Rating Manual section 6 part 3: valuation of all property classes

Section 387: farm shops

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

1. Scope

This section deals with Farm Shops, including Vineyard Shops and Winery Shops.

It does not deal in detail with Farm Diversification. This is covered in Rating Manual Section 6 Part 3: Section 385.

It does not deal in detail with Agricultural Exemption. This is covered in Rating Manual Section 6 Part D and Rating Manual Section 6 Part D Appendix 1.

2. List Description and Special Category Code

2.1 Farm Shops

For farm shops, Special Category Code (SCat Code) 098 should be adopted. The relevant suffix letter will be G, as farms shops are a ‘Generalist’ Class. Responsibility for ensuring effective co-ordination of SCat 098 assessments rests with generalists.

The Special Category Code (SCat), Primary Description Codes (P Desc Code) and primary descriptions available for farm shops is as follows:

  • SCat Code: 098 – Farm Shops

  • P Desc Code: CS, using the default primary description of ‘Shop and Premises’.

2.2 Vineyard Shops and Winery Shops

For vineyard and winery shops, Special Category Code (SCat Code) 508 should be adopted. The relevant suffix letter will be G, as vineyard and winery shops are a ‘Generalist’ Class. Responsibility for ensuring effective co-ordination of SCat 508 assessments rests with generalists.

The Special Category Code (SCat), Primary Description Codes (P Desc Code) and primary descriptions available for farm shops is as follows:

  • SCat Code: 508 – Shops within/part of specialist property

  • P Desc Code: CS, using the default primary description of ‘Shop and Premises’.

3. Responsible Teams

3.1 General

Valuations for Farm Shops, including Vineyard Shops and Winery Shops are a generalist class. They are typically made as rental valuations using direct rental evidence and using area in terms of main space as a comparator.

Requests for Information should be made on forms of return (FOR) as appropriate; FOR VO6066 should be used; it allows for the basis of a rent payment (or proportion of the rent) to be supplied whether it is calculated on a turnover rents basis or not.

3.2 Vineyards and Wineries

Valuations of vineyards and wineries are a specialist class. Where the shop is not ‘let out’, responsibility for making the assessment in the relevant rating list remains with specialists. Where the shop is the only rateable hereditament as the other elements are considered exempt, it remains to be dealt with by generalists. However, if the shop element is let out, but the vineyard or winery is otherwise assessed for rating purposes, it is vital that effective liaison occurs between specialists and generalists in the Units at all stages: this includes list compilation, maintenance and when assessments are challenged.

4. Co-ordination

The ‘Banks etc.’ Class Co-ordination Team (CCT) has high level responsibility for the co-ordination of this class. You can find contact details here. The CCT is responsible for examining the approach to making valuations for farm shops. The CCT will deliver Practice Notes describing the valuation basis for revaluation and provide advice as necessary during the life of the rating lists. Caseworkers have a responsibility to:

  • follow the advice given at all times - practice notes are mandatory

  • not depart from the guidance given on appeals or maintenance work, without approval from the class coordination team

  • seek advice from the class coordination team before starting on any new work

The framework for co-ordination is shown in Rating Manual Section 6 Part 1. Additionally, and where available, this class is subject to the co-ordination procedures outlined in the appropriate practice notes attached to Rating Manual section 6 part 1.

There is no specific legal framework in relation to this class of property. The links above will direct case workers to the appropriate sections of the rating manual that provide the legal background to agricultural exemption and farm diversification.

6. Survey Requirements

All farm shops, vineyard shops and winery shops should be investigated and inspected before assessments are altered or brought into rating lists. The facts must be ascertained before altering or making new assessments.

6.1 Preliminary Judgement

In every case, an early judgement should be made regarding whether a new or changed assessment is likely to arise. This should be based on readily available local information and may include a brief inspection to gain an impression of the scope of the farm shop and its relationship with the main farm, vineyard or winery in question.

6.2 Seek Further particulars

Once rateable occupation seems probable, the operator should be asked for further particulars.

This approach should always be made in writing and also explain that the reason for the request is to assist in the consideration of the rateability of the land being used for the particular farm shop, vineyard shop or winery shop . The appropriate form of return (FOR) should be sent (See section 3 above).

6.3 Inspection

It is important to conduct a more detailed site inspection at this stage. During the inspection, all relevant factual information should be obtained. A note should be made about the weather on the day of inspection and photographs taken where possible. The extent of indoor or outdoor uses, such as decked areas and car parking should also be recorded.

