are kept for permanent employment in the business.

Townley Mill Company (1919) Ltd v Oldham Assessment Committee [1937] AC 419; 1 All ER 11, where about 80% of the total floor area was occupied by process plant, but would otherwise have been suitable for warehousing purposes. It was determined that, whilst their presence can be taken as evidence of beneficial occupation, process plant and loose chattels are to be ignored in considering whether the hereditament, vacant and to let, is available for use as a factory.

J. Lyons & Co. Ltd v Attorney General [1944] Ch 281 where, in making a distinction between chattels and plant stated “The term [plant] does not include stock-in-trade, nor does it include the place in which the business is carried on”.

LCC v Wilkins (Valuation Officer) [1957] AC 362 held that the test of rateability was whether chattels or structures were enjoyed with the land and enhanced its value.

Jarrold (Inspector of Taxes) v John Good and Sons Ltd [1963] 1 All E.R 141. In the Court of Appeal concerning whether demountable partitions within an office building were ‘plant’.

Field Place Caravan Park Ltd v Harding [1966] 2 QB 484. Held that “The correct proposition today is that, although a chattel is not a rateable hereditament by itself, nevertheless it may become rateable together with land, if it is placed on a piece of land and enjoyed with it in such circumstances and with such a degree of permanence so that the chattel with the land can together be regarded as one unit of occupation.”

British Bakeries Ltd v Gudgion (VO) [1969] RA 465. Considered the rateability of two types of demountable partitioning: full-height partitioning used to create individual rooms, and half-height partitioning which was used to sub-divide open-plan areas. It was held that the former was rateable, the latter not, being in the nature of furniture.

Edmondson v Teeside Textiles Limited [1985] 1 EGLR 151. Considered the presence of plant and machinery and loose chattels, and whether it was either assumed to that it was removed and the factory was to be valued vacant and to let, or its presence should be taken into consideration in making a valuation. The Court of Appeal held no account to be taken of its presence, and it follows that its presence could not be allowed either to increase or reduce the rateable value.

Vincent Bach International Limited v Kubbinga (VO) [1994] RA 31. Held that chipboard sheeting laid on timber joists which were supported by demountable and adjustable shelving was not rateable.

4.4 Availability of rental evidence

Rental evidence of retail warehouses with a mezzanine installed prior to the Antecedent Valuation Date (AVD) of 1 April 2024 is expected to be available. Mezzanines are an established concept and units are changing hands with mezzanines installed. Such rental evidence must be carefully considered to establish if the value of the mezzanine can be ascertained.

Units with mezzanine floors offered for assignment or subletting commonly give the alternative option of the added first floor being removed by the outgoing tenant prior to occupation. This suggests a market preference for a unit ‘clear’ of the mezzanine. Where a tenant wants a mezzanine added at the outset, sometimes the landlord is willing to install it at cost to the tenant, where a capital cost is made by the tenant in addition to the rent. Alternatively, the landlord may add a mezzanine to the tenant’s specification as part of an inducement package. The fact that some occupiers are prepared to pay for the cost of such improvements, either directly or through increased rent, shows they are of value to those tenants. In such circumstances, care must be taken to establish what the rent includes for the mezzanine and how it was calculated.

Where occupiers are required to apply for planning consent when they wish to install or insert a mezzanine floor in an existing retail warehouse, this may result in a reluctance to remove existing mezzanines prior to any re-letting and result in more relevant rental evidence emerging.

Therefore, it is hoped that further rental evidence of mezzanine floors will become available. Whist care is needed to understand as much as possible what is in the minds of parties to lettings, rental evidence should always be the first step in establishing the value of mezzanine floors in any locality. Further care will be needed where trading patterns have changed since the AVD. Therefore, any further evidence of lettings with the benefit of mezzanine floors, either installed by a landlord or added by a previous tenant, should be verified and details sent to the Head of Commercial Team within the National Valuation Unit (NVU) for information.

4.5 Availability of comparable evidence

Assessments in compiled rating lists will carry some evidential weight, since they embody the patterns of value adopted by the valuation officer at the revaluation. They will provide stronger evidence on which to rely once they have been generally tested and accepted in the check, proposal and appeal process. It should be considered that additions made for relatively small elements of valuations, such as mezzanine floors, may not be fully tested in the context of the valuation for the whole hereditament, even if the rateable values form a body of agreement. Therefore, it will often be open to question whether a consensus or ‘tone’ for such elements of valuations has settled.

In the absence of evidence, regard may be had to relative levels of value determined in the previous list. Very careful judgement will be required to establish how much weight, if any, should be attached to such evidence. However, it may be possible to make some broad observations. For example, given a situation where ground floor values in a particular locality have risen from one AVD to the next, it may be considered a reasonable expectation that the value in £/m2 added by the mezzanine floor should not, however determined, be any less in £/m2 than the corresponding value fairly and openly determined in the previous list.

4.6 Approach using actual costs in the absence of reliable rental and comparable evidence

If reliable rental evidence is not available to show the value of the mezzanines, and comparable assessment evidence is also not available, the annual rental equivalent of these improvements may be found based on cost. For the 2026 Revaluation, an annual equivalent approach is recommended as the most appropriate.

The costs actually incurred by the retailer should be used wherever possible when adjusting rents.

However, the ‘Plant and Machinery’ facility, available both on the Non-Bulk Server (NBS) and within the Valuation Support Application (VSA) on the Rating Support Application (RSA), can be used to add an appropriate amount derived from the cost of installation of appropriate rateable tenants’ improvements — including mezzanine floors.

