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

Section 510: hotels

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 4 and 5 star and major chain operated hotels, including budget hotels and lodges.

1.1 Description

The term hotel covers a wide range of property and business types, situated in a variety of locations. Although precise classification is difficult most hotels fall into one of the following broad categories and some properties may fit into more than one.

a. Five Star and Luxury Four Star Hotels

These will tend to be large, international hotels generally located in the major cities and will be fitted out, furnished, maintained and provide service to the highest standards. There will also be a small number of large former country houses and hotels with major golf courses similarly fitted out and with exceptional levels of service

4 & 5 star hotels will typically have an extremely high level of fixed costs. Staffing costs although variable by nature, also have an underlying fixed element. This high level of associated expenditure is reflected in the rental bid

b. Boutique Hotels

Boutique Hotels have continued to grow in numbers at an impressive rate within the upper 3 and 4 star market. These higher service provision hotels often located in prime urban areas are typically small in size and are often characterised by bespoke designed bedrooms, each offering their own individual identity. They concentrate highly on the Spa side of the business, with restaurant facilities in keeping with the high quality of the hotel

The labelling of a so called ‘boutique hotel’ is widespread, and it should be noted that the actual nature of the hotel, facilities offered, and quality of the hotel varies significantly, within the spectrum of boutique hotels

c. Country House Hotels

Although difficult to define, these are usually attractive, older properties, often of architectural merit, but fully modernised and maintained to a high standard in keeping with their age, construction and characteristics. They may well be listed buildings and/or have historical connections. Country house hotels will often be located in or close to places of historic importance or countryside of outstanding beauty. The more rural the location of the property, the larger the formal gardens and grounds are likely to be

Most will have less than 30 bedrooms and operate with high staff/guest ratios at the top quality end of the market, providing service to the highest standards, but often will not be registered with the AA or other similar grading body. They should be distinguished from the older type hotel in rural locations, which may use the style “country house hotel”

d. Town House Hotels

Located in major cities, these will generally be relatively small, characterful, top-quality hotels aiming to give a very personal and exclusive level of service Rooms/suites will be individually furnished and fitted to a very high standard, although restaurant facilities will usually be limited

e. Commercial 3 & 4 Star Hotels

These are generally post-1960 purpose built properties. They are often located in, or close to, large towns, cities, and major transport termini or on motorways/major trunk roads. Four star hotels provide a higher level of service and facilities. Since the late 1980s the major hotel groups have increasingly branded their product, and that still remains today. At the same time new groups have grown up as larger groups have divested themselves of properties not conforming to their brand image/s. The main groups are Intercontinental Hotels Group (IHG), Accor, Hilton, Radisson and Marriott. Increasingly hotels operating under the brands of several of the main groups are franchises rather than being company owned and run

In this increasingly crowded and always popular market, some mid-market hotels have been starved of capital investment, and have been threatened by the rise of the budget sector along with the associated amenity creep of budget hotels

The traditional gap in terms of facilities and amenities between 3 star and budget hotels has been closing over recent years, yet mid-market potential is still there. Clear branding and financial investment are likely to achieve success in this highly competitive sector where uniformity of product is important and too much variance could be seen as counterproductive

f. Airport Hotels

Generally post-1960 3 or 4 star purpose built hotels located close to major international airports and having a distinct market. Considered a prime position for a hotel, highly profitable due to airport operation itself and the fact custom is brought directly to the locality via huge passenger numbers flying in and out of the airport

g. Seaside Hotels

These cover a wide variety of different types and grades of hotel, from the large, grand, 4 or 5 star conference properties to the traditional small seaside boarding house. Apart from the larger hotels, aiming mainly at the business and conference market, the majority are smaller, independent or family run properties relying on seasonal tourist and leisure trade. Proximity to the town or resort centre, tourist and leisure attractions and the sea, are all-important characteristics

h. Coaching Hotels

Typically characterised by small profit margins, and high occupancy, if successful, 80-85%+ occupancy rates are achieved. This type of hotel operation traditionally appeals to the over 60s, and are more susceptible to changes in the market. The last few years have been particularly difficult, with reduced bookings commonplace. An outdated, ageing, negative perception has contributed to a continuing decline in the numbers within this category.

i. Older & Historic 3 Star Hotels

These also embrace a wide variety of hotel types and locations, including hotels of character and former coaching inns, often having post-1960 extensions forming additional bedroom accommodation at the rear. They are often located in or near to historic or market towns, and generally have a mixed business and tourist trade. The number of bedrooms available is usually less than 50 and often the food and liquor receipts will form a higher proportion of turnover than is the case for modern commercial hotels. Many of these will be privately run and many will be members of the Best Western consortium.

j. Budget Hotels/Lodges

These are a relatively new concept, appearing in the mid-1980s and growing rapidly in the 1990s. The first budget hotels/lodges to be widely developed (the Travelodge brand) were mostly located on motorways (on shared motorway service area sites) or other major roads. Others have followed a similar approach whilst Whitbread developed a chain (Premier Inn) usually attached or adjacent to a public house. Other brands in this sector are Express by Holiday Inn, Ibis, Campanile, Days Inn, Etap, Tune, Citzen M and Formule 1.

The early lodges did not usually provide meals although breakfast is often available at an adjoining restaurant or public house. Accommodation is sold by the room, which is relatively large with en-suite bathroom facilities provided. The lower overheads, combined with competitive pricing, have led to extremely high occupancy rates (often 80% plus) resulting in higher profit margins.

In the mid to late 1990s, as sites adjoining existing restaurants and pubs became scarce, ‘stand-alone’ budget hotels were developed. These include a small restaurant and bar, although accommodation still provides the main source of income; increasingly stand-alone properties have been developed in city centres with integral bar/restaurants. This sector has continued to expand in the early part of the 21st century with some operators taking over traditional 3 and 4 star hotels to convert and use as budget hotels. In certain accessible locations close to transport hubs a budget hotel may also offer 10 or more meeting rooms, which further enhance the hotel’s income.

At the start of the 21st century a further variation has occurred with the development of the “super budget” hotel in large city centres and at airports by operators such as Yotel, and Easy Hotel. These usually have very small pod rooms often without windows, but with en-suite facilities, and may be let for part days. These have a very low cost base and are more profitable than a standard lodge or budget hotel.

The growth of the budget sector continues to gain momentum, as demonstrated in 2013 when budget hotels account for 18% of the hotel market, equating to 1586 hotels, 131,389 rooms, across 30 brands. This figure is set to increase significantly with predictions of it accounting for 26% by 2030.

Although there is an ever increasing number of brands in this sector, 68.5% of the ‘budget’ stock is accounted for by Travelodge and Premier Inn, who dominate the sector. In fact the four ‘big brands’ (these two plus Express and Ibis) currently equate to 89% of all branded budget hotel rooms.

k. Small Independently Owned Hotels

Small one and two star type properties are found throughout the country and do not form a homogeneous group. The main characteristic is a low level of facilities and services provided, although meals are available.

l. Guest Houses and Bed and Breakfast Accommodation

See Rating Manual: section 6 part 3 - section 125.

m. Aparthotels and Serviced Apartments

These typically provide flats, or studio apartments, on a daily letting basis, or for extended periods. The properties may be separate apartment block buildings, one or more floors of a multi-storey block where the other floors are either used for other commercial uses or for domestic flats, or one or more converted houses in the same occupation. There will not usually be any bar or restaurant. For smaller properties and single serviced apartments references should be made to Rating Manual: section 6 part 3 - section 890 Serviced Apartments.

In recent years demand is outstripping supply, with an increasing number of operators seeking expansion, predominately in major cities. Extended stay and serviced apartment popularity continues to gain momentum, as an increasingly mobile workforce seek additional space and amenities.

In the last 3 years there has been evidence of healthy room revenue increases, illustrated in 2013 with £120 Daily Room Rate, and 79% Occupancy achieved.

Evidence of this growth is seen as the Association of Serviced Apartment Providers (ASAP) was planning to double membership to 180 Operators and Agents within 2 years. Serviced Apartments in the United Kingdom is set to become a £500m industry, with Savills in 2014 predicting that investment in the market will triple over the next 5 years, resulting in a 12% share of the hotel market.

2. List Description and Special Category Code

List Description in all cases: Hotel and premises.

Special Category Code 138 should be used for 4 & 5 star and major chain operated hotels. As a Specialist Class the appropriate suffix letter is S.

Special Category Code 137 should be used for (non-chain) hotels 3 star and under with the appropriate suffix letter G where responsibility lies with the Generalists.

Special Category Code 160 should be used for standalone lodges and as a Specialist Class the appropriate suffix letter is S.

Country House Hotels are wholly the responsibility of the Specialists, and should be given Special Category Code 077 with an S suffix.

3. Responsible Teams

The 4 & 5 star and major chain operated hotels are a Specialist Class subject to a national scheme. Responsibility for implementing the scheme as set out within the Practice Note lies with the Specialists, as does responsibility for ensuring effective co-ordination.

Hotels graded at 3 star and under which are not operated by major chains are a Generalist class. The only exception to this are larger independent hotels (typically with a RV of £50,000 or more) operating in the same market as major chains, which have, by agreement, been passed to the Specialists.

Budget Hotels and Lodges - these will be split between Specialists and Generalists on the following basis: All lodges with public houses in a single hereditament will be dealt with by Generalists under Special Category Code 227, suffix G. All standalone lodges or budget hotels with either, no bar or restaurant facilities or with integral bar/restaurant facilities, will be dealt with by the Specialists.

4. Coordination Arrangements

The Hotel Class Co-ordination Team has overall responsibility for the co-ordination of this class. Contact details are in VP and CCT Members. The team are responsible for the approach to and accuracy and consistency of valuations. The team will deliver Practice Notes describing the valuation basis for revaluation and provide advice as necessary during the life of the rating lists.

Caseworkers have a responsibility to:

  • follow the advice given at all times

  • not depart from the guidance given on appeals or maintenance work, without approval from the co-ordination team

  • seek advice from the co-ordination team before starting any new work

Under the Town and Country Planning (Use Classes) 1987 Order (as amended) Class C1 applies - use as a Hotel, Boarding House or Guest House, where no significant element of care is provided. Operators will need to adhere to the provisions of the Licensing Act 2003 as appropriate to the offer provided by their business model.

The Regulatory Reform (Fire Safety) Order 2005, SI2005/1541 introduced a new regime for fire safety replacing a raft of earlier regulation. Fire authorities no longer issue fire certificates and those previously in force have no legal status. The order applies to virtually all premises except private houses and flats. It applies to all guest accommodation properties including hotels. Under the Order a responsible person who has control of the premises must carry out a fire-risk assessment of the premises which should identify fire hazards, identify people at risk, evaluate, remove or reduce and protect from risk, record findings and prepare an emergency plan, and regularly review.

6. Survey Requirements

6.1 Hotels should be measured to NIA in accordance with the VO Code of Measuring Practice for England and Wales.

In addition, a note should be made of the following:

numbers of bedrooms, type, facilities

number of restaurant covers and type of trade

additional facilities, e.g. bars, conference, leisure, shops, together with details of any agreements, franchises or sub-lettings

AA, Visit Britain or Visit Wales star rating/classification

tariff & any discounts available

occupancy rates

type and mix of trade, e.g. business, tourist, leisure, conference, function

location

site and building layout

number of lifts and floors served

car parking provision

state of repair

level of service provided

details of any Premises Licence (available from the local Licensing Authority) including the permitted hours and any conditions imposed

competition, existing and proposed

6.2 DBU’s EDBU’s and ADBU’s

To assist in comparing valuations and analyses of receipts, reference is made to Double Bed Units (DBUs), Equivalent Double Bed Units (EDBUs) and Adjusted Double bed Units (ADBUs). The standard adjustment factors to be applied to non-standard rooms and other areas of revenue-earning space (bars, restaurants etc) in order to derive these measures remain the same as those utilised in the 2005 list and are detailed below. A calculation tool has been incorporated in the Licensed Property Application (LPA) since R2010 and will automatically populate the LPA with the relevant figures. Where the DBU/EDBU needs to be calculated for a hotel it should be carried out using this application.

Any minor local variation from the national guidelines will be exceptional and need to be supported by local evidence. The room size guide excludes the en-suite area and is for guidance only, with layout, and actual use taking precedence in room classification. The number of DBUs should be expressed in accordance with the agreed standard factors set out below:

DBU FACTORS

En-Suite Size Guide
a) Double or Twin 1 10 - 20 m2
b) Single 0.7 Up to 10 m2
c) Family 1.25 20 - 30 m2
d) Suite - Standard 1.5 2 rooms or over 30 m2
e) Suite - Superior 2 2 rooms or over 30 m2

These factors apply to ground and first floors and also basement and upper floors where served by passenger lift(s). The above factors should be reduced by 15% for rooms on basement and second floors without a passenger lift, and by 25% for rooms on the third floor and above if not served by a lift. Where rooms do not have en-suite facilities these factors should be reduced by 0.25. (For example, a ground floor double room without a bath/shower or WC would have a factor of 0.75.)

In London, in particular, the areas of revenue-earning space are also expressed in terms of DBUs. The figure should be referred to as Equivalent Double Bed Units (EDBUs). If the number of DBUs and EDBUs is summed, the resultant figure is referred to as the number of Adjusted Double Bed Units (ADBUs).

The factors to be adopted in converting areas of revenue-earning space to EDBUs are as follows:

Bars, Restaurants, Lounges, Function/Conference Rooms, Public Bars, Night Clubs - the NIA should be multiplied by 5% (i.e. at the rate of 20m2 = 1 EDBU). e.g. 1,000 m2 NIA equals 50 EDBUs.

If the areas referred to above are at basement or lower ground floor level, with or without natural light, the NIA should be multiplied by 4% (i.e. at the rate of 25m2 = 1 EDBU). e.g. 1,000 m2 NIA at basement level equals 40 EDBUs.

Leisure Complexes - the GIA should be multiplied by 1.5% (i.e. at the rate of 66.7m2 = 1 EDBU).

e.g. 1,000 m2 GIA equals 15 EDBUs.

Comparison using EDBUs is mainly of use for 4/5 star and major chain operated hotels, valued by the Specialist valuers.

For Aparthotels the usual factors to be adopted will be for a one bedroom flat with lounge/kitchen – 1.5 DBU, and 2 DBU for a two bedroom flat.

7. Survey Capture

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

The inspection checklist can be found in EDRM - see attached.