All relevant facts should be recorded about the operation of the farm shop, vineyard shop or winery shop over the last year or so. These will include:

  • Details of when the farm shop is open – (months of year, days of week, hours of day),

  • The area of land (and buildings) used for the shop and for buyers/visitors car park, clearly marked on a plan,

  • Type of barriers to these areas- e.g. fences/walls/markers/nothing

  • Measurements (Net Internal Areas or NIA) of buildings occupied by the shop,

  • Full internal survey of the shop and other buildings as appropriate

  • A note of the weather on the day of inspection,

  • Photographs where possible and appropriate.

  • Name, address and telephone number of the operator

7. Survey Capture

All relevant notes and checklists should be captured on EDRM as appropriate. Photographs should be placed on RSA.

8. Valuation Approach

The rental/comparison approach is considered most appropriate for making valuations of farm shops, vineyard shops and winery shops. There is rental evidence available and once adjusted such evidence can be analysed on a £/m2 basis. There is evidence of a turnover element in agreements, and these need to be carefully considered; the relevant rental adjustment practice note in Rating Manual Valuation Methods provides guidance on this and other matters.

8.1 Valuation Schemes

Valuation Schemes should be locally derived and underpinned by evidence. Certain factors should be taken into consideration when considering and applying a scheme of value. These include location, size of shop, size of operation, construction, access, use of buildings, parking provision, catchment area, planning considerations, duration of seasonal use, demographics of the locality and level of local competition. Additionally, some regions have higher proportions of farm shops than others.

8.2 Car Parking

Whether provided free of charge or not, if the car parking is part of the shop hereditament it is expected to be ‘reflected’ in the valuation; in other words, the rent paid takes into account the fact that parking is readily available.

However, where the car parking is not part of the hereditament, either because it is shared (there is more than one hereditament on the site) or occupied separately, it should be considered in accordance with Rating Manual Section 6 Part 3: Section 200.

9. Valuation Support

Valuations for farm shops, vineyard shops and winery shops are made on the rentals comparison basis where the comparator is area (in m2). They must therefore be made using the Rating Support Application (RSA). This is expected to form the basis of any Valuation Scheme.

Practice note 1: 2017: Farm shops, vineyard and winery shops

  1. Market Appraisal

References to ‘shop’ or ‘shops’ in this practice note refers to farm shops, vineyard shops and winery shops and not any other retail category of shop.

This market appraisal section focuses on farm shops (and not vineyard or winery shops).

1.1 Introduction

Many farmers decide to supplement their agricultural income via non farming activities. Historically, sporting rights over farmland for hunting or for trapping game, have had a commercial value. More recently, grouse shooting, deer stalking and fishing have provided farmers with extra income. Diversification now takes many forms: examples include equine facilities, amenity parkland, country clubs, hotels, bed and breakfasts, self-catering cottages, camping, caravan sites, etc.. Farmers open shops, restaurants and sometimes public houses to sell their products. The farm diversification benchmarking study, commissioned by DEFRA and carried out by Exeter & Plymouth Universities, found that 65% of full time farming businesses have diversified. The most common kinds of diversification are the letting of barns as warehouses and storage, letting of former farm labourers’ cottages and farm shops. Farm shops are the focus of this note.

Farm shops allow farmers the opportunity to directly sell food and other produce to the general public. This direct selling is beneficial to both farmer and consumer as it increases profit margins while offering locally produced fresh foods. The description ‘Farm Shop’ is used to describe a wide range of retail activity, from small operations to larger shops, sometimes operated by supermarket chains. According to the National Farmers Retail and Market Association (FARMA), a ‘genuine’ farm shop, must sell fresh produce and /or local foods that are normally grown, picked, reared or produced on a farm or on land close to where the shop is located.

Origins of Farm Shops date from 1970’s, influenced by the US, as were the first Farmers’ Markets. FARMA calculates that in 2013, from its 302 member Farms, a turnover of £17.7 million with around 2,300 employed.