In Bunyan (VO) v Acenden Limited [2023] UKUT 17 (LC), the addition for office fitting out was considered and the use of the statutory decapitalisation rate discussed should costs be relied upon. The members would have much preferred direct rental or comparable evidence for the fully fitted hereditament. However, where step 3 of the approach is reached and treatment of improvements is by reference to cost, the members concluded that there is no absolute mandated requirement to apply the statutory decapitalisation rate in rental comparison valuations, but it may be used if considered appropriate on the evidence. At paragraph 105 of ‘Acenden’:

“Of course, the conclusion that the statutory rate is not mandatory does not mean that it cannot be used in an appropriate case. There is nothing to prevent the Tribunal or the parties from adopting that rate if it is considered appropriate to do so on the evidence. If there is no convincing evidence to help identify a more appropriate rate, the fact that the statutory rate is approved by Parliament and is required in certain valuations are both reasons why the Tribunal may be driven to adopt it rather than speculate about a rate of its own.”

Therefore, in dealing with improvements as part of a rental adjustment, the traditional virtual rent approach, as adopted prior to the ‘Dorothy Perkins’, ‘Iceland’ and ‘Acenden’ decisions should still be followed. The rental value of the improvements should be considered having regard to the amortised cost, using appropriate market rates and an amortisation period which has proper regard to both the likely useful life of the improvement and the terms of the lease against the background to which the improvement costs were incurred.

4.7 Making adjustments to the backstop additions for mezzanine floors in the absence of reliable rental evidence and actual costs

In the absence of reliable rental or comparable evidence and actual costs, additions for most mezzanine installations should be catered for. Adjustments to the proposed additions are found in the context of the floor type being considered. It is therefore important to use the figures alongside the descriptions and considerations provided in the accompanying text.

4.8 Mezzanine sales floors

Descriptions of floor quality and mechanical equipment in respect of specific types and quality of sales mezzanines are provided in this paragraph. Corresponding figures are recommended in this practice note in the absence of the actual costs of the floors in question. It is important to make sure that any description and ‘backstop’ figure adopted is matched appropriately for the quality of the subject mezzanine floor. Any mezzanine floor specification that falls outside the descriptions may require further investigation or costings.

4.8.1 Lifts and hoists

All mezzanine sales floors must comply with the Equality Act 2010 (as amended) and access provided to them. Almost always a lift or hoist is present. The backstop addition increases where either the lift has a capacity of 13 persons or more, or where there are two smaller lifts available for customers’ use (e.g. two 6 person lifts). The addition to the sales area for two lifts does not apply where the second lift is clearly a storage lift dedicated to the rear partitioned off storage area and never used by the public.

4.8.2 Size considerations — general

Most sales floors are anticipated to be in a size range between 500m2 and 1,250m2 of dedicated sales area. Outside this range, a further adjustment may be necessary to alter the £/m2 to reflect the spread of the fixed cost items over smaller or larger floor areas. In particular, the ‘best quality’ floors tend to have more numerous and costly fixed items such as escalators and larger lifts.

In making such adjustments, care should be taken at the range boundaries of 500m2 and 1,250m2 to avoid smaller floors having higher additions than larger floors and larger floors having lower overall additions than smaller floors. A common sense view should be taken to avoid such illogical outcomes. It is a matter of judgement, having regard to the size of the particular floor and the numbers of escalators/lifts and other fixed cost items present.

Where mezzanine floors are partitioned off into sales, storage and offices, care should be taken when adjusting the backstop figures for size, to base any size adjustment on the area dedicated to sales only. If the quality of the floor is such that the storage and office portions have lower values than the sales area, it is not appropriate for area of the whole floor to be used as the start point for considering a further adjustment. Only the area of the portion used for sales should be considered when contemplating a size adjustment.

4.8.3 Size considerations — smaller floors

Application of the ‘backstop’ figures should be limited to retail warehouses where the additional tenant added first floor sales space covers more than 500m2 (or at least 50%, if smaller) of the available total ground floor area. The figures do not therefore readily apply to small mezzanine sales floors below 500m2 where it may be necessary to increase the £/m2 by up to 10% to reflect the spread of the fixed cost items over a smaller floor area. The actual adjustment being dependent on the proportions of the elements included in the floor. For example: the extent and type of balustrade, types and quality of access, floor and ceiling finishes, whether stairs, lifts or escalators, and quality of fixtures and fittings.

4.8.4 Size considerations — larger floors

For mezzanine sales floors between 1,250m2 and 1,750m2, it may be necessary to reduce the £/m2 by up to 10% to reflect the spread of the fixed cost items over a larger floor area. The actual percentage should reflect the relationship between amount of floor area and the relative cost of the fixed items. For floors between 1,251m2 and 1,375m2, depending on the percentage adjustment, it is important to avoid a larger floor having a lower addition than a floor of 1,250m2. Care must be taken to ensure this does not happen.

For mezzanine sales floors over 1,750m2, a reduction of 10% is considered appropriate. Should a larger adjustment be sought, it will be necessary for the Valuation Officer to be provided with further details, such as a properly authorised occupier’s schedule of the actual costs. Evidence of ‘economies of scale’ will be needed to show a more significant adjustment when determining the addition to make for the mezzanine floor.

4.8.5 Mezzanine sales floor quality

See this practice note for descriptions of various mezzanine sales floor qualities. The vast majority of mezzanine sales floors fall within average, above average and best. In rare instances floors are below average, and these have been catered for, but are in reality little better than storage mezzanines.

Poor quality sales mezzanine: SRF (Supported Retail Floor) — Use for poor quality sales mezzanines that are of extremely light construction, no lift, no finishes to the floor or ceiling underneath, no additional lighting other than already present in the premises, restricted head height and a utilitarian feel.