8. Valuation Approach

Basis of Valuation

8.1 General

Rental evidence will normally form the basis of valuation for the smaller hotels valued by Generalists. However, due to the paucity of reliable evidence for chain-operated hotels it will usually be necessary to have regard to the Receipts and Expenditure method in order to derive a basis of valuation for these properties.

8.2 Shortened R&E (Receipts & Expenditure) Method of Valuation

From the 1995 Rating Lists onwards a scheme of valuation has been agreed covering 4 and 5 star and major chain operated hotels. Central discussions with agents representing the British Hospitality Association have taken place in respect of each revaluation and these have resulted in the agreed valuation schemes.

On each occasion accounts for a sample of different hotel types have been analysed, and the limited rental evidence considered, in arriving at the scheme of valuation. The schemes apply a single percentage to the total Fair Maintainable Trade (FMT) to arrive at the RV. The percentage applied varies depending upon expected profitability, having regard to the type of hotel and its trading performance, as suggested by a number of indicators. These indicators are as specified in the Practice Note relevant to the revaluation in question.

The FMT should be ascertained by looking at three consecutive years annual receipts (if available), with the final financial year ending closest to the AVD (whether before or after). Each year’s receipts should be adjusted to reflect changes in the economy, price structures etc. as well as physical factors affecting the property, or its environment.

The Practice Notes provide further guidance on this and on the factors that need to be considered when deciding on the appropriate percentage to adopt. In effect the schemes enable a shortened receipts and expenditure valuation. Non-chain 3 star and under hotels not falling within the scheme should be valued according to local and regional evidence. The relevant Practice Note provides additional guidance where there is no such local or regional evidence.

8.3 Receipts & Expenditure Method of Valuation

In exceptional circumstances, where the hotel does not fit with those covered by the agreed scheme - in terms of physical characteristics, facilities, level of service and location - it may be necessary to value it individually using full accounts and the Receipts and Expenditure method of valuation.

Valuers should however be mindful that the valuation must reflect the value of the hereditament and not the business of the actual occupier and should therefore exercise caution before adopting an RV derived from this approach where it falls outside the expected percentage range when taking a wider view of the particular type of property.

8.4 Basis of Comparison

Consideration of a hotel’s performance in terms of occupancy rates and average achieved room rates will assist in gaining an understanding of how it compares with the wider market and more specifically with similar hotels offering comparable accommodation, facilities and services.

A secondary comparison can be made by analysing in terms of DBUs, or ADBUs. Accommodation receipts divided by the number of DBUs produces an annualised room receipt figure, which has a parallel in the revenue per available room indicator (revpar) used in the industry. It reflects both occupancy and achieved room rates. Total receipts analysed in terms of DBUs will also reflect the income earned from restaurant(s), bar(s) and all other ancillary areas and facilities.

Ultimately the rateable values derived may be similarly analysed in terms of per DBU and per ADBU, however, use of the outcomes as a comparison tool needs to be treated with caution due to the many variables that are inherently reflected through the FMT and percentage applied in the valuation.

8.5 Rental Evidence

Although a not insignificant number of hotels are rented, a considerable number of these rents will be found to be unreliable. For many smaller hotels where the property also provides the proprietor’s living accommodation care should be taken that the full value of the domestic portion is discounted in any analysis since in many coastal areas, and inland areas of natural beauty, the motive of occupation is a matter of lifestyle choice rather than to run a profitable business. At the chain hotel end of the market many rents are financial deals, sale and leaseback transactions or parts of larger management arrangements. Others will also include non-rateable chattels. Rental agreements of long-standing will not be for the property in its present form, the tenant having carried out much improvement and extension work over the years. Where a rent is being considered valuers must ensure that the full details and background to the deal are obtained.

8.6 Valuation Considerations

8.6.1. General

When analysing rental evidence, and comparing or preparing valuations, regard must be had to the income streams and profitability of the revenue sources in a hotel.

The Forms of Return (FORs) for hotels (VO 6015/VO 6016) ask for a division of receipts between

a.Accommodation/Rooms

b.Food - excluding wines and liqueurs

c.Intoxicating liquor

d.Other receipts including hire of function/conference rooms and leisure facilities

Where accounts are available gross profit levels, which are likely to be different for each function, can be measured against performance norms. As precise apportionment of wages and other overheads between each is not possible it is traditional for the accounts to relate to the whole business carried on at the property and the tenants bid will usually be a global percentage reflecting this.

By looking at the trade split, as evidenced by the proportion of income generated by each source, valuers will however be able to reflect more accurately the differing net profit margins when determining and comparing a single percentage.

Letting accommodation will normally show the highest net profit. The net profit on food will depend on the type of hotel and nature of the catering operation. Normally where it is run as a good class restaurant and many covers are “non-residential” it would be expected to fall between the rates for the wet trade and accommodation. Where the covers are limited to guests, or the restaurant does not have the potential for a wider appeal, the net profit from catering is likely to be the lowest.

As well as looking at the trade split each income stream can be compared. Accommodation receipts can be analysed per DBU to give a net income per room and catering receipts can be expressed in terms of covers/floor area/receipts per EDBU. There will always be an area of cross-subsidy (e.g. guests can use leisure facilities which non-residents subscribe to by way of membership fees and/or admission charges) and great care must be taken to reflect these when comparing one hotel with another.

Total receipts can also be analysed per DBU, or ADBU, to compare the turnover of similar types of hotels. The results must be treated with caution, as the analysed figure will reflect all the various facilities available. It will, however, give an indication of whether the hotel is trading significantly above or below the norm for that particular type, although it will not provide any indication of running costs or profitability.

8.6.2. Additional Considerations

The value of a hotel depends on its potential profitability, and where accounts are available for well-run hotels these will provide the best evidence. In the absence of full accounts, when making a valuation judgement it will be necessary to consider all factors which could influence either the turnover or operating costs of the hotel in question, or of any comparables. The following list of points for consideration is not exclusive:

a) Accommodation

It is not sufficient merely to take account of the total accommodation and the following matters should be considered:

  • whether the number and type of single and double letting bedrooms are in balance with the needs of the locality and the class of trade;

  • the size, quality and layout of the public rooms;

  • whether the kitchens are up to standard and convenient for economical working;

  • the adequacy and efficiency of the hot water, heating and air conditioning systems (if any);

  • whether there are adequate lifts;

  • whether there is sufficient off-street parking;

  • whether any of the accommodation is surplus to, or doesn’t meet, present day needs.

b) Location

This is determined by the type of trade envisaged by the hotel operator, or conversely, the location will determine the potential trade of the hotel. Convenience to transport facilities or town centres will encourage tourist and commercial hotels; proximity to airports will lead to the establishment of hotels for executives, and nearness to motorways and other major roads will promote motels and lodges. At seaside holiday resorts the distance from the sea and views from the bedrooms will have a considerable bearing on the popularity of the hotel.

c) Class of Trade

The “star rating” of the hotel (AA, Visit Britain, Visit Wales) together with any recognition award (e.g. red or silver stars) or AA merit marking. A note of any restaurant recognition (Michelin stars, AA rosettes, Egon Ronay) should also be considered.

d) Licensing

Until full implementation of the Licensing Act 2003, hotels may have possessed a “residential licence”; and/or “restaurant licence” within the meaning of Part IV of the Licensing Act 1964. The latter may have been value significant if the premises attracted non-residential trade. Following the coming into effect of the Act on 24 November 2005 in order to sell alcohol the premises will need a “Premises Licence”; there will also need to be a “Designated Premises Supervisor” (DPS) who will be named on the premises licence and who will require a “Personal Licence” under the Act. In addition to the sale of alcohol the licence may cover any provision of regulated entertainment (which includes the playing of recorded music and live bands {except bands playing at weddings}) and provision of late night refreshment. In addition any establishment, licensed or not, may apply for up to 12 Temporary Events Notices during a calendar year – this will cover (if not already included in the Premises Licence) marquees for wedding receptions, or other functions, among other purposes. If it is intended for alcohol to be sold the application must be made by a personal licence holder.

e) Catering and Functions

Facilities for catering and restaurant business for non-residents.

f) Conference Facilities

The size, quality and adaptability of rooms to accommodate business conferences which can be an important adjunct to many of the larger hotels.

g) Leisure Facilities

Many hotels have leisure facilities such as a swimming pool, health club, gym, squash court and/or golf course. They may be exclusive to residents or open to non-residents, often via a club or membership scheme.

h) Operating Costs

These will depend greatly on the age, layout and services for each individual hotel. An old, sprawling hotel on different levels is likely to be more expensive to light, heat, clean and service than a modern purpose built hotel with a modular layout. Additionally, the operating costs will depend on the level of hospitality and personal service provided; country house hotels will, for example, tend to provide high service levels at correspondingly high cost. The type of hotel will also affect the amount of tenant’s capital, which would be envisaged to be tied up in the property and whether it is likely to be occupied by a hotel group who would have to additionally cover a proportion of head office expenses.

i) Composite Hereditaments

Any dwelling house within the curtilage of the hereditament as well as staff flats or rooms within the hotel will be domestic property and the hereditament will be a composite.

8.7 Toning of Receipts

Where receipts information for the three financial years ending closest to the AVD is unavailable, for example in the case of a recently completed property, or if there has been a change of occupier, or following a MCC, it may be necessary to adjust later (or earlier) receipts to the relevant valuation date. Evidence to support the level of adjustment should be drawn from investigation of receipts for similar classes of hotels within the local or regional area. Trade patterns are likely to vary considerably between different types of hotel, and caution should be exercised in applying adjustments gleaned from, for example, modern, purpose built, commercial hotels to older, historic, mixed business/tourist properties.

8.8 Hotel Grading

The AA and the UK tourist authorities (Visit Britain, Visit Wales, Visit Scotland) now apply common quality standards. The details of the standards required can be viewed on their respective Internet sites. The application of the traditional star rating system is no longer considered appropriate to cope with the diverse range of new hotel concepts that have evolved. With 50% of bookings now dictated by the reading of previous reviews/experiences of others, the power of feedback is so strong, that the star rating of a hotel is now less relevant.

9. Valuation Support

All 3 star hotels and equivalent, 2 star hotels and equivalent (except in larger holiday resorts where exceptionally those 2 star hotels with limited facilities may be valued on RSA) and other substantial hotels should be entered onto and valued on the Licensed Property Application.

All hotels should be valued either on RSA or the LP application and nowhere else.

For clarification the properties to be valued on RSA and the Licensed Property Application are set out below:

To be valued on RSA

Guest Houses (Scat 122)

Boarding Houses (Scat 122)

Bed and Breakfast Accommodation (Scat 122)

Ungraded, 1 star and smaller 2 star hotels (Scat 122, or Scat 137) without significant other facilities. These hotels will usually be less than 20 bedrooms except in holiday resorts where this may vary depending on local circumstances.

To be valued on Licensed Property Application

All 5 star & 4 star and chain 3 star hotels (Scat 138)

All independent 3 star hotels and equivalent (Scat 137)

Licensed ungraded hotels

1 star, 2 star hotels and equivalent (Scat 137) (except those with limited facilities that will generally be less than 20 bedrooms, although this may vary in larger holiday resort areas).

Hotels (Scat 122 or 137) with function rooms and other facilities, or facilities used by non-residents

Hotels valued by reference to receipts

Lodges/budget hotels (Scat 160,137 or 138)

Country House Hotels (Scat 077) – often not graded with a small number of bedrooms

Rating Manual: section 6 part 3 - section 510: Hotels: Appendix 1: Interface between public houses / inns and hotels / guest houses

1. Valuation

Public Houses/Inns

These are to be valued in accordance with Rating Manual: section 6 part 3 - section 825 and the relevant Practice Note. Accommodation receipts derived from letting six or less bedspaces will be added to the dry trade; for more than six bedspaces a separate percentage will be applied to accommodation receipts.

Four & Five Star and Major Chain Operated Hotels

These are to be valued in accordance with the relevant Practice Note to this section. The valuation scheme for each hotel type uses specific indicators as a guide to likely profitability. Thus, in very broad terms, the higher the accommodation receipts (the most profitable of the income streams), expressed both as a proportion of total receipts and per double bed unit, the higher the percentage to rateable value adopted. Conversely, the greater the proportion of liquor, food and other turnover, the lower the overall profitability of the business is likely to be and therefore a lower percentage will be applicable.

Independent 3 Star Hotels

These are to be valued having regard to local evidence, in accordance with the relevant Practice Note to this section.

Purpose Built Lodges

Purpose built lodges adjoining or attached to public houses, should be valued using the scale for lodges and the liquor, food and other income streams for the public house valued in accordance with Rating Manual: section 6 part 3 - section 825 and the relevant Practice Note.

2. Effect of Valuation Bases

When applying the public house and hotel scales to the same level of fair maintainable trade, different values may arise, particularly for older properties, or those with a relatively low proportion of accommodation receipts. Publicans/innkeepers and hoteliers however serve different markets, they have different expectations, incur different costs and achieve different levels of profitability. Thus any differences arising when applying the two valuation bases to fair maintainable trade are to be expected and reflect the nature of the business and the different rental markets. This should not cause problems provided the hereditament is correctly identified as either a public house or hotel and valued accordingly.

3. Distinction Between Public Houses/Inns/Restaurants & Hotels/Guest Houses/Bed & Breakfast Hereditaments

In most cases there will be no problem in identifying public houses/inns and hotels. Where, however, the distinction is blurred it is important to identify the exact nature and type of property that is being valued, and the likely occupier. If the property provides public rooms, service and other facilities in addition to bedrooms, though it may have a significant licensed and restaurant trade (possibly at a relatively low profitability), it is likely to be an hotel. It is likely, on the other hand, to be a public house/inn if, whilst having letting rooms it does not have the usual facilities or provide the services normally associated with an hotel.

The physical characteristics of the property, the nature of business being carried on and the most likely occupiers of the property if vacant must be identified. The following factors, whilst not exhaustive, should be considered and may give some guidance:

  • the Class of the Use Classes Order under which the property has planning permission,

  • The legal requirements such as Licensing Act 2003 and Hotel Proprietors Act 1956.