Each farm shop seeks to concentrate on what is produced on the farm. Diversification into farm restaurants, tea rooms and cafes is common place. A recent survey by FARMA showed that products in season were cheaper at farm shops than supermarkets. Key components for success identified by FARMA include:

  • Quality and Provenance

  • Exploiting unique selling points

  • Promoting seasonal produce keeping prices competitive

  • responding to customer demands

  • strategies to build customer loyalty

  • promoting rural economy through education

  • Tapping into day out culture

The number of farm shops in the UK had increased by more than 50% between 1999 and 2003. DEFRA has managed a grant funding scheme through the Rural Development Programme For England which ran until 2013. This has enabled many more farms to develop and open farm shops, and has contributed to this rise.

It is apparent that some farm shops are not linked to any particular farm or group of farms. FARMA have certain criteria for joining the association, dependent on the proportions of local farmed produce on offer in the shop. The added value associated with the concept of a farm shops encourages the development of ‘farm shops’, whether FARMA recognises the shop as meeting the FARMA recommended criteria or not.

Although the large supermarkets dominate the food sector, the number of farm shops has grown in recent years and there are now several thousand. This is a combination of non-FARMA and FARMA recognised farm shops.

1.2 Appeal of farm shops

The farm shops market is worth around £1.5 billion each year. Customers are keen to meet the people who produce their food and many are eager to show their support for local farmers. Concerns about the environment and animal welfare have encouraged people to buy locally produced and welfare-friendly food. Farms shops are ideally placed to take advantage of this growing market and many established shops have seen an increase in customer numbers in recent times.

Appeal is bolstered by:

  • The current trend back to smaller scale, more traditional food shopping

  • Perceived quality of product

  • Locally sourced food

  • Green/environmental issues (for example food miles)

  • Perceived animal welfare advantages

  • Aspirational behaviour - tapping into the middle class lifestyle

Many farm shops have some sort of coffee shop or tea room associated with the shop. However, the style varies greatly from small operations to a fully licensed restaurant with a high-end deli operated by a well-known local chef.

1.3 Viability of farm shops

Factors influencing viability include location, access and parking facilities, local competition, suitable buildings and a steady supply of seasonal and marketable produce. Farm shops that sell any produce that has been processed, including meat and poultry need planning permission. Additionally, all the health and safety regulations must be complied with when allowing access to the general public and selling food products in a fit state.

FARMA is a cooperative of farmers, producers selling on a local scale, and farmer’s market organisers. FARMA works throughout the UK, representing farmers offering direct sales to customers through farm shops, “Pick-Your-Owns”, farmers markets, home delivery, on farm catering and farm entertainment. FARMA offers advice to farmers wishing to branch out into this sector.

A recent concern is that some farmers’ markets and farm shops trade on the name but are not run by the farmers themselves, but by a national operator. FARMA have launched a campaign to boost consumer confidence, including the introduction of certification. To obtain a certificate, farm shops are checked by independent experts and must offer at least 40 percent of their stock from the farm and local area and another 40 percent from the region; the rest can come from elsewhere.

Farm shops and farmers’ markets have continued to be developed throughout the economic downturn that began in the late 2000s and despite selling many types of product that, in a similar form, are cheaper to buy elsewhere.

Both farm shops and farmers’ markets are popular with tourists and turnover of the sector may have been boosted by the increased number of people that have chosen to holiday and/or take short breaks at home in the UK rather than going abroad.

Wider food shopping trends indicate that it has become more acceptable to buy from discount supermarkets for the bulk of everyday store cupboard items, but supplementing with higher end, local, organic foods. Consequently, major supermarkets are now starting to tap into this market themselves, providing a section of ‘farm shop’ and ‘local quality’ goods.

At least one supermarket chain has opened its own farm shop, selling over 1,000 products with a strong emphasis on locally and regionally sourced food. This trend may continue.

1.5 Rent Movements

Whilst some rents are fixed with renewals and reviews, there is a high degree of turnover evidence. The turnover element is either a straight percentage of gross receipts, or a base rent with a turnover top-up.

Rental evidence should be analysed against the relevant area (in m2) of the farm shop. However, it is clear that care must be taken when seeking to interpret turnover rents.

This is a growing sector, and there is a need to understand the industry so that reasoned values can be given in the absence of rental evidence. The main factors determining viability are location, size of shop, size of operation, construction, access, use of buildings, car parking provision, catchment area, planning considerations, duration of seasonal use, demographics of the locality and level of local competition. Additionally, some regions have higher proportions of farm shops than others.

2. Changes From The last Practice Note

This is the first revaluation practice note for farm shop, vineyard shop and winery shop hereditaments.

3. Ratepayer Discussions

There have been no ratepayer discussions.