Below average quality sales mezzanine: SFF (First Floor Sales) — Use for poor quality sales mezzanines that are of light construction, no lift, no ceiling finishes underneath or above the floor, and a utilitarian feel with externally fitted strip lighting. Noticeable pillars and the floor is lightweight. The visual effect underneath the floor is that of obstructed space. May have basic plastic type floor finishes on the decking.

Average quality sales mezzanine: SF1 — Use for average quality sales mezzanines. Whilst sales floors can be built to a much higher quality, only exceptionally would sales floors be poorer than this. Comprises a timber floor, supported by timber or structural steel work. Small spans with noticeable pillars. The visual effect underneath the floor is that of obstructed space. Accessed by metal or timber staircase. Ceilings unfinished above the floor. Ceilings below the floor, either unfinished or having an ‘office style’ lightweight tile suspended ceiling. Will have adequate fluorescent strip lighting and security/fire detectors. May have simple glass or chrome balustrade along a straight floor edge with simple 90 degree turns where necessary. Typically no lifts but will almost certainly have a hoist of some kind.

Above average quality sales mezzanine: SF2 — Use for above average quality sales mezzanines. Usually a timber floor, supported by structural steel work. Fully fitted to a good standard, the floor probably has ‘office style’ suspended ceilings above and almost always a suspended ceiling beneath, which may include some feature lighting. May have glass or chrome high quality balustrade, which could follow a curved or multi-angled floor edge. Often has ‘generously appointed’ staircases, sometimes with half landings leading to separate flights. Small span floors with noticeable supporting pillars. The visual effect underneath the floor is that of obstructed space to a similar extent to that of the average quality floor. Often, but not always, served by passenger or disabled lift and possibly a goods hoist.

Best quality sales mezzanine, or those with specific features: SF3 to SF9 — Use for currently best quality sales mezzanines at the material day, typically present in ‘open A1’ retail parks. Will have, cement screed or (in exceptional circumstances) reinforced concrete flooring, timber supported by encased structural steel work. Fully fitted to a high standard with quality suspended ceilings and high quality integral lighting both above and beneath the floors. This will often appear similar to that found in prime town centre retail positions. Where present in the unit, will normally have air-handling/conditioning systems integrated into the ceiling above and below the floor. Often have glass or chrome high quality balustrade (where present) and ‘generously appointed’ staircases. Wider span floors with few pillars that will tend to be in single rows down the centre of a ‘typical’ unit with corresponding supports against the side walls. The visual effect is one of clear space and good height. Often, but not always, served by escalators and a goods hoist. Will almost invariably have an enclosed lift and may even have two lifts.

4.8.6 Recommended Backstop Figures

The table in this section can be used to determine a backstop figure for ‘average’, ‘above average’ and ‘best’ quality floors. The final price adopted will depend on the range of features and quality of the elements that form part of the tenant added sales floor.

Air conditioning (AC) is NOT included in any of the figures shown in the table. Where an addition is to be made for air conditioning, see guidance in Rating manual Section 5a, Retail Warehouses — PN3 — R2026: (Air Conditioning in Retail Warehouses).

For the avoidance of doubt, where there is AC benefitting the mezzanine floor, the appropriate area must be dealt with in addition to the area benefitting the ground floor. For example, a ground floor sales area of 2,000m2, and a mezzanine of 1,000m2 would result in 3,000m2 attracting a separate addition for AC as specified in the advice in RM5a Retail Warehouses PN3 — R2026.

	Finishes:	Average	Average above	Best at the Antecedent Valuation Date
Escalators (where present, travelators would attract a further addition of £10/m2 each)	Lifts Floor Construction	12 person or less	13 person or more, or 2 smaller passenger lifts (where 2 lifts of 13 person capacity each (or more) are present, a further addition of £5/m2 should be made)	12 person or less	13 person or more, or 2 smaller passenger lifts (where 2 lifts of 13 person capacity each (or more) are present, a further addition of £5/m2 should be made)	12 person or less	13 person or more, or 2 small passenger lifts (where 2 lifts of 13 person capacity each (or more) are present, a further addition of £5/m2 should be made)
0	Timber Floors	SF1 £25	SF2 £30	SF2 £30	SF3 £35	SF3 £35	SF4 £40
Concrete Floors	Not applicable	Not applicable	Not applicable	Not applicable	SF6 £50	SF7 £55	Not applicable
1	Timber Floors	SF2 £30	SF3 £35	SF3 £35	SF4 £40	SF4 £40	SF5 £45
Concrete Floors	Not applicable	Not applicable	Not applicable	Not applicable	SF7 £55	SF8 £60	Not applicable
2	Timber Floors	SF3 £35	SF4 £40	SF4 £40	SF5 £45	SF5 £45	SF6 £50
Concrete Floors	Not applicable	Not applicable	Not applicable	Not applicable	SF8 £60	SF9 £65	Not applicable

Air Conditioning is not included in the figures in this table and must be added as appropriate based on the current advice in Rating manual Section 5a Retail Warehouses — PN3 — R2026: (Air Conditioning in Retail Warehouses).

4.9 Mezzanine Storage Floors

Application of the figures should be limited to retail warehouses where the additional tenant added first floor storage space covers no more than 750m2 of the available total ground floor area. This does not therefore apply to very large tenant added first floor storage areas, which are likely to cost less per m2.

Figures in respect of specific types of ‘average’ quality and ‘above average’ quality storage floors are suggested in the absence of the actual costs. It is important to make sure specifications for the ‘backstop’ figure adopted is matched appropriately for the quality of the subject mezzanine storage floor. Any mezzanine floor specification that falls outside the descriptions may require further investigation or costings.