  • amount and relativity between the income streams for liquor trade, catering, accommodation and other,

  • physical factors such as separate entrance, reception, sitting rooms, dining room etc. provided for residential guests and segregated from bar areas and licensee’s/proprietor’s or manager’s living accommodation,

  • arrangement of letting bedrooms, type and standard of accommodation,

  • whether bedrooms have en-suite facilities or bathrooms/WCs are shared, and if so with other guests or staff,

  • level and type of services provided for residential guests,

  • the type of staff employed, e.g. receptionist/telephonist, housekeeper, chambermaid, cook, waiters/waitresses, bar staff, night porter etc.,

  • the history of occupation of the property and whether the occupier (or potential occupier) is likely to be a publican/innkeeper, who sees the opportunity to increase profit by utilising spare accommodation for letting purposes, or a hotelier

  • who sees the opportunity to increase profit by attracting non-residential restaurant and bar trade,

  • whether the property is run by a proprietor or managed on behalf of a company running a number of public houses/inns or hotels.

4. Valuation at the Interface

Very exceptionally where, following consideration of the essential nature of the hereditament, the current mode of operation and the likely operation of the hypothetical tenant, it is still not possible to determine whether the property should be regarded primarily as a public house/inn/restaurant or an hotel, it may be necessary to adjust the percentage adopted to reflect the actual circumstances. In these circumstances, the following guidance may assist in the determination of the appropriate valuation method to be adopted:

a.where the percentage of accommodation receipts are greater than 40% the hotel basis is most likely to be appropriate. The rental percentage adopted should generally be increased if a substantial part of the other income streams arises from a profitable bar. The resultant valuation should not exceed the valuation based on the public house scale,

b.where the accommodation receipts are below 30% the public house basis is most likely to be appropriate,

c.between 30% and 40% the property should be valued on both the public house basis and the hotel basis. If the hotel basis is increased (by say 1%) to reflect the profitability of the wet trade, or if a lower band/point within a band is adopted on the public house scale and the catering/accommodation are valued to reflect any extra services and lower profitability, any differences between the two bases should be minimised. This will also reflect the additional tenant’s capital required, and the increased complexity of the business, compared to a typical public house.

d.the above points must also be viewed in terms of the total receipts. For example, 40% of total FMT of £100,000 may still indicate that the property should be regarded as a public house/inn. On the other hand, 40% of total FMT of £1,000,000 is more likely to lead to the conclusion that the property is an hotel, e.in cases where it is still not possible to determine the nature of the property, where the actual operator is an individual entrepreneur it is more likely that the property is being run primarily as a public house/inn. Where the property is being managed on behalf of a company running a number of public houses and hotels then, with the exception of the large, branded public house/restaurant chains, it is more likely that it will fall to be treated as an hotel.

5. Overview

In the vast majority of cases consideration of the factors set out in paragraph 3 above should enable the valuer to determine whether the hereditament should be regarded primarily as a public house/inn or a hotel. In those exceptional cases where the valuer is still uncertain as to the primary use of the property regard to the further considerations at paragraph 4 above should provide assistance and enable a conclusion to be drawn.

The lines of distinction between the hotel industry, guest houses/ bed and breakfast and to some extent public houses and restaurants are blurring.

A bed & breakfast is usually smaller than a guest house and is part of a private family house. Historically B&Bs originate from family homes that were rented to visitors to supplement the family income.

A guest house is usually larger than a bed & breakfast establishment, with more than 5 bedrooms. The majority will be owner occupied with limited staff (if any).

An hotel is legally defined by ‘The Hotel Proprietors act 1956’. In this Act, the expression “hotel” means an establishment held out by the proprietor as offering food, drink and, if so required, sleeping accommodation, without special contract, to any traveler presenting himself who appears able and willing to pay a reasonable sum for the services and facilities provided and who is in a fit state to be received.

It is sufficient to define a hotel as an establishment having 5 or more bedrooms. Hotels usually have full-time dedicated staff. Many hotels are part of a chain with strong branding, whilst others are independent.

Boutique hotels differentiate themselves from chain hotels by offering personalised accommodation / service / facilities. A key factor would be individually styled rooms.

Aparthotels have grown out of the demand for self-contained living accommodation from regular hotel users (see Rating Manual: section 6 part 3 - section 890: serviced apartments)

The changing landscape has meant that public houses are now offering a greater range of food than ever before and are often competing directly with restaurants. The physical characteristics and features of the property will also assist in determining the correct valuation methodology to be adopted.

As with all valuations it will be necessary to stand back and look at the resultant rateable value and consider how this compares with the assessments of other public houses/inns, restaurants and hotels in the locality.

Practice note 2017: Hotels

1. Market Appraisal

1.1 Overview

Since the last Antecedent Valuation Date (01 April 2008), the UK economy has experienced a rollercoaster in terms of economic performance, and the hotel sector has followed suit, with the low point being identified as the 1st quarter of 2009. For a considerable amount of time since the 3rd quarter of 2008, the sector has suffered a real decline in terms of trading performance, with 2009 and 2010 showing significant and often dramatic declines in turnovers.

Not even the gloomiest forecaster would have predicted the depth of the recession, and although high profile sales, administrations (i.e. Von Essen, Travelodge, De Vere etc.) occurred, sales and purchases were quick and the market didn’t appear to stagnate.

As expected the level of decline and subsequent rate of recovery varies depending on the historic trading strength of the hotel, the location, the type of hotel (Chain vs Independent) and the sub-sector the hotel operates in.

There was a clear divide in how hotels performed during this difficult time between London and ‘the rest’, with the capital recovering earlier and at a faster rate, post-recession. This is perfectly illustrated as currently the London hotel market is viewed as the strongest in Europe and possibly the world.

Regardless of this, across the board, both 2009 and 2010 were clearly identified as tough years for the hotel industry, showing decline in nearly all industry barometers (Profits, Revpar, Occupancy etc.). Some major cities (i.e. Birmingham, Manchester and Leeds) suffered a ‘double whammy’ in several difficult years, with an increase in supply coupled with a suppressed market, due in part to the lag time on major hotel developments.

During 2011 and 2012, the sector was relatively flat, still suffering from the recessionary impact but turnover figures began to slowly start increasing and performances started to head once again in a positive direction. However, they were still some way off from the sectors former high of 2007/2008.

2013 will be remembered as the year the UK economy finally recovered from its latest cyclical low point, and was further consolidated in 2014. This perceived recovery was illustrated not only in hotel trading figures of that year, but also in sale prices, with these up 5.7%, following a decline in average price in 4 of the previous 5 years.

There wasn’t the expected drop back from the Olympic year of 2012, but there was a level of post-Olympic correction in 2013.

The continued improvement in 2014 was to be expected as inbound tourism was on the increase, being 15% higher than 2013 at £21.6bn in terms of overseas spending, and visitor numbers up 6%. Both tourism and business custom continue to recover with year on year increases. In that year, provincial hotel occupancy figures were at circa 71%, the highest they have been since 2000 and best Average Daily Rate (ADR) growth since 2008. Real growth in the regions was witnessed, and illustrated in trading results, showing like for like Revpar growth of 9.5% for the first 6 months compared to the previous year, driven by strong occupancy growth and an impressive acceleration in ADR. As expected there are

As for the outlook for 2015, it is expected that there will be an increased supply of hotels, not only a growth in transactions but also increases in occupancy rates, room rates and consequently Revpar. In fact the economic backdrop in which the hotel sector operates at the 2015 valuation date, may very well be favourable when compared to the valuation date back in 2008. Suggesting a full recovery from a lengthy period of economic depression suffered post 2008. This positive outlook will be supported by business travel, as business confidence has been bolstered and looks set to continue to rise as the UK economy continues to improve.

Note of caution: although by 2014 revenues had recovered to 2008 levels, profitability hasn’t followed suit, due to continued increases in the base/fixed costs associated with running a hotel (e.g. utilities, staff and insurance premiums).

It should be remembered that in any given provincial (city) market, there are unique dynamics of demand and supply that need considering. It should also be noted that the scheduled Rugby World Cup will potentially positively impact the hotels trading performance in September-October 2015, impacting 13 venues in 10 cities throughout England and Wales. An expected 500,000 overseas fans will be in attendance in addition to domestic based fans.

As mentioned the actual recessionary impact, and subsequent recovery has varied greatly depending on the type of hotel. For example the budget sector’s growth and popularity continues unabated, with a key reason for such popularity being that the economic downturn proved a gain for the budget sector and a loss for the full service sectors due to cash-strapped customers.

1.2 The Hotel Stock

In 2014 UK hotel stock increased by approximately 10,000 rooms, with this trend set to continue in 2015. Of these 10,000 new hotel rooms, 67% were for budget hotels concentrating in major cities, whilst London still dominated new supply overall.

Major brands account for the lion’s share of new supply, especially in budget and 4 star sectors. Recently hotel closures far exceed hotel openings, a ratio of 3 closures to every 2 openings, but the net increase in number of rooms is due to many of the closures being smaller, independent 2 star/3 star properties. Closures were reported as being high in London, Blackpool and the West Country.

1.3 Other Developments

One major development since the last Revaluation for the industry as a whole, has been the increased popularity of online travel agencies (OTAs). The use of OTAs is now hugely popular and is viewed as an essential marketing tool, especially when used in conjunction with the hotel’s traditional direct marketing approach. OTAs are particularly beneficial to non-chain hotels, and have proved especially popular with the growing boutique hotel market.

OTAs allow independents to compete with their big brand counterparts, and allow a similar customer/marketing reach at a price (commission) worth paying, especially for new or newly acquired independent hotels. The extra cost to a hotel operator commonly results in the worthwhile increase in new business, which can then be added to the hotels existing database and direct communication with the client can ensue. OTAs are used for last minute deals on vacant rooms to overcome quiet trading periods, and are popular for leisure and weekend business.

In 2012, AirBNB became the largest peer-to-peer accommodations website in the United Kingdom, and its rapid growth, both in the UK and globally, is there for all to see. Currently, hoteliers do not view AirBNB and other similar ‘sharing economy’ business models as a significant threat to the hotel market, and still consider Online Travel Agency to be their biggest threat. However, it has been noted that with this increase in popularity set to continue, an adverse impact will be felt by the sector in the upcoming years. A recent study in the United States undertaken by Boston University, suggested that in the budget hotel sector takings would be down 10% by as soon as 2016 as a result of AirBNB and others.

(Primary reference source for Section 1 : “The Caterer and Hotelkeeper” - Hotel Insight Reports).

2. Changes From the Last Practice Note

There have been no changes to the main principles of the 2010 valuation scheme, the valuation approach and valuation scales have purely been updated to reflect the current market dynamics of the sector.

3. Ratepayer Discussions

For star-rated/chain operated hotels a detailed review and analysis of a cross-section of trading accounts has been undertaken with the co-operation of the professional representatives acting for the majority of the major hotel chains. This has been supplemented by data received direct by a significant number of independent hoteliers. A programme of joint discussions between the VOA and the rating adviser to the British Hospitality Association (Gerald Eve) over the 6 months to the end of October 2015, has resulted in an agreed scheme of valuation for the 2017 Rating Lists. The details are set out in the remainder of this Practice Note.

4. Valuation Scheme

4.1 Star Rated/Chain Operated

The scheme applies a single percentage to the total Fair Maintainable Trade (FMT) to arrive at the RV. The percentage applied varies depending upon expected profitability, having regard to the type of hotel and its trading performance, as suggested by a number of indicators.

The scheme of valuation is set out at Appendix 1 for properties in provincial England and Wales including those in Outer London and at Appendix 2 for properties in Central London and at Heathrow Airport.

4.2 Non-Chain/Independent

In the 2010 Rating Lists non-chain/independent hotels were typically valued on the same scale with the application of an uplift factor of up to 1.1 on the percentage to RV. Historically this was warranted on the basis that at the interface, whilst the chain would have significant central overheads to achieve an enhanced level of receipts, the independent would not - but as a consequence it would be likely to secure a lower level of turnover. The net effect would be a closer correlation of values between what would be considered quite comparable properties. Hence, the percentage uplift for an independent hotel to ensure that similar hotels, be it chain or otherwise, were valued at similar levels in terms of RV per double bed unit (DBU).

However, the increased use and popularity of Online Travel Agencies (OTAs) and Third Party Booking sites, has facilitated a greater customer reach and marketing ability for smaller independent hotels. At the same time there are associated considerable costs. The parallels with chain operations are now far closer and as a consequence the need to apply such an uplift for independent operators is only likely to be warranted in exceptional cases.

4.3 Fair Maintainable Trade (FMT)

The adopted FMT should be that which would have been agreed between the parties as at 1 April 2015, looking forward and taking into account perceived trends, risks and uncertainties at that date. As outlined above, the years immediately leading up to the AVD were a relatively positive time for the hotel industry in general, following a period of economic recession and a series of tough trading years (2009-2011). This should be borne in mind when considering trends and estimating FMT. The averaging of trade to arrive at an FMT should be avoided.

Where trade details have not been disclosed FMT should be estimated having regard to any earlier information held on file, and comparing with the pattern of trade of other comparable hotels in the locality.

4.4 Application of the Agreed Valuation Schemes

4.4.1 Provincial England and Wales (including outer London)

The agreed scheme for 2017 is similar to the 2010 Rating Lists scheme.

The class of hotel as evidenced by the level of service provision and the rooms yield (accommodation receipts per DBU) and the proportion of total trade flowing from rooms (the most profitable hotel income stream) are the primary factors that will influence profitability. Hence, the valuation bands are expressed firstly by class of hotel and then within each band by reference to the rooms yield and the rooms income proportion (percentage that accommodation receipts represent of total income).

Appendix 1 presents the scheme as a range of percentage to RV at any particular level of accommodation receipts per DBU. The range of percentage is provided at set intervals for accommodation receipts per DBU; valuers should interpolate between these figures – a computation spreadsheet has been provided to Specialist valuers to assist in this.

When deciding on the appropriate percentage to adopt, the following approach should be taken:

Firstly, having established the level of service provision of the hotel to be valued (consideration may be given to the AA star rating, if present, to assist in this, but it is not the ultimate determinant and its importance within the industry is declining) refer to the relevant table of percentages. Calculate the proportion of total income attributable to accommodation receipts and at the same time the accommodation receipts per DBU. A decision then has to be made as to where in the range the subject property should sit.