4. Valuation Scheme

4.1 General

4.1.1 The preferred method of valuation is the rental approach; rents should be analysed and valued by reference to the area (in terms of main space) as appropriate.

4.1.2 It is apparent some rents are agreed on a percentage of turnover basis, or a base rent with a turnover top up. There may also be incentives and considerable fitting out costs. The rental adjustment practice note proves guidance on these and other aspects requiring consideration. It is available at section 4 part 1: Rental Adjustment Practice Note 1, 2017.

4.1.3 The following categories may be of assistance in determining the comparability of one type of shop with another. It is important to ensure those shop properties sharing similar characteristics can be identified.

4.1.4 It is anticipated that by following this guidance, valuation officers will produce a consistent basis that becomes generally accepted. However, should challenges in a particular locality result in discussions covering large geographical areas or lead to tribunal hearings, it is important to obtain full details of all actual rents passing, where available and comparable, together with sufficient gross receipts and background information to be able to adjust and analyse them effectively. This will also allow for a reasonable ‘categorisation’ of the different sizes and types of farm shop, vineyard shop and winery shop, as appropriate. The geographical area that encompasses the basket of relevant evidence is quite capable of spreading over various billing authority and county boundaries, especially where the assessments of farm shops, winery shops and vineyard shops under challenge are situated in towns and villages in rural counties.

4.1.5 Car parking provision is closely aligned to the viability of a farm shop, vineyard shop or winery shop. Therefore, it is expected that the rental evidence used to underpin any locally derived valuation scheme is analysed reflecting the car parking available. Comparable rent and assessment evidence must be carefully considered to make sure car parking provision at the shop in question is properly reflected in valuations.

4.1.5 It is anticipated that such rental comparable analysis, together with any comparable assessment evidence, should underpin the scheme of value above and therefore allow valuations to be made on that basis.

4.1.6 It is expected that rents will be analysed on a price per m2. As such, it is appropriate for the assessment to be produced using the Valuation Support Application (VSA) within The Rating Support Application (RSA).

4.1.7 The use of turnover is only recommended as a cross check to aid in the categorisation of the shop in question. However, even if a turnover approach (as a % of GR) is relied upon, the relevant £/m2 should be ascertained and used for analysis, with RSA used to value the hereditament. It is not anticipated that the Non-Bulk Server will be used.

4.2 Farm,Vineyard or Winery Shop Categories

4.2.1 As an aid to comparison, reference is made in this note to five categories of shop.

  • Category 1 – Low turnover, small shed or cabin, often open to elements with limited off street parking and a retail offer of predominantly fresh produce, eggs etc. (Turnover cross-check below £75,000)

  • Category 2 – Small shop premises undercover with a wider range of fresh products and one or two refrigerated cabinets. Limited off street parking for a small number of cars. (Turnover cross-check between £75,000 and £150,000)

  • Category 3 – Medium sized shop premises with purpose built retail area, possible cafe/restaurant and reasonable off-street car parking provision. (Turnover cross-check between £150,000 and £250,000)

  • Category 4 – Larger shop offering a wide product range, possibly cafe/restaurant. Good off street parking (Turnover cross-check between £250,000and £1million)

  • Category 5 – (“Super-shops”). Well-appointed, large shop premises offering a comprehensive product range. Extensive off street parking.(Turnover cross check in excess of c. £1 million, however some ‘Super-shops’ will have a turnover of in excess of £1.5 million). Additionally, has at least one of the characteristics listed:

  • Wealthy or large (or both) catchment area

  • Good access providing a large effective catchment

  • Very high quality of buildings and/ or an extensive range of buildings, typically in excess of 1,000m2 in terms of main retail space

  • Other adjacent major attractions

4.2.2 The placing of a farm shop, vineyard or winery shop in any particular category should not to be taken as a specific determinant of a particular level of value, either by reference to unit area of buildings and land or overall. In many cases determining an appropriate category can assist in providing at least an initial indication of value before the specific physical characteristics of the property, such as the quality of buildings and the location, are taken into consideration. In addition to this, categorising in this way also aids co-ordination between ‘Generalists’ and ‘Specialists’ within Units.