Average quality storage floor: £15/m2: Supported Storage Floor — Use for average quality storage floors. This is the standard floor quality. Comprises timber floor, supported by steel work spanning short centres, often designed to support an integral racking system underneath. This type of floor typically has storage below, being situated at the rear and sometimes along the sides of the unit in a ‘U’ shape. Accessed by metal or timber staircase. No finishes above and below apart from lighting and security/fire detectors. May have restricted headroom. Typically, no lifts but hoists or conveyor belts may be evident.

Above average quality storage floor: £20/m2: First Floor Stores — Retail — Use for above average quality storage floors. Timber or concrete section floor, supported by encased structural steel work spanning wider centres than would apply to the average floor specified 4.8.6. Fully fitted to a high standard with suspended ceilings beneath the floors. This type of floor typically stretches over the ground floor sales area and has a goods lift or hoist with broad steel staircases.

4.10 Mezzanine office floors

For small mezzanine floors wholly dedicated to office accommodation as a proportion of the main space price (£/m2), rental or comparable assessment evidence is sometimes available based on an analysis of comparable sized purpose built floors in retail warehouses. Such small office floors are normally dealt with at 100% of the main space price and small mezzanines could be dealt with in the same way. This would also include small block built office or amenity floors, typically found in older generations of retail warehouses.

Where a larger mezzanine floor (of a size or coverage normally associated with retail space) is wholly dedicated to offices, further guidance should be sought from the Head of Commercial Team within the National Valuation Unit (NVU).

However, where office accommodation is partitioned off from a sales mezzanine floor, it is appropriate to consider an addition based on approach taken in respect of the sales floor element. Therefore, depending on the quality of the finishes of the office space, it is anticipated the addition for the office floor will be at the base price of the particular type of sales floor installed. That means between £25.00/m2 and £35.00/m2.

If the office accommodation is partitioned from a storage mezzanine floor, and no sales space is provided by the floor, its value is anticipated to be between £20.00/m2 and £30.00/m2 depending on quality of finish.

There are no Other Addition (OA) codes for offices in retail warehouses. For small office floors it is anticipated they are dealt with at line entry level using an Accommodation Use Code (AUC). In instances where it is required to show all or part of a large mezzanine floor in the valuation, an appropriate OA code for sales floors should be used and the description overwritten as necessary.

4.11 Floors partitioned into a mixture of uses

Whilst the floor itself is often of the same basic construction, the costs of finishing different elements will vary and the fixed cost items dedicated to each element will often be commensurate with the resultant size of the sales, storage or office element. It is therefore acceptable for caseworkers to consider applying different prices to sales, storage and office elements of mezzanine floors.

Where mezzanine floors are partitioned off into sales, storage and offices, care should be taken when making size adjustments to the backstop figures to ensure any size adjustment on the area is based on the sales area only (see paragraph 4.8.2). If the quality of the floor is such that the storage and office portions have lower values than the sales area, it follows that it is not appropriate to use the overall area of the mezzanine floor as the start point for considering an adjustment. Only the area of the portion used as sales should be considered.

Furthermore, where the first floor is:

• of timber construction
• being dealt with by reference to the base price only (there are no escalators, etc.)
• mainly dedicated to sales
• partitioned into storage at the rear
• essentially part of the same structure

The appropriate value attributed to the sales element should be considered as a ‘start-point’ for the storage part. It may still be appropriate to adjust the price attributed to the storage part downwards to reflect reduced quality of finish, but any adjustment is expected to be slight in such instances, bearing in mind the lack of fixed price items present, such as escalators.

Where the first floor has fixed cost items present (such as escalators) and mainly dedicated to sales and has a storage element to the rear, but is essentially part of the same structure, then the appropriate value attributed to the sales element should not be adopted for the storage part, but storage prices should be considered. The price adopted depends on the difference in quality between the sales, storage and offices elements of the mezzanine floor, and is therefore anticipated to range between £15.00/m2 and £35.00/m2.

4.12 Other valuation considerations

When considering or checking costs of installation, the following list (not exhaustive) of features may be useful:

• details of supporting steelwork (size, type, spacing’s between supports and how the supports are covered/finished)
• foundations and bases for steel frame stanchions — are they bolted to ground floor, or cast into foundations
• bracing — is there provision of full height cross bracing for lateral stability?
• any incidental work to existing ground floor
• height of mezzanine above ground floor
• changes to the existing roof members where necessary to accommodate the new floor
• decking and supports to form new floor (timber or concrete beam, or concrete)
• finishes /casings around steel columns
• partition between Sales and Storage areas (Quality, Construction, Finishes, Ironmongery, Doors and glazing — extent and fire resistance)
• details of any other partitions
• external fire escape doors complete with all electronic and other security controls
• internal fire resisting doors with access security controls (e.g. Sales/Storage access)
• fire Protection. Typically, if the mezzanine occupies 50% or more of the ground floor area then it may need to be fire protected, if the mezzanine floor is to be used for offices or has people working on it, it should be fire protected, if the size of the platform is more than 20 metres in either direction, it should be fire protected
• suspended ceilings to underside of mezzanine and to first floor area. In particular, type, integral lighting, feature lighting, tile/grid type, or ceiling finish
• floor finish and screed to sales and/or storage areas on both floors
• balustrade construction /materials to front (and sides and stairs as appropriate) of mezzanine area. Note the shape and style of floor edge followed by the balustrade.
• base plinths for display areas
• creation/enhancement of staff amenity area, including partitions, WCs, rest rooms and the like
• passenger lift in sales area — number of passengers and weight limits.
• goods lift in storage area — weight limits
• details of any lift pit
• escalators/travelators/staircases for public access to first floor — Length and width including specification plate details if available
• secondary staircase for staff usage in storage area
• external/Internal fire escape staircases together with any accommodation works
• provision of heating/air conditioning to ground floor and new floor levels
• electrical installation including lighting type and grid layout, power outlets and emergency lighting to both ground and new floor levels
• smoke detectors, fire alarms, Sprinklers, Public address (PA) systems and CCTV systems
• additions for Preliminaries, site overheads, site supervision, project management, and the like
• details of professional fees/LA Building Regulations fees and the like
• building Regulations — Any project will require building regulations approval which will include the proposed project in order to annotate suitable smoke detection, fire alarm, emergency lighting, means of escape, a design access statement illustrating compliance with Building Regulations Part M and the Disabled Discrimination Act (with particular relevance to address the issues in provision of a disabled platform lift or to propose the negation of this requirement, instead providing a Part M ambulant person stair).