All factors relevant to the valuation should be considered when deciding the position in the range. In particular, the following should be taken into account:

a. The construction and layout of the hotel

These will have an effect on running costs, including staff costs and maintenance

b. The size of the hotel

Where the hotel is significantly larger than the norm for its type, and still attracts a good level of accommodation receipts in terms of £/DBU this will indicate high profitability due to economies of scale and the hotel should be valued towards the top of the relevant range.

c. The presence of ancillary facilities

Where a hotel achieves a consistently high level of other income, a higher point within the percentage range should normally be adopted, as the income stream may potentially be very profitable. Such income streams include, conferencing, extensive leisure or golf facilities and weddings/functions etc. These provide a significant contribution to the hotel’s overall annual turnover and will naturally suppress the percentage of income derived from accommodation, which in turn will produce an unrealistically pessimistic and inaccurate view of a hotel’s true profitability.

If the total of all ‘other receipts’ is clearly in excess of 10% of the total income generated, then this will need to be separately identified and the proportion attributable to rooms recalculated once it has been deducted from the total. This will produce an uplift to the accommodation percentage used in the valuation, and will result in an increased rateable value if justified by the source of these other receipts. No adjustment is required when all other receipts are 10% or less. If further advice is needed, guidance should be sought from the Hotel CCT.

Once the appropriate percentage has been decided upon, this is applied to the FMT in order to derive the rateable value.

4.4.2 Central London and Heathrow Hotels

The agreed scheme for 2017 alters the previous approach to achieve alignment with that applicable to the rest of the country. The level of accommodation receipts per DBU now factors directly in the determination of the appropriate percentage to RV to be applied.

Appendix 2 shows the detail of the scheme in exactly the same format as Appendix 1.

The principles involved in its application are much the same as detailed above in respect of the provincial scheme.

All factors relevant to the valuation should be considered when deciding the position in the range, including those detailed above under section 4.4.1.

Once the appropriate percentage has been decided upon, this is applied to the FMT in order to derive the rateable value.

4.4.3 Lodge and Aparthotels

The scheme for lodges and aparthotels has also been adjusted to align more closely with the wider provincial basis. The percentage to be applied is still determined by the level of accommodation receipts per DBU, but instead of a set percentage covering a range of receipt levels, intermediate levels will now be interpolated between the specified points on the scheme.

Expansion of the rooms only sector has seen the emergence of the ‘Super Budget’ hotel in recent years and the scheme caters for these by an addition to the percentages expressed therein. The 2017 list agreed valuation scheme for lodges and aparthotels has the same coverage as the provincial scheme and is set out at Appendix 3.

The major operators in the lodge market are Travelodge and Premier Inn. There are however also a number of other operators who now have established competing brands in this market.

Where a lodge brand positions itself slightly differently by offering more services, it will be appropriate to apply the scale for lower service provision hotels (e.g. those Premier Inns and Travelodges where bars and restaurants are present are to be valued on the lower service provision scale)

4.4.4 “Major Chain”

Consortia members should normally be included within this definition (e.g. Best Western, Accor Group). Chains with less than 10 hotels should not usually be regarded as a major chain. However, hotels in small chains of less than 10, particularly those situated in a tight geographical location (e.g. same regional resort) should be valued using these scales where trading levels are comparable to those of one of the national operators.

4.4.5 Leisure Clubs attached to Hotels

Leisure clubs will normally form part of the hotel hereditament, although each case must be looked at on its own facts.

Income disclosed in respect of leisure clubs must be checked to ensure the basis of the figures is understood. In some cases the leisure club will be run by a separate company within the same Group or by a totally independent company. In these cases receipts disclosed may be in the form of “rent” received, or a net “contribution”. The latter may be the net profit from the leisure club, or a proportion of that net profit.

Where gross receipts for the leisure club are given these should be included within the FMT and valued with the rest of the hotel at the appropriate overall percentage – see 4.4.1 c) above. Where a “net” figure or concession/franchise fee is disclosed on the Form of Return completed in respect of the subject property, the FMT for this income stream alone (i.e. the concession/franchise income) should be estimated and then valued at a rate of between 25% and 50% depending on expected profitability, taking into account the services and facilities provided by the hotel operator to the holder of the concession/franchise.

Joining fees should be included only to the extent that these would be anticipated from new members on an ongoing basis – e.g. following resignation of existing members.

4.4.6 Hotels with Major Leisure Facilities

These are hotels with good quality golf/outdoor facilities in addition to an indoor leisure club and can vary significantly in terms of both age, size, construction, location and facilities offered. These should be valued at the appropriate rate taken from the relevant scale and having regard to section 4.4.1 c) above. The type of hotel accommodation (e.g. 3 star standard service or 5 star higher service provision) should be used as the starting point to determine which scale is appropriate for the hybrid golf/hotel hereditament. Once determined, an adjustment may be required to reflect ‘‘other income’ in excess of 10%. A stand back and look approach, including comparison to other similar hotel and golf properties should be undertaken. Valuer judgement is required on this hybrid class of property, and in exceptional circumstances a cross check on the golf element should be made with the scheme of valuation for golf courses (see RM: V6: Part 3: S450)

4.4.7 Coach Touring Hotels

In the case of hotels owned by coach tour operators, more often than not, the accommodation receipts information provided is unreliable as it will be an apportionment of the total package price according to the accounting policy of the occupier. It is necessary therefore to compare on a DBU / ADBU basis with other hotels in the locality.

As regards other hotels that accept coach tour business, in the absence of full accounts, these should be valued as other independent hotels, but the final RVs should again be checked on a DBU / ADBU basis with comparables in the locality.

4.5 Hotel/Pub Interface

Where a hotel is being run more in the nature of a public house/inn or public house / restaurant, reference should be made to the appropriate public house scale but taking into account any additional expenditure incurred due to the nature of the property or style of occupation. Where this results in a higher RV than if valued on the hotel scale, the higher value should be adopted.

Coaching and other inns - the nature of these properties is such that receipts from accommodation may form a relatively low proportion of total receipts - often less than 35%. These are often budget standard or below and will generate a significant proportion of total income from non-residential food and liquor sales, so that in many respects the property is similar to a pub-restaurant with rooms. Where the property cannot clearly be distinguished as a public house/inn or hotel by reference to its physical features, both the hotel scale and public house scales should be applied, adjusting both to reflect the nature of the property. This should minimise the differences between the public house and hotel scales and result in a percentage between that which would be derived from a straight application of the two different scales. This percentage will reflect the more complex management required, and the increased tenant’s capital, compared to a pub-restaurant. Further guidance is given in Appendix 1 to the main Rating Manual Section.

Modern pub-restaurants with lodges - these should be valued on the public house basis with an addition for the lodge on the lodge scale.

4.6 Airport Hotels

London Airport hotels - these are characterised by high occupancy rates, high levels of accommodation receipts per DBU and high percentages of accommodation receipts compared to most provincial hotels. There is a separate scale in respect of Heathrow hotels, but elsewhere it is anticipated that the main scales at Appendix 1 adequately cater for any variations.

Provincial Airport hotels - these should normally be valued in accordance with the scales set out at Appendix 1.

Practice note : 2017: Appendix 1: Agreed provincial hotel scales

The following scales give a percentage range for any figure of accommodation receipts per DBU relative to the proportion of total turnover attributable to accommodation receipts. The range should be interpolated between the points shown.

(These scales should be read together with section 4 of the Practice Note).

PROVINCIAL HOTELS (England & Wales) - 2017 AGREED VALUATION SCHEME

(Including Outer London Locations, apart from Heathrow and equivalent)

see Rating Manual: section 6 part 3, Section 510 : Hotels : Practice Note : 2017 for guidance on application of scales.

A) HOTELS - Lower Service Provision budget/lodge (with bar/restaurant facilities) or equivalent quality.

Accommodation Receipts per dbu Proportion Accommodation Receipts out of Total Turnover Percentage range applicable
  35% 60% 85% 100%
26,500 9.25% to 12.25% 11.00% to 14.00% 13.00% to 16.25% 15.75% to 18.75%
23,500 9.00% to 12.00% 10.25% to 13.25% 11.75% to 15.00% 14.25% to 17.25%
20,500 8.50% to 11.50% 9.625% to 12.625% 11.00% to 14.00% 13.00% to 16.00%
17,500 7.50% to 10.50% 7.875% to 10.875% 8.50% to 11.75% 10.25% to 13.25%
14,500 7.25% to 10.25% 7.50% to 10.50% 8.00% to 11.25% 9.75% to 12.75%
11,000 7.00% to 9.75% 7.25% to 10.00% 7.50% to 10.75% 9.50% to 12.25%
7,500 6.75% to 9.50% 7.00% to 9.75% 7.25% to 10.50% 9.00% to 11.75%
4,000 6.50% to 9.00% 6.75% to 9.25% 7.00% to 10.00% 8.75% to 11.25%

Intermediate points should be interpolated pro rata.

B) HOTELS - Standard Service Provision at 3 & 4 star or equivalent quality.

Accommodation Receipts per dbu Proportion Accommodation Receipts out of Total Turnover Percentage range applicable
  35% 60% 85%
34,000 9.25% to 12.25% 10.25% to 13.25% 11.50% to 14.50%
31,000 9.00% to 12.00% 10.00% to 13.00% 11.25% to 14.25%
28,000 8.50% to 11.50% 9.50% to 12.50% 10.75% to 13.75%
25,000 7.75% to 10.75% 8.75% to 11.75% 10.00% to 13.00%
22,000 6.75% to 9.75% 7.75% to 10.75% 9.00% to 12.00%
19,000 6.00% to 8.75% 7.125% to 9.875% 8.50% to 11.50%
16,000 5.50% to 8.00% 6.75% to 9.25% 8.25% to 10.75%
13,000 5.25% to 7.75% 6.50% to 9.00% 7.75% to 10.25%
10,000 5.00% to 7.50% 6.25% to 8.75% 7.50% to 10.00%

Intermediate points should be interpolated pro rata.

C) HOTELS - Higher Service Provision at top 4 star/5 star or equivalent quality.

Accommodation Receipts per dbu Proportion Accommodation Receipts out of Total Turnover Percentage range applicable
  35% 60% 85%
43,000 9.00% to 12.00% 10.00% to 13.00% 11.25% to 14.25%
40,000 8.75% to 11.75% 9.75% to 12.75% 11.00% to 14.00%
37,000 8.50% to 11.50% 9.50% to 12.50% 10.75% to 13.75%
34,000 8.25% to 11.25% 9.25% to 12.25% 10.50% to 13.50%
31,000 8.00% to 11.00% 9.00% to 12.00% 10.25% to 13.25%
28,000 7.50% to 10.50% 8.50% to 11.50% 9.75% to 12.75%
25,000 6.75% to 9.75% 7.75% to 10.75% 9.00% to 12.00%
22,000 5.75% to 8.50% 6.875% to 9.625% 8.25% to 11.00%
19,000 5.00% to 7.50% 6.25% to 8.75% 7.75% to 10.25%

Intermediate points should be interpolated pro rata.

Practice note : 2017 Appendix 2 - Agreed Central London and Heathrow hotel scales

Agreed Central London and Heathrow Hotel Scales

The following scales give a percentage range for any figure of accommodation receipts per DBU relative to the proportion of total turnover attributable to accommodation receipts. The range should be interpolated between the points shown.

(These scales should be read together with section 4 of the Practice Note).

CENTRAL LONDON and HEATHROW HOTELS - 2017 AGREED VALUATION SCHEME

see Rating Manual: section 6 part 3, Section 510, Hotels: Practice Note: 2017 for guidance on application of scales.

A)

Central London 2/3/4 Star Hotels or equivalent with accommodation receipts up to £55,000 per DBU

Accommodation recipts per dbu Proportion Accommodation Receipts out of Total Turnover (Percentage range applicable)
  50% 65% 87.5% 100%
55,000 12.50% to 15.50% 13.50% to 16.50% 14.75% to 17.75% 17.00% to 20.00%
50,000 12.25% to 15.25% 13.25% to 16.25% 14.50% to 17.50% 16.75% to 19.75%
45,000 12.00% to 15.00% 13.00% to 16.00% 14.25% to 17.25% 16.50% >to 19.50%
35,000 11.75% to 14.75% 12.75% to 15.75% 14.00% to 17.00% 16.25% to 19.25%
30,000 11.50% to 14.50% 12.50% to 15.50% 13.75% to 16.75% 16.00% to 19.00%
25,000 11.25% to 14.25% 12.25% to 15.25% 13.50% to 16.50% 15.75% to 18.75%
20,000 10.00% to 13.00% 11.00% to 14.00% 12.25% to 15.25% 13.50% to 16.50%

Intermediate points should be interpolated pro rata.

B) Central London 4/5 Star Hotels or equivalent with accommodation receipts up to £90,000 per DBU

Accommodation recipts per dbu Proportion Accommodation Receipts out of Total Turnover (Percentage range applicable)
  35% 50% 65% 80%
90,000 11.50% to 14.50% 12.50% to 15.50% 13.50% to 16.50% 14.75% to 17.75%
80,000 11.00% to 14.00% 12.00% to 15.00% 13.00% to 16.00% 14.25% to 17.25%
70,000 10.50% to 13.50% 11.50% to 14.50% 12.50% to 15.50% 13.75% to 16.75%
60,000 10.00% to 13.00% 11.00% to 14.00% 12.00% to 15.00% 13.25% to 16.25%
50,000 8.50% to 11.50% 9.50% to 12.50% 10.50% to 13.50% 11.75% to 14.75%

Intermediate points should be interpolated pro rata.

C) Central London 5 Star Plus Hotels or equivalent with accommodation receipts in excess of £80,000 per DBU

Accommodation recipts per dbu Proportion Accommodation Receipts out of Total Turnover (Percentage range applicable)
  35% 50% 65%
150,000 10.00% to 12.00% 11.00% to 13.00% 12.00% to 14.00%
140,000 9.75% to 11.75% 10.75% to 12.75% 11.75% to 13.75%
130,000 9.50% to 11.50% 10.50% to 12.50% 11.50% to 13.50%
120,000 9.25% to 11.25% 10.25% to 12.25% 11.25% to 13.25%
80,000 9.00% to 11.00% 10.00% to 12.00% 11.00% to 13.00%

Intermediate points should be interpolated pro rata.

D) Heathrow all Star Rated or equivalent hotels

Accommodation recipts per dbu Proportion Accommodation Receipts out of Total Turnover (Percentage range applicable)
  50% 65% 87.5% 100%
35,000 10.75% to 13.75% 11.75% to 14.75% 13.00% to >16.00% 16.25% to 19.25%
30,000 10.50% to 13.50% 11.50% to 14.50% 12.75% to 15.75% 16.00% to 19.00%
25,000 10.25% to 13.25% 11.25% to 14.25% 12.50% to 15.50% 15.75% to 18.75%
20,000 9.00% to 12.00% 10.00% to 13.00% 11.25% to 14.25% 13.50% to 16.50%
15,000 8.25% to 11.25% 9.25% to 12.25% 10.50% to 13.50% 12.25% to 15.25%
10,000 7.25% to 10.00% 8.00% to 11.00% 9.25% to 12.25% 11.00% to14.00%

Intermediate points should be interpolated pro rata.