4.2.3 When considering turnover as a ‘cross-check’, there may be a number of instances where the personal goodwill of the operator is a factor to consider. ‘Celebrity’ branding may be indicative, but it has to be assumed that the hypothetical tenant is a reasonably prudent operator with experience and is fully conversant with the trade. Whilst in practice there will be examples of particularly poor or good management, care must be taken when adjusting the receipts. Where an element of Gross Receipts is attributable to “exceptional operator”, those receipts should be adjusted downwards unless it is apparent that the next operator would similarly be able to generate a similar level of gross receipts. The same care should be taken when considering adjusting receipts upwards where it is shown the hypothetical tenant would generate higher receipts than a poorer operator.

4.2.4 It is anticipated that the appropriate category into which a particular shop sits will become apparent on inspection. Therefore, it is important to consider turnover as a secondary ‘cross-check’. It is not absolutely necessary to know the turnover to determine in which category the farm shop, vineyard shop or winery shop should be placed.

4.3 Range of Values

4.3.1 The following broad guidance is offered.

Generally the categorisation and positioning within the guide ranges of values offered below will depend upon the individual specific circumstances and position of the shop. Considerations include construction, planning policies and restrictions, car parking provision and duration of seasonal use of buildings for retail purposes.

Furthermore, separate adjustments for location and size must also be considered (see below).

4.3.2 Categories 1 and 2 are expected to fall within a range of £50/m2-£100/m2.

Furthermore, a category 1 shop would normally be expected to be below£75/m2 and a category 2 shop would normally be expected to be above £65/m2, subject to further adjustment for size, location or both (see below).

4.3.3 Categories 3 and 4 are expected to fall within the range of £75/m2-£125/m2. Furthermore, a category 3 shop would normally be expected to be below£100/m2 and a category 4 shop would normally be expected to be above £90/m, subject to further adjustment for size, location or both (see below).

4.3.4 Category 5 and ‘Super-shop’ values are expected to fall within a range of £100/m2-£175/m2, but high quality shops in this category may be up to£200/m2 or more, subject to further adjustment for size, location or both (see below).

4.3.5 The value of an average shop within the anticipated range of values in any particular category will depend upon a variety of factors including, the location, catchment area, local planning policy, particular planning restrictions on the shop, level and type of competition, car parking provision and general quality of the farm shop, vineyard shop or winery shop.

4.4 Location of Farm, Vineyard or Winery Shop

4.4.1 Location is an important consideration when making valuations for farm, vineyard or winery shops. Where relied upon, the ranges of value offered above must be tested against available rental evidence in the locality. That locality will encompass other similar sized comparable shops. The geographical extent of any particular ‘locality’ may be widely drawn.

4.4.2 The above figures are considered to be reasonable in locations where shops are well-established with a solid customer base and accessible from a main road or reasonably close to a town or reasonable catchment area. However, this will not apply in all locations. It is expected that any departure from the ranges of value offered in this note will be based on comparable rental evidence in the particular locality that must provide a solid basis for the valuation approach eventually adopted.

4.4.3 It is essential to request rental information in all cases to establish whether the shops in question sit inside or outside the ranges of values offered above, and what level(s) of value are appropriate.

4.5 Size of Farm, Vineyard or Winery Shop

4.5.1 Farm, vineyard or winery shops vary in size. About a third of shops are less than 50m2 and some shops are very much smaller. Many larger shops are in excess of 300m2, with some in excess of £1,000m2.

4.5.2 It is therefore anticipated that there will be a quantum effect on both small and large shops and that such an effect will be evidenced from the rental evidence available. This would result in higher prices (in m2) being used to value smaller shops, and lower prices used to value larger shops.

4.5.3 A quantum effect to take into account the size of the shops is not included in the ranges above. Caseworkers should examine the rental and comparable evidence and, where such an effect is proved by the evidence, it should be applied to the valuations as appropriate.

4.6 Turnover Cross-Checks

4.6.1 Turnover (gross receipts) can provide assistance in valuation as a cross-check on whether the assessment arrived at by rental comparison with area appears reasonable. However, it is not necessary to seek receipts in every case, as the primary valuation method for farm shops, vineyard shops and winery shops is rentals/comparison by reference to area (in terms of m2).

4.6.2 Turnover information has not been requested as part of the initial FOR process. If it becomes necessary to do so, it is important to remember that this information is often considered to be trade sensitive and should be treated with care.

4.6.3 Some shops will be more affected by seasonal fluctuations than others; one year to another being very dependent upon the weather especially during spring and early summer. Therefore, turnover should always be considered carefully; it is reiterated that the role played by turnover in making shop valuations is secondary and that of a ‘cross-check’.