4.12.1 Where actual costs are obtained

The ‘backstop’ figures must be used with care: where full costs are obtained and properly verified, they may point to addition either above or below that recommended. Any costs obtained should be carefully considered to ensure that all elements are present, including professional fees and the installation costs of certain elements (such as escalators and fire protection systems). Where necessary, assistance is available from Valuation Office BEAMS Team (Building Surveyors). Should costs require amortisation as part of a rental adjustment, a tenants’ improvements calculator is available in ‘Non-domestic Rating: handy links and tools’.

4.12.2 Rate used for amortisation

When amortising the cost of tenants’ improvements, advice contained in the rental adjustment practice note at rating manual: section 4 part 1 — practice note 1 2026 Rental Adjustment sections 14 to 18. should be followed. Generally 8.5% is considered appropriate for retail, but there may be reasons to adjust this.

4.12.3 Term used for amortisation

When considering the term over which to amortise the cost of tenants’ improvements, advice contained at rating manual: section 4 part 1 — practice note 1 2026 Rental Adjustment section 17 should be followed. The anticipated life of the item may vary depending on its complexity, build quality and specification. Similarly, other issues need to be considered, such as likely length of occupation and/or lease, together with the impact of Landlord and Tenant legislation.

4.12.4 Practical Matters

When using the Rating Support Application (RSA), it is preferable to deal with ‘Step 3’ backstop additions in respect of mezzanine floors using ‘other additions’ (OA). Using the following OA codes and figures as recommended should automatically produce those figures in valuations of retail warehouses in respect of mezzanine floors as follows:

Sales Floor OA Code	RSA Default Description	Backstop
SRF	(Supported Retail Floor)	£15.00
SFF	(First Floor Sales)	£20.00
SF1	(Mezzanine Floor)	£25.00
SF2	(Mezzanine Floor)	£30.00
SF3	(Mezzanine Floor)	£35.00
SF4	(Mezzanine Floor)	£40.00
SF5	(Mezzanine Floor)	£45.00
SF6	(Mezzanine Floor)	£50.00
SF7	(Mezzanine Floor)	£55.00
SF8	(Mezzanine Floor)	£60.00
SF9	(Mezzanine Floor)	£65.00

Storage Floor Code	RSA Default Description	Backstop
RSF	(First Floor Stores in a Retail Unit)	£20.00
SSF	(Supported Storage Floor)	£15.00

Other OA Code	RSA Default Description	Backstop
AIR	Air Conditioning	£4.00

However, when using ‘backstop’ figures for mezzanine floors that do not correspond to the figures shown in the table, it is preferable to deal with the mezzanine floor using the OA code that produces the closest price, overwriting the ‘backstop’ price as appropriate.

In those instances where a figure is ‘overwritten’, it is essential that a note be made in the remarks field of the valuation, specifying the price added for the mezzanine floor and why a different price has been used.

4.13 Notes and general observations

Emphasis should be placed on the merits of the step-by-step approach to the valuation of these mezzanine floor areas as detailed in the Lotus, Dorothy Perkins, Iceland and Acenden decisions. These mezzanine floors are rateable tenants’ improvements and should be valued as such. The approach allows fully for the adoption of a scheme based on percentage of value as evidenced by rental or comparable evidence where available. If the rental market develops, then the reliance on costs or backstop figures should diminish.

The approach provides a way to achieve consistency when tackling mezzanine floors, based on established case law principles and practice.

4.14 Tenants’ Improvements Calculator

A Tenants’ Improvements Calculator is available in ‘Handy Links and Tools’.

4.15 Shops, department stores, hypermarkets, superstores and large food stores

Shops and shopping centres, large shops, department stores, hypermarkets and large food stores are outside the scope of this practice note.

For further information see rating manual section 5a:

• Shops and Shopping Centres

• Large shops (and department stores)

• Hypermarkets and superstores

• Large Food Stores

Practice note 3: 2026 — air conditioning in retail warehouses

1. Market appraisal

1.1 Introduction

The term ‘air conditioning’ covers a variety of functions ranging from merely cooling and re-circulating air, to replacing, comfort heating and then fully conditioning it. This is typically achieved using cassettes (independently operated or aligned together) or an air handling Unit (AHU) as part of a ducted air handling system (AHS).

Air conditioning in retail warehouses remains a common feature and designed properly will enhance the retail setting, providing a controlled environment. It will enhance and support the business of retailing, being conducive to staff and customer comfort.

1.2 The market for air conditioning systems

In recent years, the costs and design of air conditioning cassettes has allowed air conditioned retail space to be within the grasp of many retailers. Having said that, it is not yet a universal feature in retail warehouses. Corporate retail chains often have a ‘standard fit-out’ that means all retail outlets in the portfolio have air conditioning or handling systems installed irrespective of location and the prevailing outside weather conditions. This results in a tendency for bespoke AHS being prevalent in retail parks with open A1 planning permission. Cassette based systems feature in all types of retail premises, including retail warehouses. Ducted systems lend themselves to larger premises, but there is no ‘hard and fast’ rule. In practice, a variety of systems are installed in a variety of premises.