Practice note: 2017 Appendix 3 - Agreed lodge / Aparthotel scale

This scale applies where the hereditament consists of a basic lodge only – i.e. bedrooms, reception and storage cupboards only, but no breakfast restaurant/bar within the lodge; it also applies to similar purpose built lodge accommodation adjoining a public house, public house restaurant/licensed restaurant or roadside restaurant. Aparthotels with a similar limited service provision will also be valued using this scale.

The rental percentage will be determined according to the amount of fair maintainable receipts per bedroom, irrespective of whether it is let for single, double or family occupancy. A standard lodge bedroom will be treated as one Double Bed Unit (DBU). For Aparthotels the usual factors to be adopted will be for a one bedroom flat with lounge/kitchen – 1.5 DBU, and 2 DBU for a two bedroom flat.

The rateable value of the accommodation should be determined in accordance with the table below, which applies throughout England and Wales, including outer London. The range should be interpolated between the points shown.

(These scales should be read together with section 4 of the Practice Note).

LODGES/APARTHOTELS - where rooms only and no other service provision

(covers all provincial and outer London locations)

Accommodation Receipts per dbu Percentage Range Applicable
26,500 & above 17.25% to 18.75%
23,500 15.75% to 17.25%
20,500 14.50% to 16.00%
17,500 11.75% to 13.25%
14,500 11.25% to 12.75%
11,000 10.75% to 12.25%
7,500 10.25% to 11.75%
4,000 & below 9.75% to 11.25%

Intermediate points should be interpolated pro rata.

Excludes super-budget hotels, e.g. Formule 1, Yotel and Easy Hotel. Equivalent position on Lodge scale plus up to 2.5% will apply in these cases.

For a modern purpose built, or good quality conversion, lodge/aparthotel the top of the range should be adopted. A lower figure in the range may be adopted where due to design constraints the operational running or maintenance costs are excessive.

Minimal other trade such as sales from vending machines should not be valued separately and should be included with the accommodation trade. The total should be used to determine the scale point.

On the few occasions where there is a substantial income from meeting room facilities (e.g. Premier Inn’s Touchbase) this income should be valued as other trade at 1% below the accommodation percentage adopted from the lodge scale.

Practice Note 1: 2010: Hotels

1. Co-ordination Arrangements

4 & 5 star and major chain operated hotels are a SRU class subject to a national scheme. Responsibility for implementing the scheme as set out within this Practice Note lies with the SRU, as does responsibility for ensuring effective co-ordination. For more information see RM : V2 : S1.

Special Category Code 138 should be used for 4 & 5 star and major chain operated hotels. As a SRU Class the appropriate suffix letter should be S.

Hotels graded at 3 star and under which are not operated by major chains are a Group class. The only exception to this is larger independent hotels (typically with a 2005 RV of £50,000 or more) operating in the same market as major chains, which have, by agreement, been passed to the SRU.

Special Category Code 137 should be used for (non-chain) hotels 3 star and under with the appropriate suffix letter should be G where responsibility lies with the Group.

Country House Hotels are wholly the responsibility of the SRU, and should be given Special Category Code 077 with an S suffix.

Budget Hotels and Lodges these will be split between SRU and Groups on the following basis: In the provincial locations all lodges with public houses in a single hereditament and standalone lodges with no bar or restaurant facilities will be dealt with by Group, all budget hotels and lodges with integral bar/restaurant facilities will be dealt with by SRUs. In London there is no distinction and all properties under this heading will dealt with by the SRU.

In most cases the Group Licensed Property Specialist (or hotel specialist if different) should co-ordinate directly with the SRU hotels specialist.

2. State of the Industry

During the late 1990s the hotel industry in England and Wales enjoyed a period of strong and sustained growth in trading performance. A series of events between 2001 and 2003 brought this to a halt and for hotels in certain locations and market sectors it prompted a rapid and dramatic reversal of fortunes. These events included the outbreak of foot and mouth disease in early 2001, the slowdown in the American economy, global terrorism, highlighted by the events of 11 September 2001, the fall in the UK stock market and the uncertainty created by the war in Iraq. The impacts were wide-ranging in terms of both international and domestic travel and tourism, but that said, the home-market focused budget sector survived the period unscathed and in fact continued to show performance gains.

Hotels in central London, particularly at the luxury end of the market, suffered the worst but since that time have more than recovered their position. Additionally, the scope to appeal to a wider potential customer base through a revived and refreshed take on what constitutes luxury, has been realised and as a consequence performance in that sector has moved ahead more than others. Generally the wider market has experienced a solid and improving performance trend. UK hotel performance statistics indicate that occupancy rates have increased by up to 5%, rooms yield (or REVPAR – revenue per available room) by about 30% and gross operating profits per room by approaching 20% during the past few years.

The success of the budget sector continues unabated with subtle variations in the shape and form of the offer rapidly expanding as new entrants aggressively develop their brands. Whitbread’s Premier Inn has publicised its plans to grow from 36,000 rooms across the UK and Ireland at the start of 2008 to 55,000 rooms within 5 years. Part of its strategy is the acquisition and re-branding of existing hotels. Latterly the budget sector has been gaining trade as some business users trade down from full service hotels in the current economic climate.

As at 1 April 2008 these facts presented a very positive backdrop, however, the developing “credit crunch” suggested an imminent return to uncertain economic conditions. Hotel market commentators have subsequently suggested that trading performance is approaching or has already reached its peak. If conditions deteriorate further then hotels may again see a decline, although the widely held view is that any impact will be relatively short-lived and not as acute as that experienced in the early part of the decade.

The comments above, and statistics set out below, refer to Provincial England, Wales and London individually, and mask regional variations. Statistics at this level can only ever provide broad indicative trends, it is important that valuers identify and take appropriate account of all relevant local factors when undertaking valuations.

The British Hospitality Association produces an annual report “Trends and Developments”, a copy of which is held by CEO Rating for reference purposes. This contains numerous statistics on tourism and the UK hotel industry, collected from a wide variety of sources. The statistics quoted in Section 3 below are taken from this report, although the original source is given in the tables below.

3. Performance Indicators

The following statistics give an indication of relative performance of hotels between 2002 and 2007:

Average Room Occupancy - 2002 - 2007
Source 2002 2003 2004 2005 2006 2007
Provincial England Deloitte & Touche 69.2 69.3 70.1 70.0 71.1 71.2
TRI 69.2 68.9 70.3 69.3 69.5 69.2
PKF 69.2 70.5 71.9 71.6 72.1 71.9
London Deloitte & Touche 75.3 73.7 77.2 75.7 81.9 82.3
TRI 74.5 74.3 77.8 76.7 82.5 81.0
PKF 74.4 74.6 78.3 76.9 82.3 82.9
Wales Deloitte & Touche 69.2 69.2 69.4 69.0 69.4 70.2
TRI 72.3 72.2 71.2 71.2 73.7 74.2
PKF 71.9 74.1 73.9 74.4 75.5 75.6
Average Achieved Room Rate (ARR) - 2002 - 2007
2002 2003 2004 2005 2006 2007
Provincial England Deloitte & Touche 61.00 62.39 64.67 62.95 65.04
TRI 57.03 57.90 60.30 63.10 65.82
PKF 61.83 64.48 66.65 68.94 71.87
London Deloitte & Touche 99.00 94.00 103.57 107.74 115.57 127.21
TRI 91.43 88.41 96.16 102.53 113.43 127.78
PKF 102.26 96.89 103.64 108.22 118.03 130.17
Wales Deloitte & Touche 59.00 65.46 67.68 62.37 62.24
TRI 56.49 60.66 60.30 63.10 67.76
PKF 57.12 62.63 64.71 64.41 68.38
Rooms Yield (REVPAR) – 2002 - 2007
2002 2003 2004 2005 2006 2007
Provincial England Deloitte & Touche 42.00 43.75 45.26 44.77 46.31
TRI 39.46 40.72 41.82 44.49 45.52
PKF 42.79 46.38 47.72 49.72 51.70
London Deloitte & Touche 75.00 69.0 79.93 81.58 94.82 104.71
TRI 68.12 65.71 74.77 78.64 93.58 103.54
PKF 75.88 72.24 81.16 83.26 97.12 107.96
Wales Deloitte & Touche 41.00 45.44 46.67 43.31 43.69
TRI 40.84 43.19 43.10 45.01 50.26
PKF 41.07 46.26 48.12 48.61 51.71
<TD
Budget Hotels 2006 – 2007 (TRI)
2006 2007
United Kingdom Occupancy (%) 75.5 76.5
ARR (£) 46.96 48.96
REVPAR (£) 35.47 37.47
London (prime city site) Occupancy (%) 79.2 83.7
ARR (£) 55.78 60.60
REVPAR (£) 44.20 50.73
Provincial (prime city site) Occupancy (%) 75.9 76.4
ARR (£) 48.11 50.11
REVPAR (£) 37.33 38.30

The samples from which the above figures are quoted are heavily biased towards hotels operated by major chains. Smaller independent hotels, especially where the trade is highly seasonal, are likely to have been influenced by the local economy and local events to a greater extent than for the large chain hotels.

Analysis of receipts and accounts information provided to the VOA in the build up to the 2010 revaluation shows that changes in total turnover between AVDs vary across England and Wales. Hotels in and around London have seen the strongest improvement in performance between April 2003 and 2008, whilst those further afield experienced a somewhat less dramatic upturn. The trend of, good quality, well-located larger hotels generally doing better than smaller, poorer hotels continues.

The RPI rose by 17.8% between 1 April 2003 and 1 April 2008.

4. Method of Valuation

4.1 4 and 5 Star and Major Chain Operated Hotels (SRU)

For the 4 and 5 star and major chain operated hotels a scheme of valuation was agreed for the 1995, 2000 and 2005 lists. Central discussions with agents representing the British Hospitality Association have taken place prior to the 2010 revaluation, and these have resulted in an agreed valuation scheme.

Accounts for a sample of different hotel types have been analysed, and the limited rental evidence considered, in arriving at the scheme of valuation. The scheme applies a single percentage to the total Fair Maintainable Trade (FMT) to arrive at the RV. The percentage applied varies depending upon expected profitability, having regard to the type of hotel and its trading performance, as suggested by a number of indicators.

The scheme of valuation for 4 and 5 star and major chain hotels is set out at Appendix 1 for properties in provincial England and Wales including those in Outer London and at Appendix 2 for properties in Central London and at Heathrow Airport.

4.2 Hotels - Non-Chain 3 Star and Under (Group)

Hotels not falling within the national co-ordination scheme should be valued according to local and regional evidence. This may result in a privately run, small, older three star hotel being valued at a higher percentage than a similar hotel operated by a major chain. This is not contradictory provided the evidence shows that the major chain hotel operates at a higher level of turnover. A ‘stand back and look’ comparison should be made on a RV per DBU basis to check that levels of value for similar chain and non-chain operated hotels are consistent.

Where there is no such local or regional evidence, the scales at Appendices 1 and 2 should be increased by up to a factor of 1.1, e.g. scale at 7.5% increased to up to 8.25%, scale at 10.0% increased to up to 11.00% and so on. It is important however to compare income of the independent hotel with that of other independent hotels and major chain hotels trading from comparable properties in the locality.

The schemes set out in Appendices 1 and 2 are applicable to the level of turnover likely to be achieved by a major chain where the hotel is of a type for which the hypothetical tenant would almost certainly be a major chain. To achieve this, the major hotel operators bear considerable central overheads in running central marketing operations and providing other support such as staff training schemes, centralised purchasing deals and central booking systems, although some benefit is derived from economies of scale. In most areas this central support will result in a higher level of turnover being achieved by a chain operated hotel than might be expected from an independent operator. The higher percentage for non-major chain hotels is intended to reflect the different operating styles and to ensure similar hotels, in terms of physical attributes and location, are assessed at similar levels of value when compared in terms of RV per DBU or ADBU (see paragraph 6 below).

5. Valuation Considerations

5.1 Fair Maintainable Trade (FMT)

The adopted FMT should be that which would have been agreed between the parties as at 1 April 2008, looking forward and taking into account perceived trends, risks and uncertainties at that date. As outlined above, the years immediately leading up to the AVD were a very positive time for the hotel industry generally, however, as at 1 April 2008 there was a degree of uncertainty about future trends. This should be borne in mind when estimating FMT.

Where trade details have not been disclosed FMT should be estimated having regard to any earlier information held on file, and comparing with the pattern of trade of other comparable hotels in the locality.

5.2 Application of the Agreed Valuation Schemes

5.2.1 Provincial England and Wales (including outer London)

The agreed scheme for 2010 is similar to the 2005 list scheme, although there has been a change of emphasis in terms of how the various indicators are interpreted to determine value. The class of hotel as evidenced by the level of service provision and the rooms yield (accommodation receipts per DBU)] and the proportion of total trade flowing from rooms (the most profitable hotel income stream) are the primary factors that will influence profitability. Hence, the valuation bands are expressed firstly by class of hotel and then within each band by reference to the rooms yield and the rooms income proportion (percentage that accommodation receipts represent of total income). Appendix 1 presents the scheme as a range of percentage to RV at any particular level of accommodation receipts per DBU. The range of percentage is provided at intervals of £2,500, for accommodation receipts per DBU; valuers should interpolate between these figures – a computation spreadsheet has been provided to SRU valuers to assist in this.

When deciding on the appropriate percentage to adopt, the following approach should be taken:

Firstly, having established the level of service provision of the hotel to be valued (consideration may be given to the AA star rating, if present, to assist in this, but it is not the ultimate determinant) refer to the relevant table of percentages. Calculate the proportion of total income attributable to accommodation receipts and at the same time the accommodation receipts per DBU. Interpolation between the points will typically produce a 2.5% range. A decision then has to be made as to where in the range the subject property should sit.

All factors relevant to the valuation should be considered when deciding the position in the range. In particular, the following should be taken into account:

The construction and layout of the hotel

These will have an effect on running costs, including staff costs and maintenance.