1.3 Phasing out of R22 refrigerant

From 1 January 2015, the use of ‘recycled’ or ‘reclaimed’ Hydrochlorofluorocarbons (HCFCs), including the ozone-depleting refrigerant gas R22 (Sometimes referred to as ‘Freon’), was banned in refrigeration, heat pump and air conditioning (AC) systems. R22 is commonly used in AC systems pre-dating 2004 and so its ban is likely to have an effect on retailers with pre 2004 air-conditioning systems.

Following EU Regulation 2037/2000 on ozone depleting substances (ODS), R22 refrigerant has not been legal for use in new AC equipment since 2004. Furthermore, since at least 2000, AC manufacturers and users knew about the impending bans on the use of ‘new’ (or ‘virgin’) R22 from 2000, and ‘recycled’ R22 refrigerant from 2015.

In 2010, existing AC equipment became affected. The ODS Regulation imposed a ban in all EU Member States against the use of new R22 refrigerant to maintain existing AC equipment. Since then only recycled R22 refrigerant obtained from decommissioned AC equipment or reclaimed R22 can be used. Such recycled or reclaimed R22 refrigerant is becoming increasingly scarce and expensive.

From 1 January 2015, AC systems are not able to be topped up with any R22 refrigerant, whether virgin, recycled or reclaimed.

There were three options for operators of such AC systems:

Option 1: Run the system with its existing R22 refrigerant fluid until it fails. This is a ‘hope for the best’ solution, but might be a temptation for retailers with AC systems in older retail parks and retail warehouse locations.

Option 2: Replace the existing system with completely new AC equipment.

Option 3: Use an alternative modern refrigerant (Such as R410a ‘Puron’) to top them up. This will probably involve replacing parts of the existing AC system.

The occupier will have to consider the following when choosing which option:

• the age of the current AC system
• the efficiency of the system
• leakage problems
• whether alternative refrigerants are compatible
• cost
• efficiency and availability of modern refrigerants
• equipment manufacturers’ advice about using modern refrigerants

Arguably, having had a 15 year ‘lead-in’ to prepare for the ban, the retail rental market will have anticipated it. This, together with the fact that R22 refrigerant has been phased out absolutely since 2015, means rents at and around the relevant dates for the 2026 Revaluation will have been agreed or determined fully reflecting the position. There may be some AC users who were ‘caught out’ when the R22 supplies became unavailable in 2015, but it is reasonable to suppose by AVD (1 April 2024) and the 2026 Material Day, retailers will have fully anticipated the change, taken action to prepare for it, and are fully compliant.

However, if at the material day the AC is not working because the R22 refrigerant has run out and no modifications have been made to make the system work with another refrigerant, case workers may be faced with proposals to reduce the rateable value. Hypothetically speaking, the landlord is assumed to have provided the system and, if it is a ‘repair’ issue, the AC is deemed to be in good repair. If it is considered a renewal of the AC system is required, it is considered that the landlord would ordinarily consider it economic to make such an expenditure based on the value of the whole hereditament.

In other words, a reduction in RV is not appropriate where an AC system is not operating due to the lack of availability of R22 refrigerant generally, neither is it appropriate if the system is not working due to refrigerant loss.

1.4 Value to occupier

It is often difficult to discern the impact of AC on the rents passing in retail. It is a feature of the overall tenant’s fitting out and, whilst it can probably be incorporated in a new fit out and therefore used by a subsequent occupier, it might just as easily be removed as part of any new fitting out.

However, care should be taken not to be persuaded by such a dismissive approach to previous occupiers’ ‘fitting out’. The AC is of value to the actual tenant, and the hypothetical tenant fresh on the scene not only wants the shop as it is, but he or she includes the actual tenant who does very much value the fitting out. In other words, it is of value to the occupier. It follows that it is of value to the hypothetical landlord.

The decision in Berry (VO) v Iceland Foods Ltd [2015] UTLC 0014 UC RA 201 provides some guidance on this point. The UT considered the value of a bespoke AHS fitted by the respondent. The decision should be considered in full and in context, however, at paragraph 122:

“The issue is therefore whether the parties to the hypothetical letting of the appeal property would agree a higher figure to reflect the presence of Iceland’s bespoke air handling system. We are satisfied that they would so the remaining question is how much higher a figure would they agree? Both parties must be assumed to be willing to transact for the premises including the system, but neither party can be assumed to have a whip hand. The notional landlord must be taken to appreciate that the system is too powerful to meet the needs of most tenants in the market for a retail warehouse, and who would be unlikely to be willing to pay more than the £4 per sqm at which they would value the more modest system which would satisfy their requirements. The prospective tenant who wished to trade in Iceland’s style (and there was evidence that Iceland was not the only such trader, although its direct competitors are relatively few in number) would realise that if it did not take these premises with a suitable air handling system already installed, it would be necessary for it to install its own system at a cost to it of £4,384 a year. In addition to that cost the hypothetical tenant would incur the time and inconvenience of fitting out, for which no rent free allowance can be assumed, and the likelihood that the system would have to be removed at the end of the term. In our view the landlord would be in the stronger negotiating position, and would argue that £4,325 was too low a figure to reflect the value and convenience of the existing system.”

2. Changes since last practice note

There is no change in practical terms to the guidance provided in the previous (2023) practice note. This 2026 practice note provides valuation guidance on the treatment of air conditioning in retail warehouses for the 2026 Rating Lists. It outlines the steps to be taken when considering air conditioning systems and, where no better evidence or indicators of value are available, recommends using £4.00/m2 over the area effectively air conditioned.

3. Ratepayer discussions

There have been no ratepayer discussions.