The size of the hotel

Where the hotel is significantly larger than the norm for its type, and still attracts a good level of accommodation receipts in terms of £/DBU this will indicate high profitability due to economies of scale and the hotel should be valued towards the top of the relevant range.

The presence of ancillary facilities

A particularly extensive or popular leisure club may achieve a significant contribution to total turnover which will produce an unreasonably pessimistic view of profitability through depressing the proportion arising from accommodation receipts (see section 5.5 below as regards determining the income). If the total of all other receipts including this is 10% or less then the range provided by the standard application of the scales is considered adequate. In excess of 10% the leisure club income needs to be separately identified and the proportion attributable to rooms recalculated once it has been deducted from the total. The range of percentages applicable before and after this action will be considered in determining the appropriate percentage to apply.

Care should also be taken where there is high income from major conference trade. “Room Hire” receipts will normally be shown separately in hotel accounts or be included under other receipts; this is also a very profitable income stream, so where these are significant a percentage towards the top of the range should normally be adopted.

Once the appropriate percentage has been decided upon, this is applied to the FMT in order to derive the rateable value.

5.2.2 Central London and Heathrow Hotels

The agreed scheme for 2010 is similar to that agreed for the 2000 and 2005 lists. The principles involved in its application are much the same as detailed above in respect of the Provincial scheme.

Appendix 2 presents the scheme as a range of percentage to RV at any particular level of accommodation receipts expressed as a proportion of total FMT. Valuers should interpolate between these figures - a computation spreadsheet has been provided to SRU valuers to assist in this.

When deciding on the appropriate percentage to adopt, the following approach should be taken:

Firstly, having established the level of service provision of the hotel to be valued (consideration may be given to the AA star rating, if present, to assist in this, but it is not the ultimate determinant) refer to the relevant table of percentages. Calculate the proportion of total income attributable to accommodation receipts and by interpolation between the points shown in the table, if necessary, establish the range of percentage to RV applicable to that proportion. This produces a 3.0% range. A decision then has to be made as to where in the range the subject property should sit.

All factors relevant to the valuation should be considered when deciding the position in the range, including those detailed above under section 5.2.1.

Once the appropriate percentage has been decided upon, this is applied to the FMT in order to derive the rateable value.

5.2.3 Lodge and Aparthotels

The scheme agreed for lodges in the 2005 list has been developed further to cater for the expansion of the rooms only sector that has been occurring in recent years. Hence it also now covers aparthotels.

The 2010 list agreed valuation scheme for lodges and aparthotels covers the whole country and is set out at Appendix 3. A percentage should be applied to accommodation receipts, the percentage being determined according to accommodation receipts per DBU.

The major operators in the lodge market are Travelodge and Premier Inn. There are however also a number of other operators trying to establish brands in this market. In the aparthotels sector Citadines and Premier Apartments feature among the better known providers. Where a lodge brand positions itself slightly differently by offering more services, and a higher tariff, it will be appropriate to apply the scale for lower service provision hotels (e.g. those Premier Inns and Travelodges where bars and restaurants are present are to be valued on the lower service provision scale)

5.3 “Major Chain”

Consortia members should normally be included within this definition (e.g. Best Western). Chains with less than 10 hotels should not usually be regarded as a major chain. However, hotels in small chains of less than 10, particularly those situated in a tight geographical location (eg same regional resort) should be valued using these scales where trading levels are comparable to those of one of the national operators.

5.4 Leisure Clubs attached to hotels

Leisure clubs will normally form part of the hotel hereditament, although each case must be looked at on its own facts.

Income disclosed in respect of leisure clubs must be checked to ensure the basis of the figures is understood. In some cases the leisure club will be run by a separate company within the same Group or by a totally independent company. In these cases receipts disclosed may be in the form of “rent” received, or a net “contribution”. The latter may be the net profit from the leisure club, or a proportion of that net profit.

Where gross receipts for the leisure club are given these should be included within the FMT and valued with the rest of the hotel at the appropriate overall percentage – see section 5.2.1 above. Where a “net” figure or concession/franchise fee is disclosed on the Form of Return completed in respect of the subject property, the FMT for this income stream alone (i.e. the concession/franchise income) should be estimated and then valued at a rate of between 25% and 50% depending on expected profitability, taking into account the services and facilities provided by the hotel operator to the holder of the concession/franchise.

Joining fees should be included only to the extent that these would be anticipated from new members on an ongoing basis – e.g. following resignation of existing members.

5.5 Hotels with major leisure facilities

These are hotels with good quality golf/outdoor facilities in addition to an indoor leisure club. These should be valued at the appropriate rate taken from the scale at Appendix 1 and having regard to section 5.2.1 above. A cross check on the golf element should be made with the scheme of valuation for golf courses (see RM: S6: PT3: S450).

5.6 Coach touring hotels

Hotels owned by coach tour operators - receipts information provided is usually unreliable as it will be an apportionment of the total package price according to the accounting policy of the occupier. It is necessary therefore to compare on a DBU / ADBU basis with other hotels in the locality.

Hotels which accept coach tour business - in the absence of full accounts, these should be valued as other independent hotels, but the final RVs should be checked on a DBU / ADBU basis with other hotels in the locality.

5.7 Hotel/Pub Interface

Where a hotel is being run more in the nature of a public house/inn or public house / restaurant, reference should be made to the appropriate public house scale but taking into account any additional expenditure incurred due to the nature of the property or style of occupation. Where this results in a higher RV than if valued on the hotel scale, the higher value should be adopted.

Coaching and other inns - the nature of these properties is such that receipts from accommodation may form a relatively low proportion of total receipts - often less than 35%. These are often budget standard or below and will generate a significant proportion of total income from non-residential food and liquor sales, so that in many respects the property is similar to a pub-restaurant with rooms. Where the property cannot clearly be distinguished as a public house/inn or hotel by reference to its physical features, both the hotel scale and public house scales should be applied, adjusting both to reflect the nature of the property. This should minimise the differences between the public house and hotel scales and result in a percentage between that which would be derived from a straight application of the two different scales. This percentage will reflect the more complex management required, and the increased tenant’s capital, compared to a pub-restaurant. Further guidance is given in Appendix 4 to this Practice Note.

Modern pub-restaurants with lodges - these should be valued on the public house basis with an addition for the lodge on the lodge scale.

5.8 Airport Hotels

London Airport hotels - these are characterised by high occupancy rates, high levels of accommodation receipts per DBU and high percentages of accommodation receipts compared to most provincial hotels. There is a separate scale in respect of Heathrow hotels, but elsewhere it is anticipated that the main scales at Appendix 1 adequately cater for any variations.

Provincial Airport hotels - should normally be valued in accordance with the scales set out at Appendix 1.

5.9 Living Accommodation

RM: Section 3: Part 5: gives general guidance on valuation of composite hereditaments. Paragraph 8 in particular refers to hotels.

The percentage to RV to be adopted when valuing hotels should reflect the normal living accommodation found in a hotel of that type. A specific end adjustment should not therefore be made.

6. DBUs, EDBUs and ADBUs

To assist in comparing valuations and analyses of receipts, reference is made to Double Bed Units (DBUs), Equivalent Double Bed Units (EDBUs) and Adjusted Double bed Units (ADBUs). The standard adjustment factors to be applied to non-standard rooms and other areas of revenue-earning space (bars, restaurants etc) in order to derive these measures remain the same as those utilised in the 2005 list and are detailed in paragraph 4 of the Rating Manual section. A calculation tool has been incorporated in the Licensed Property Application (LPA) for R2010 and will automatically populate the LPA with the relevant figures. Where the DBU/EDBU needs to be calculated for an hotel it should carried out using this application.

7. IT Application

All 3* hotels and equivalent, 2* hotels and equivalent (except in larger holiday resorts where exceptionally those 2* hotels with limited facilities may be valued on RSA) and other substantial hotels should be entered onto and valued on the Licensed Property Application.

All hotels should be valued either on RSA or the LP application and nowhere else.

For clarification the properties to be valued on RSA and the Licensed Property Application are set out below:

To be valued on RSA

  • Guest Houses (Scat 122)

  • Boarding Houses (Scat 122)

  • Bed and Breakfast Accommodation (Scat 122)

  • Ungraded, 1* and smaller 2* hotels (Scat 122, or Scat 137) without significant other facilities. These hotels will usually be less than 20 bedrooms except in holiday resorts where this may vary depending on local circumstances.

To be valued on Licensed Property Application

  • All 5* & 4* and chain 3* hotels (Scat 138)

  • All independent 3* hotels and equivalent (Scat 137)

  • Licensed ungraded hotels

  • 1, 2 hotels and equivalent (Scat 137) (except those with limited facilities that will generally be less than 20 bedrooms, although this may vary in larger holiday resort areas).

  • Hotels (Scat 122 or 137) with function rooms and other facilities, or facilities used by non-residents

  • Hotels valued by reference to receipts

  • Lodges/budget hotels (Scat 160,137 or 138)

  • Country House Hotels (Scat 077) – often not graded with a small number of bedrooms

Practice Note 1: 2010: Appendix 1: Agreed Provincial Hotel Scales

In this section PROVINCIAL HOTELS (England & Wales) - 2010 AGREED VALUATION SCHEME (Including Outer London Locations, apart from Heathrow)

The following scales give a percentage range for any figure of accommodation receipts per DBU

relative to the proportion of total turnover attributable to accommodation receipts. The range should be interpolated between the points shown.

(These scales should be read together with paragraph 5 of the Practice Note)

PROVINCIAL HOTELS (England & Wales) - 2010 AGREED VALUATION SCHEME

(Including Outer London Locations, apart from Heathrow)

a) Hotels - Lower Service Provision budget/lodge (with bar/restaurant facilities) or equivalent quality.

AccommodationReceipts per dbu Proportion Accommodation Receipts out of Total Turnover Percentage range applicable
<=30% 55% >=80%
20,000 9.50% to 12.00% 13.75% to 13.00% 15.50%
17,500 9.25% to 11.75% 10.50% to 13.00% 11.75%to 14.25%
15,000 8.75% to 11.25% 9.875% to 12.375% 11.00% to 13.50%
12,500 7.75% to 10.25% 8.125% to 10.625% 8.50% to 11.00%
10,000 7.50% to 10.00% 7.75% to 10.25% 8.00% to 10.50%
7,500 7.25% to 9.50% 7.50% to 9.75% 7.75% to 10.00%
5,000 7.00% to 9.25% 7.25% to 9.50% 7.50% to 9.75%
2,500 6.75% to 8.75% 7.00% to 9.00% 7.25% to 9.25%

b) Hotels - Standard Service Provision at 3 & 4 star or equivalent quality

AccommodationReceipts per dbu Proportion Accommodation Receipts out of Total Turnover Percentage range applicable
<=30% 55% >=80%
27,500 9.50% to 12.00% 10.50% to 13.00% 11.50% to 14.00%
25,000 9.25% to 11.75% 10.25% to 12.75% 11.25% to 13.75%
22,500 8.75% to 11.25% 9.75% to 12.25% 10.75% to 13.25%
20,000 8.00% to 10.50% 9.00% to 11.50% 10.00% to 12.50%
17,500 7.00% to 9.50% 8.00% to 10.50% 9.00% to 11.50%
15,000 6.25% to 8.50% 7.375% to 9.625% 8.50% to 10.75%
12,500 5.75% to 7.75% 7.00% to 9.00% 8.25% to 10.25%
10,000 5.50% to 7.50% 6.75% to 8.75% 8.00% to 10.00%
7,500 5.25% to 7.25% 6.50% to 8.50% 7.75% to 9.75%

c) Hotels - Higher Service Provision at top 4 star/5 star or equivalent quality.

AccommodationReceipts per dbu Proportion Accommodation Receipts out of Total Turnover Percentage range applicable
<=30% 55% >=80%
35,000 9.25% to 11.75% 10.25% to 12.75% 11.25% to 13.75%
32,500 9.00% to 11.50% 10.00% to 12.50% 11.00% to 13.50%
30,000 8.75% to 11.25% 9.75% to 12.25% 10.75% to 13.25%
27,500 8.50% to 11.00% 9.50% to 12.00% 10.50% to 13.00%
25,000 8.25% to 10.75% 9.25% to 11.75% 10.25% to 12.75%
22,500 7.75% to 10.25% 8.75% to 11.25% 9.75% to 12.25%
20,000 7.00% to 9.50% 8.00% to 10.50% 9.00% to 11.50%
17,500 6.00% to 8.25% 7.125% to 9.375% 8.25% to 10.50%
15,000 5.25% to 7.25% 6.50% to 8.50% 7.75% to 9.75%

Application of the Agreed Scales

When deciding on the appropriate percentage to adopt, the following approach should be taken:

Firstly, having established the level of service provision of the hotel to be valued (consideration may be given to the AA star rating, if present, to assist in this, but it is not the ultimate determinant) refer to the relevant table of percentages. Calculate the proportion of total income attributable to accommodation receipts and at the same time the accommodation receipts per DBU. Interpolation between the points will typically produce a 2.5% range. A decision then has to be made as to where in the range the subject property should sit.

All factors relevant to the valuation should be considered when deciding the position in the range. In particular, the following should be taken into account:

The construction and layout of the hotel

These will have an effect on running costs, including staff costs and maintenance.

The size of the hotel

Where the hotel is significantly larger than the norm for its type, and still attracts a good level of accommodation receipts in terms of £/DBU this will indicate high profitability due to economies of scale and the hotel should be valued towards the top of the relevant range.

The presence of ancillary facilities

A particularly extensive or popular leisure club may achieve a significant contribution to total turnover which will produce an unreasonably pessimistic view of profitability through depressing the proportion arising from accommodation receipts (see section 5.5 below as regards determining the income). If the total of all other receipts including this is 10% or less then the range provided by the standard application of the scales is considered adequate. In excess of 10% the leisure club income needs to be separately identified and the proportion attributable to rooms recalculated once it has been deducted from the total. The range of percentages applicable before and after this action will be considered in determining the appropriate percentage to apply.

Care should also be taken where there is high income from major conference trade. “Room Hire” receipts will normally be shown separately in hotel accounts or be included under other receipts; this is also a very profitable income stream, so where these are significant a percentage towards the top of the range should normally be adopted.

Country House Hotels

See the main RM section for characteristics. In view of the very individual nature of such properties it is not possible to provide a set valuation scheme for country house hotels. It is expected that such hotels would normally be made with reference to Scale C above with allowance as necessary for any additional expenditure incurred above that typical for an hotel valued on this scale, and also having regard to the generally smaller size and extensive grounds of such properties. In some cases it may be appropriate to undertake a full receipts and expenditure valuation.

Airport Hotels

Provincial Airport hotels - should normally be valued in accordance with the scales.

Practice Note 1: 2010: Appendix 2: Agreed Central London and Heathrow Hotel Scales

Central London & Heathrow Hotels - 2010 Valuation Scheme

Location/Category of Hotel Accommodation receipts as percentage of total (intermediate percentages should be interpolated) Percentage Applied to Gross Receipts
Min Mid Max
Central London
A) 2/3/4/Star Hotels with accommodation receipts up to £42,500 per DBU 50% 12.00% 13.50% 15.00%
65% 13.00% 14.50% 16.00%
80% 14.00% 15.50% 17.00%
100% 15.00% 16.50% 18.00%
B) 4/5 Star Hotels with accommodation receipts up to £75,000 per DBU 20% 10.50% 12.00% 13.50%
50% 11.50% 13.00% 14.50%
80% 13.00% 14.50% 16.00%
100% 14.00% 15.50% 17.00%
C) 5 Star Plus Hotels with accommodation receipts in access of £75,000 per DBU 40% 9.75% 11.25% 12.75%
55% 10.50% 12.00% 13.50%
70% 11.50% 13.00% 14.50%
Heathrow Hotels All star rated or Equivalent Hotels 50% 12.00% 12.50% 14.00%
65% 12.00% 13.50% 15.00%
80% 13.00% 14.50% 16.00%
100% 14.00% 15.50% 17.00%

The interface between B) & C) is subject to consideration of the relative RV per equivalent double bed unit for similar hotels.

Practice Note 1: 2010: Appendix 3

Lodge/Aparthotel Scale

This scale applies where the hereditament consists of a basic lodge only – i.e. bedrooms, reception and storage cupboards only, but no breakfast restaurant/bar within the lodge; it also applies to similar purpose built lodge accommodation adjoining a public house, public house restaurant/licensed restaurant or roadside restaurant. Aparthotels with a similar limited service provision will also be valued using this scale.

The rental percentage will be determined according to the amount of fair maintainable receipts per bedroom, irrespective of whether it is let for single, double or family occupancy. A standard lodge bedroom will be treated as one Double Bed Unit (DBU). For Aparthotels the usual factors to be adopted will be for a one bedroom flat with lounge/kitchen – 1.5 DBU, and 2 DBU for a two bedroom flat.

The rateable value of the accommodation should be determined in accordance with the table below, which applies throughout England and Wales, including London. These percentages may be increased by a factor of up to 1.1 e.g. scale at 11% increased to up to 12.1%, scale at 15% increased to up to 16.5% and so on, where a lodge, of a similar physical type and situated in a similar location to those operated by the major chains, is run by a solus operator.

Lodges/Aparthotels - where rooms only and no other service provision

(covers all provincial and London locations)

Accommodation Receipts per dbu Percentage Range Applicable
20,000 & over 17.5% to 18.5%
19,000-19,999 17.0% to 18.0%
18,000-18,999 16.5% to 17.5%
17,000-17,999 16.0% to 17.0%
16,000-16,999 15.5% to 16.5%
15,000-15,999 15.0% to 16.0%
14,000-14,999 14.0% to 15.0%
13,000-13,999 13.0% to 14.0%
11,000-12,999 12.0% to 13.0%
9,000-10,999 11.5% to 12.5%
7,000-8,999 11.0% to 12.0%
5,000-6,999 10.5% to 11.5%
under 5,000 10.0% to 11.0%

Excludes super-budget hotels, e.g. Formule 1, Yotel and Easy Hotel. Equivalent position on Lodge scale plus up to 2.5% will apply in these cases.

For a modern purpose built, or good quality conversion, lodge/aparthotel the top of the range should be adopted. A lower figure in the range may be adopted where due to design constraints the operational running or maintenance costs are excessive.

Minimal other trade such as sales from vending machines should not be valued separately and should be included with the accommodation trade.

Practice Note 1: 2010: Appendix 4

Interface between Public Houses/Inns and Hotels/Guest Houses

1. Valuation

Public houses/Inns

These are to be valued in accordance with Rating Manual Section 6 Part 3 Section 825 and the 2010 Practice Note. The scales agreed with the British Beer & Pub Association (BBPA) to determine the rental percentage for different income streams broadly increase as trade increases until the thresholds of £500,000 (liquor) and £400,000 (food) are reached. Accommodation receipts derived from letting six or less bedspaces will be added to the dry trade; for more than six bedspaces a separate percentage will be applied to accommodation receipts. Below the threshold, the resultant effect is the greater the liquor, food and accommodation receipts, the higher the overall rental percentage to rateable value becomes.

Four & five star and major chain operated hotels

These are to be valued in accordance with Rating Manual Section 6 Part 3 Section 510 and the 2010 Practice Note. The valuation scheme for each hotel type uses specific indicators as a guide to likely profitability. Thus, in very broad terms, the higher the accommodation receipts (the most profitable of the income streams), expressed both as a proportion of total receipts and per double bed unit, the higher the percentage to rateable value adopted. Conversely, the greater the proportion of liquor, food and other turnover, the lower the overall profitability of the business is likely to be and therefore a lower percentage will be applicable.

Independent three star hotels

These are to be valued having regard to local evidence, in accordance with Rating Manual section 6 part 3 - section 510 Practice Note 2010.

Purpose built lodges

Purpose built lodges adjoining or attached to public houses, should be valued using the scale for lodges and the liquor, food and other income streams for the public house valued in accordance with the Approved Guide. (Rating Manual: section 6 part 3 - section 825 Practice Note 1 : 2010 Appendix 1.)

2. Effect of Valuation Bases

When applying the public house and hotel scales to the same level of fair maintainable trade, different values may arise, particularly for older properties, or those with a relatively low proportion of accommodation receipts.

Publicans/innkeepers and hoteliers however serve different markets, they have different expectations, incur different costs and achieve different levels of profitability. Thus any differences arising when applying the two valuation bases to fair maintainable trade are to be expected and reflect the nature of the business and the different rental markets. This should not cause problems provided the hereditament is correctly identified as either a public house or hotel and valued accordingly.

3. Distinction between Public Houses/Inns and Hotels

In most cases there will be no problem in identifying public houses/inns and hotels. Where, however, the distinction is blurred it is important to identify the exact nature and type of property that is being valued, and the likely occupier.

If the property provides public rooms, service and other facilities in addition to bedrooms, though it may have a significant licensed and restaurant trade (possibly at a relatively low profitability), it is likely to be an hotel. It is likely, on the other hand, to be a public house/inn if, whilst having letting rooms it does not have the usual facilities or provide the services normally associated with an hotel.

The physical characteristics of the property, the nature of business being carried on and the most likely occupiers of the property if vacant must be identified. The following factors, whilst not exhaustive, should be considered and may give some guidance: * the Class of the Use Classes Order under which the property has planning permission,

  • amount and relativity between the income streams for liquor trade, catering, accommodation and other,

  • physical factors such as separate entrance, reception, sitting rooms, dining room etc. provided for residential guests and segregated from bar areas and licensee’s/proprietor’s or manager’s living accommodation,

  • arrangement of letting bedrooms, type and standard of accommodation,

  • whether bedrooms have en-suite facilities or bathrooms/WCs are shared, and if so with other guests or staff,

  • level and type of services provided for residential guests,

  • the type of staff employed, e.g. receptionist/telephonist, housekeeper, chambermaid, cook, waiters/waitresses, bar staff, night porter etc.,

  • the history of occupation of the property and whether the occupier (or potential occupier) is likely to be a publican/innkeeper, who sees the opportunity to increase profit by utilising spare accommodation for letting purposes, or a hotelier who sees the opportunity to increase profit by attracting non-residential restaurant and bar trade,

  • whether the property is run by a proprietor or managed on behalf of a company running a number of public houses/inns or hotels.

4. Valuation at the Interface

Very exceptionally where, following consideration of the essential nature of the hereditament, the current mode of operation and the likely operation of the hypothetical tenant, it is still not possible to determine whether the property should be regarded primarily as a public house/inn or an hotel, it may be necessary to adjust the percentage adopted to reflect the actual circumstances. In these circumstances, the following guidance may assist in the determination of the appropriate valuation method to be adopted: a. where the percentage accommodation receipts are greater than 40% the hotel basis is most likely to be appropriate. The rental percentage adopted should generally be increased if a substantial part of the other income streams arises from a profitable bar. The resultant valuation should not exceed the valuation based on the public house scale, b. where the accommodation receipts are below 30% the public house basis is most likely to be appropriate, c. between 30% and 40% the property should be valued on both the public house basis and the hotel basis. If the hotel basis is increased (by say 1%) to reflect the profitability of the wet trade, or if a lower band/point within a band is adopted on the public house scale and the catering/accommodation are valued to reflect any extra services and lower profitability, any differences between the two bases should be minimised. This will also reflect the additional tenant’s capital required, and the increased complexity of the business, compared to a typical public house. d. the above points must also be viewed in terms of the total receipts. For example, 40% of total FMT of £100,000 may still indicate that the property should be regarded as a public house/inn. On the other hand, 40% of total FMT of £1,000,000 is more likely to lead to the conclusion that the property is an hotel, e. in cases where it is still not possible to determine the nature of the property, where the actual operator is an individual entrepreneur it is more likely that the property is being run primarily as a public house/inn. Where the property is being managed on behalf of a company running a number of public houses and hotels then, with the exception of the large, branded public house/restaurant chains, it is more likely that it will fall to be treated as an hotel.

5. Overview

In the vast majority of cases consideration of the factors set out in paragraph 3 above should enable the valuer to determine whether the hereditament should be regarded primarily as a public house/inn or an hotel. In those exceptional cases where the valuer is still uncertain as to the primary use of the property regard to the further considerations at paragraph 4 above should provide assistance and enable a conclusion to be drawn.

As with all valuations it will be necessary to stand back and look at the resultant figure to ensure the assessment is reasonable compared to other public houses/inns and older hotels in the locality.

On the few occasions where there is a substantial income from meeting room facilities (e.g. Premier Inn’s Touchbase) this income should be valued as other trade at 1% below the accommodation percentage adopted from the lodge scale.

Practice Note 1: 2005: Hotels

Practice Note 1 : 2005 : Hotels

All Material added

  1. Co-ordination Arrangements

4 & 5 star and major chain operated hotels are a SRU class subject to a national scheme. Responsibility for implementing the scheme as set out within this Practice Note lies with the SRU, as does responsibility for ensuring effective co-ordination. For more information see RM : V2 : S1.

Special Category Code 138 should be used for 4 & 5 star and major chain operated hotels. As a SRU Class the appropriate suffix letter should be S.

Hotels graded at 3 star and under which are not operated by major chains are a Group class. The only exception to this is larger independent hotels (typically with a 2000 RV of £50,000 or more) operating in the same market as major chains, which have, by agreement, been passed to the SRU.

Special Category Code 137 should be used for hotels 3 star and under. The appropriate suffix letter should be G where responsibility lies with the Group, and S where it lies with the SRU.

Country House Hotels are wholly the responsibility of the SRU, and should be given Special Category Code 077 with an S suffix.

In most cases the Group Licensed Property Specialist (or hotel specialist if different) should co-ordinate directly with the SRU hotels specialist.

  1. State of the Industry

As at 1 April 1998 the hotel industry in England and Wales was overall in a healthy state, and revenues and profits typically continued to rise over the next 2-3 years, although in some areas the opening of new hotels mitigated this. From 2001 onwards, however, the UK hotel industry generally has experienced a difficult period; the outbreak of foot and mouth disease in early 2001, the slowdown in the American economy, global terrorism, highlighted by the events of 11 September 2001, the fall in the UK stock market and the uncertainty created by the war in Iraq, all impacted on the performance of hotels in certain locations and certain market sectors.

At 1 April 2003 hotel profitability was generally lower than at its peak in 2000. London, in particular, has experienced sharp falls in rooms yield (or REVPAR – revenue per available room). Some areas however have continued to show increases in turnover and profitability, often under-pinned by the strong growth in demand for domestic holidays and short breaks in particular. Further, the impact of these macro-economic factors has been felt most by those hotels operating at the luxury end of the market; budget hotels have not really been affected at all, and show increases in occupancy of 3% points and room yield of 5.5% between January 2000 and May 2003 (Source: Deloitte & Touche Hotel Industry Benchmark Survey as quoted in British Hospitality Association: Trends and Statistics 2003).

On the cost side, payroll and insurance costs in particular have come under pressure due to employment legislation (such as the Minimum Wage), shortages of skilled staff, and rising insurance premiums.

Although undoubtedly a challenging period generally for hotels, by April 2003 there were some encouraging signs such as improvement in consumer confidence and an increase in forward bookings. There was, however, still a good deal of uncertainty in the industry at large, and it was clear that there would not be a rapid improvement in profitability for the majority of UK hotels.

When considering trends for specific areas local factors must be taken into account. The comments above, and statistics set out below, refer to Provincial England, Wales and London individually, and mask regional variations. For example, Cardiff hotels have benefited greatly from the closure of Wembley Stadium and the resulting movement of many major sporting occasions to the Millennium Stadium, as well as from the establishment of the Welsh Assembly, and hotels in Cornwall have benefited from any reluctance to travel abroad for holidays/short breaks and the good summer weather in 2002 and 2003.

The British Hospitality Association produces an annual report “Trends and Statistics”, a copy of which is held by CEO Rating for reference purposes. This contains numerous statistics on tourism and the UK hotel industry, collected from a wide variety of sources. The statistics quoted in Section 3 below are taken from this report, although the original source is given in the tables below.