4. Valuation scheme

4.1 Outline of valuation approach

Relevant case law to date confirms that an addition must be made for improvements. In quantifying the appropriate addition for air conditioning in retail warehouses, the recommended approach is:

• firstly, to seek reliable rents which already include the value of air conditioning, either the rent on the subject property or comparable rents elsewhere and to adjust and analyse such rents to quantify the effect of air conditioning on the rental market being considered and, if no reliable answer is found
• secondly, where no reliable rental evidence can be found, to consider comparable assessment evidence, and this includes additions previously accepted or agreed in respect of similarly specified air conditioning systems and, if no reliable answer is found
• thirdly, where no reliable comparable rental or assessment evidence can be found, an addition can be calculated based on the cost of providing the actual system installed in the subject property, and if so
• fourthly, once the actual cost of provision, is established, this will be converted to an annual equivalent and, if no reliable answer is found
• fifthly, sense check all the evidence available to see whether there is a reasonable means of ascertaining the amount to be added and, if no reliable answer is found
• lastly, in the absence of any more reliable evidence, a backstop of £4.00/m2 is recommended for this class of property

However the addition is arrived at, it is important to appreciate that the value of air conditioning is only one of several value significant factors affecting the shop hereditament and, as such, should not be treated as a separate issue.

The outline approach is in line with the decisions in:

• Lotus & Delta v Culverwell (VO) LT [1976] RA 141

• Edma (Jewellers) Ltd v Moore (VO) LT [1975] RA 343

• Dorothy Perkins v Casey (VO) LT [1994] RA 391

• Berry (VO) v Iceland Foods Limited [2015] UTLC 0014 (LC) RA 201

• Bunyan (VO) v Acenden Limited [2023] UKUT 17 (LC)

Those cases provide useful guidance on the hierarchy of evidence to be considered when seeking to quantify the value of improvements. Regard to cost should only be made as a last resort, in the absence of better, more direct, evidence of rental values.

For more information on the approach to improvements when making rental adjustments, refer to rating manual: section 4 part 1 — practice note 1 2026, Rental Adjustment, section 14 — Improvements.

4.2 Annual value of air conditioning systems

Wherever possible the Zone A adopted should be based on those rents which already include the value of air conditioning.

If reliable rental evidence is not available to show the value of air conditioning, and comparable assessment evidence is not available, the annual rental equivalent of these improvements will need to be found based on cost. For the 2026 Revaluation, an annual equivalent approach likely to be the most appropriate. The costs actually incurred by the retailer should be used wherever possible.

The Upper Tribunal in Berry (VO) v Iceland Foods Ltd [2015] UTLC 0014 (LC) RA 201 (at paragraphs 99 to 101) decided the statutory decapitalisation rate should be used and applied it to the costs to arrive at a decapitalised figure. The members went further and determined that the landlord would be in a stronger negotiating position and suggested the resultant figure would likely be higher. The ‘Berry’ decision places the use of the statutory decapitalisation rate in context, being one consideration in a series of steps to be taken to arrive at a reasonable uplift for the benefit of air conditioning systems in shops.

In Bunyan (VO) v Acenden Limited [2023] UKUT 17 (LC), the addition for office fitting out was considered and the use of the statutory decapitalisation rate discussed should costs be relied upon. The members would have much preferred direct rental or comparable evidence for the fully fitted hereditament. However, where step 3 of the approach is reached and treatment of improvements is by reference to cost, the members concluded that there is no absolute mandated requirement to apply the statutory decapitalisation rate in rental comparison valuations, but it may be used if considered appropriate on the evidence. At paragraph 105 of ‘Acenden’:

“Of course, the conclusion that the statutory rate is not mandatory does not mean that it cannot be used in an appropriate case. There is nothing to prevent the Tribunal or the parties from adopting that rate if it is considered appropriate to do so on the evidence. If there is no convincing evidence to help identify a more appropriate rate, the fact that the statutory rate is approved by Parliament and is required in certain valuations are both reasons why the Tribunal may be driven to adopt it rather than speculate about a rate of its own.”

Therefore, in dealing with improvements as part of a rental adjustment, the traditional virtual rent approach, as adopted prior to the ‘Dorothy Perkins’, ‘Iceland’ and ‘Acenden’ decisions should still be followed. The rental value of the improvements should be considered having regard to the amortised cost, using appropriate market rates and an amortisation period which has proper regard to both the likely useful life of the improvement and the terms of the lease against the background to which the improvement costs were incurred.

4.3 Approach in the absence of reliable Rental Evidence and actual costs

When dealing with additions for air conditioning as part of a rating valuation, and where rental evidence, comparable evidence or the costs actually incurred cannot be obtained, only a very general indication can be given as to the addition that should be made.

Bearing in mind that details of the actual system are not known, the type of system envisaged for the purposes of this paragraph comprises a ducted system dealing with the floor space in an adequate manner.

However, it is recognised that there are increasing examples of basic cassette systems providing heating/cooling of air with moisture removal and air circulation to just a portion of the space within the retail warehouse (e.g. a tenant added first floor, or ‘mezzanine’).

Where the air conditioning is installed as part of the fitting out and includes a tenant inserted supported first floor (or mezzanine), it is important to remember that heating and cooling costs are no longer expected to be included in the mezzanine floor price, described in Paragraph 4 of the relevant 2026 Practice Note mezzanine floors in retail warehouses (Rating Manual Section 5a, retail warehouses, 2026, practice note 2 on Mezzanine Floors). When making an addition for air conditioning, the area adopted in the ‘Other Addition’ (or ‘OA’) part of the valuation is expected to show the total relevant area of both mezzanine and ground floors benefitting from the air conditioning in the retail warehouse.

To assist in making those 2026 valuations where no better indicators of value are forthcoming, it is recommended that, in the absence of any better indicators of value, the backstop position is £4.00/m2, and this should be assigned to the RSA ‘AIR’ code in respect of the appropriate ‘Other Addition’ or ‘OA’ table.

However, there are certain practical considerations in respect of the distinctions between ducted and cassette systems.

4.3.1 Ducted System in any type of Retail Warehouse

Generally, for a tenant installed ducted system with the same specifications as detailed in paragraph 4.4, £4.00/m2 may be used. This figure is based on providing a system designed to properly condition the air in respect of just the retail area concerned. It is a backstop price for a ducted system dealing with a particular retail space, expressed in £/m2 terms.

In practice, it is reasonable to assume that ducted systems will be bespoke and therefore properly specified to deal effectively with the given volume to be air conditioned, especially considering that the figures in this section are used in the absence of anything better. Therefore, it is not envisaged that this type of system will be over specified or under specified and the whole area in the retail warehouse benefiting from the ducted system should be taken as air conditioned.

4.3.2 Air Conditioning Systems in Retail Units on ‘Open A1’ Retail Parks

‘Open A1’ retail parks have large, typically glass fronted ‘sheds’, attractive to national high street retailers. The units are typically fitted to a standard, producing the same retail environment one would expect to find in a high street shop. These may have cassette or ducted air conditioning systems.

Generally, for a modern cassette or ducted system with the same specifications as detailed in paragraph 4.4, £4.00/m2 may also be used. This figure is based on providing a system designed to condition the air in respect of the retail area concerned.

Due to the nature of the retailers concerned, once fitted, it is envisaged that air conditioning systems in such units will be well able to deal with all the retail space in the unit and, if anything, more likely to be over than under specified. Irrespective of the nature and quality of tenants’ improvements in these units such as floors and finishes etc., where no better evidence is forthcoming an addition for air conditioning is appropriate in all cases.

If costs are ascertained, adjustments should be made depending on the details of the actual systems concerned. However, it follows that the more the details that are known about any retail warehouse air conditioning system, in particular the costs of installation, the more likely a specific annual equivalent could be ascertained as detailed in this section.

4.3.3 Cassette Systems in Bulky Goods Retail Warehouses (or ‘Sheds’)

Retail warehouses that cater for bulk goods, electrical and furniture occupiers (sometimes referred to as ‘sheds’) are fitted in a manner commensurate with that use, and that may include a cassette based air conditioning system.

Generally, for a modern cassette system with the same specifications as detailed in paragraph 4.4, £4.00/m2 may be used. This figure is based on providing a cassette system designed to condition the air in respect of just the retail area concerned.

It is not envisaged that a cassette system in a more traditional retail ‘shed’ will be over-specified. It is considered more likely to present a system attempting to deal with a smaller proportion of the given retail floor space, such as a mezzanine floor. In such instances, an appropriate proportion of the retail area should be adopted, this being the area of the ‘shed’ that it is reasonable to suppose would benefit from the air conditioning system.

Once costs are ascertained, adjustments should be made depending on the details of the actual retail warehouse systems concerned. However, it follows that the more the details that are known about a system, in particular the costs of installation, the more likely a specific virtual rent could be ascertained as in this practice note.

4.4 Determining the specification of the system

The way that some retail warehouses are used may influence costs of installation, particularly where this involves heat-generating equipment. Each air handling system is likely to have been designed to meet the individual property’s physical characteristics and the tenant’s occupational needs.

Whilst deciding not to use a ‘back-stop’ figure for the bespoke AHS fitted by the respondent, the decision in Berry (VO) v Iceland Foods Ltd [2015] UTLC 0014 UC RA 201 provides some guidance on its use for ‘conventional’ AC systems at paragraph 122:

“We are satisfied from the evidence that, had the appeal property contained a conventional air-handling or air-conditioning system rather than the bespoke system installed by Iceland, an addition… [based on a ‘back-stop’ figure] …would have been appropriate — settlements relating to other hereditaments in the same block show that this is the case. Whether or not those constitute a tone is, to our minds, largely irrelevant.”

4.4.1 Ducted Systems

If details of the system’s specification and layout (schematic diagram) are not provided, it should be assumed that a tenant added, fully ducted, air conditioning system in a particular retail warehouse has been properly specified and fit for the purpose of air conditioning the retail space.

4.4.2 Cassette Systems

It is not possible to determine the number and size of the cassette units needed in any individual retail warehouse with certainty. Even counting cassettes will be of little use without details of the output (in Kilowatts) of each cassette. It is more likely that a cassette system in retail units on ‘Open A1’ retail parks will be specified to effectively deal with the relevant space. It is less certain in those instances where cassettes are used in the more traditional retail ‘sheds’.

Therefore, care should be taken not to assume the whole retail ‘shed’ is fully air conditioned with cassettes. This can only be properly confirmed following inspection and/or by obtaining the detailed installation cost information and, wherever possible, schematic diagrams.

As a rule of thumb to find a backstop addition in the absence of any better indicators of value, it may prove acceptable to count all cassettes and adopt an area of 85m2 per cassette to establish an area to which the backstop figure can be applied. To assist generally, when in doubt, or when preparing for any valuation tribunal hearing, consider instructing Valuation Office BEAMS (building surveyors) to ascertain the cost of installation of air conditioning systems and any other elements of fitting out that must be considered in the subject retail warehouse ‘shed’ or ‘open A1’ retail unit.

4.5 Shops, department stores, hypermarkets, superstores and large food stores

Shops and shopping centres, large shops, department stores, hypermarkets and large food stores are outside the scope of this practice note.

For further information see rating manual section 5a:

• Shops and Shopping Centres

• Large shops (and department stores)

• Hypermarkets and superstores

• Large Food Stores