  1. Performance Indicators

The following statistics give an indication of relative performance of hotels between 1997 and 2002:

Average Room Occupancy - 1997 - 2002
Source 1997 1998 1999 2000 2001 2002
Provincial England Deloitte & Touche 74.3 73.2 70.7 70.6 70.0 69.2
TRI 71.7 71.0 71.7 71.7 70.5 69.2
PKF 74.9 73.4 72.2 71.3 70.1 69.2
London Deloitte & Touche 85.0 82.6 81.5 81.3 73.5 75.3
TRI 83.4 80.4 80.5 82.5 74.8 74.5
PKF 83.9 80.9 80.1 81.0 72.9 74.2
Wales Deloitte & Touche 72.8 73.8 64.0 61.8 67.3 69.2
TRI 71.0 71.7 70.4 71.0 73.5 72.3
PKF 73.7 71.2 70.3 66.3 73.9 71.9
Average Achieved Room Rate - 1997 - 2002
1997 1998 1999 2000 2001 2002
Provincial England Deloitte & Touche 57.40 62.12 59.69 61.66 62.00 61.00
TRI 52.53 54.73 55.49 58.05 57.87 57.03
PKF 57.59 62.13 61.88 62.67 62.79 61.83
London Deloitte & Touche 98.97 111.40 111.55 121.19 107.00 99.00
TRI 105.33 111.89 107.90 108.45 104.92 91.43
PKF 103.43 107.82 107.43 112.90 108.85 102.26
Wales Deloitte & Touche 47.63 53.88 52.12 55.47 56.00 59.00
TRI 51.58 54.59 49.77 55.37 55.13 56.49
PKF 48.84 53.36 54.01 52.18 55.09 57.12
Rooms Yield (REVPAR) - 1997 - 2002
1997 1998 1999 2000 2001 2002
Provincial England Deloitte & Touche 42.64 45.49 42.24 43.56 43.00 42.00
TRI 37.66 38.86 39.51 41.62 40.80 39.46
PKF 43.13 45.60 44.68 44.68 44.02 42.79
London Deloitte & Touche 84.17 98.00 90.94 98.58 79.00 75.00
TRI 87.85 91.19 86.92 89.49 78.48 68.12
PKF 86.78 87.23 86.05 91.45 79.35 75.88
Wales Deloitte & Touche 34.66 39.75 33.36 34.29 38.00 41.00
TRI 38.62 38.87 35.04 39.31 40.57 40.84
PKF 36.00 37.99 37.97 34.60 40.71 41.07

The samples from which the above figures are quoted are heavily biased towards hotels operated by major chains. Smaller independent hotels, especially where the trade is highly seasonal, are likely to have been influenced by the local economy and local events to a greater extent than for the large chain hotels.

Analysis of receipts and accounts information provided to the VOA in the build up to the 2005 revaluation shows that changes in total turnover between AVDs vary across England and Wales. As a very broad indicator, hotels further away from London appear to have performed relatively better between April 1998 and 2003 than those in or close to the capital. Also, good quality, well-located larger hotels have generally done better than smaller, poorer hotels.

The RPI rose by 11.44% between 1 April 1998 and 1 April 2003.

4. Method of Valuation

4.1 4 and 5 Star and Major Chain Operated Hotels (SRU)

For the 4 and 5 star and major chain operated hotels a scheme of valuation was agreed for the 1995 and 2000 lists. Central discussions with agents representing the British Hospitality Association took place prior to the 2005 revaluation, and these resulted in an agreed valuation scheme.

Accounts for a sample of different hotel types have been analysed, and the limited rental evidence considered, in arriving at the scheme of valuation. The scheme applies a single percentage to the total FMR to arrive at the RV. The percentage applied varies depending upon expected profitability, having regard to the type of hotel and its trading performance, as suggested by a number of indicators.

The scheme of valuation for 4 and 5 star and major chain hotels is set out at Appendix 1 to this Practice Note.

4.2 Hotels - Non-Chain 3 Star and Under (Group)

Hotels not falling within the national co-ordination scheme should be valued according to local and regional evidence. This may result in a privately run, small, older three star hotel being valued at a higher percentage than a similar hotel operated by a major chain. This is not contradictory provided the evidence shows that the major chain hotel operates at a higher level of turnover. A ‘stand back and look’ comparison should be made on a RV per DBU basis to check that levels of value for similar chain and non-chain operated hotels are consistent.

Where there is no such local or regional evidence, the scales at Appendix 1 should be increased by up to 1%. It is important however to compare income of the independent hotel with that of other independent hotels and major chain hotels trading from comparable properties in the locality.

The scheme set out in Appendix 1 is applicable to the level of turnover likely to be achieved by a major chain where the hotel is of a type for which the hypothetical tenant would almost certainly be a major chain. To achieve this the major hotel operators bear considerable central overheads in running central marketing operations and providing other support such as staff training schemes, centralised purchasing deals and central booking systems, although some benefit is derived from economies of scale. In most areas this central support will result in a higher level of turnover being achieved by a chain operated hotel than might be expected from an independent operator. The difference of up to 1% for non-major chain hotels is intended to reflect the different operating styles and to ensure similar hotels, in terms of physical attributes and location, are assessed at similar levels of value when compared in terms of RV per DBU or ADBU (see paragraph 6 below).

5. Valuation Considerations

5.1 Fair Maintainable Receipts (FMR)

The adopted FMR should be that which would have been agreed between the parties as at 1 April 2003, looking forward and taking into account perceived trends, risks and uncertainties at that date. As outlined above, 2001 and 2002 were difficult years for the hotel industry generally, and there was still considerable uncertainty at 1 April 2003. This should be borne in mind when estimating FMR.

Where trade details have not been disclosed FMR should be estimated having regard to any earlier information held on file, and comparing with the pattern of trade of other comparable hotels in the locality.

5.2 Application of the Agreed Valuation Scheme

The agreed scheme for 2005 is similar to the 2000 list scheme. However, Appendix 1 presents the scheme as a range of percentage to RV at any particular level of accommodation receipts per DBU (the “rooms yield”). Appendix 1 gives the range of percentage at intervals of £2,500, for accommodation receipts per DBU; valuers should interpolate between these figures (with the aid of the graphs included in the Appendix). It is hoped that in the future these scales will be incorporated automatically within the Licensed Property Computer Application, although this will not be possible in time for the revaluation itself.

When deciding on the appropriate percentage to adopt, the following approach should be taken:

Firstly, having established the AA star rating of the hotel to be valued (or equivalent if not in fact AA rated), decide on the appropriate age scale. Where an older hotel has had a major later extension, or a major refurbishment, which changes the character of the hotel it may be appropriate to have regard to the modern age scale, albeit making allowance for any disadvantages due to the mixed age/piecemeal development in the percentage finally adopted within that scale.

Then, once the appropriate age scale has been selected, the valuer must consider where to pitch the percentage within the relevant range. Having calculated the accommodation receipts per DBU, the general approach should be to start from the mid-point of the range. All factors relevant to the valuation should then be considered when deciding whether to adopt a percentage higher or lower than this mid-point. In particular, the following should be taken into account:

Accommodation Receipts

After the rooms yield (accommodation receipts per DBU), the primary indicator of profitability and value is the percentage that the accommodation receipts (the most profitable hotel income stream) comprises of the total trade.

The “norm” for post 1960 3 & 4 star hotels is between about 45% and 55%, and for older 3 & 4 star hotels between 40% and 50%.

The “norm” for post 1984 2 star hotels varies widely depending largely on whether or not the hotel includes a proper restaurant and bar; generally accommodation will form between about 55% and 75% of total trade where there is a proper restaurant, and over 75% where these facilities are limited and the hotel is more akin to a lodge-type operation.

There may however be other factors involved such as exceptionally low, or high, price structures. Alternatively, a low percentage, coupled with high accommodation receipts per DBU, may be due to high levels of non-resident food and beverage trade and not to poor performance of the accommodation aspect.

Care should also be taken where there are “exceptional” receipts, for example high income from a leisure club, or major conference trade. (“Room Hire” receipts will normally be shown separately or under “Other” receipts; this is also a very profitable income stream, so where these are significant a percentage towards the top of the range should normally be adopted.) It may be appropriate to analyse the percentage accommodation receipts both including and excluding the “exceptional” receipts.

Taking into account all of the above factors, percentage accommodation receipts in excess of the “norm” for type and age of hotel would point to a percentage above the mid point on the scale being adopted, whilst those below the ‘norm’ would suggest a percentage below the mid point.

The size of the hotel

Where a hotel is significantly larger than the norm for its type, and still attracts a good level of accommodation receipts both in terms of £/DBU and as a percentage of overall trade, this will indicate high profitability due to economies of scale and the hotel should be valued towards the top of the relevant range. Conversely, where a hotel has a significantly smaller number of letting rooms than the norm for its type, though it may still attract a good level of accommodation receipts in terms of £/DBU, this may form a lower percentage of overall trade, which would indicate lower profitability and suggest the hotel should be valued towards the bottom of the relevant range.

The construction and layout of the hotel

These will have an effect on running costs, including staff costs and maintenance.

5.3 Older hotels with major modern extension(s)

It will normally be appropriate to apply the modern scale but also to make an allowance for the mixed ages, additional repairing liability and any disadvantage of the consequent layout in the percentage to RV adopted.

5.4 “Major Chain”

Consortia members should normally be included within this definition (eg Best Western). Chains with less than 10 hotels should not usually be regarded as a major chain. However, hotels in small chains of less than 10, particularly those situated in a tight geographical location (eg same regional resort) should be valued using these scales where trading levels are comparable to those of one of the national operators.

5.5 Leisure Clubs attached to hotels

Leisure clubs will normally form part of the hotel hereditament, although each case must be looked at on its own facts.

Income disclosed in respect of leisure clubs must be checked to ensure the basis of the figures is understood. In some cases the leisure club will be run by a separate company within the same Group or by a totally independent company. In these cases receipts disclosed may be in the form of “rent” received, or a net “contribution”. The latter may be the net profit from the leisure club, or a proportion of that net profit.

Where gross receipts for the leisure club are given these should be included within the FMR and valued with the rest of the hotel at the appropriate overall percentage. Where a “net” figure or concession/franchise fee is disclosed on the FOR, the FMR for this income stream alone (ie the concession/franchise income) should be estimated and then valued at a rate of between 25% and 50% depending on expected profitability, taking into account the services and facilities provided by the hotel operator to the holder of the concession/franchise.

Joining fees should be included only to the extent that these would be anticipated from new members on an ongoing basis - eg following resignation of existing members.

5.6 Hotels with major leisure facilities

These are hotels with good quality golf/outdoor facilities in addition to an indoor leisure club. These should be valued at the appropriate rate taken from the scale at Appendix 1. Where there is a mix of older original building and modern bedroom/leisure blocks (for example) the property should be valued on the “modern” scale and any allowance for the mixed ages, additional repairing liability and any disadvantages of the consequent layout should be reflect in the percentage to RV adopted. A cross check on the golf element should be made with the scheme of valuation for golf courses (see RM : Section 6: Part 3 : S450).

5.7 Coach touring hotels

Hotels owned by coach tour operators - receipts information provided is usually unreliable as it will be an apportionment of the total package price according to the accounting policy of the occupier. It is necessary therefore to compare on a DBU / ADBU basis with other hotels in the locality.

Hotels which accept coach tour business - in the absence of full accounts, these should be valued as other independent hotels, but the final RVs should be checked on a DBU / ADBU basis with other hotels in the locality.

5.8 Hotel/Pub Interface

Where a hotel is being run more in the nature of a public house/inn or public house / restaurant, reference should be made to the appropriate public house scale but taking into account any additional expenditure incurred due to the nature of the property or style of occupation. Where this results in a higher RV than if valued on the hotel scale, the higher value should be adopted.

Coaching and other inns - the nature of these properties is such that receipts from accommodation may form a relatively low proportion of total receipts - often less than 35%. These are often 2 star standard or below and will generate a significant proportion of total income from non-residential food and liquor sales, so that in many respects the property is similar to a pub-restaurant with rooms. Where the property cannot clearly be distinguished as a public house/inn or hotel by reference to its physical features, both the hotel scale and public house scales should be applied, adjusting both to reflect the nature of the property. This should minimise the differences between the public house and hotel scales and result in a percentage between that which would be derived from a straight application of the two different scales. This percentage will reflect the more complex management required, and the increased tenant’s capital, compared to a pub-restaurant. Further guidance is given in Appendix 3 to this Practice Note.

Modern pub-restaurant / lodges - these should be valued on the public house basis with an addition for the lodge on the separate budget hotel/lodge scale.

5.9 Airport Hotels

London Airport hotels - these are characterised by high occupancy rates, high levels of accommodation receipts per DBU and high percentages of accommodation receipts compared to most provincial hotels. Where these suggest higher profitability it will be appropriate to go above the % to RV set out in the scale at Appendix 1. Regard should also be had to values adopted for Central and Outer London hotels.

Provincial Airport hotels - should normally be valued in accordance with the scales set out at Appendix 1. Where a hotel is directly connected to an airport terminal building, eg via a covered walkway, it may be appropriate to adopt an uplift of up to 1% over these scales. The benefit of the direct connection however may be reflected simply in higher accommodation receipts per DBU, and therefore care should be taken not to “double count”.

5.10 London Hotels, and the Interface between Provincial and Outer London Hotels

There will be separate scales for Central and Outer London hotels.

Provincial hotels in Billing Authorities in close proximity to London are likely to show a pattern of trade which would indicate a % to RV towards the top end of the relevant provincial scale. This should result in a smooth interface between provincial and Outer London values. SRUs bordering London should liaise with London SRU in respect of this interface.

Hotels in Outer London will be valued having regard to both the level of values adopted for Central London and Provincial hotels, having regard to the pattern of trade evidenced by the relevant hotel.

5.11 Budget Hotels/Lodges

The major operators in this market are Travel Inn, Travelodge and Premier Lodge. There are however also a number of other operators trying to establish brands in this market.

The valuation scheme for budget hotels and lodges is set out at Appendix 2. A percentage should be applied to accommodation receipts, the percentage being determined according to accommodation receipts per DBU.

Over the last 10 years lodge and budget hotel operators have refined their pricing policies and now adopt a range of tariffs to maximise room yield. Generally though, around 1 April 2003 the main operators adopted tariffs of between about £42 and £55 for provincial lodges, although some locations maintained higher tariffs than this. Normally there will be different midweek and weekend tariffs. This scale can be applied to all budget hotels/lodges which have tariffs, building characteristics and level of service similar to those of the major operators.

Where a budget hotel brand positions itself slightly differently by offering more services, and a higher tariff, it will normally be appropriate to have regard to the scale for 2 star full-service hotels.

5.12 Living Accommodation

RM : V4 : S9 gives general guidance on valuation of composite hereditaments. Paragraph 8 in particular refers to hotels.

The percentage to RV to be adopted when valuing hotels should reflect the normal living accommodation found in a hotel of that type. A specific end adjustment should not therefore be made.

6. DBUs, EDBUs and ADBUs

In the past difficulties arose in comparing valuations and analyses of receipts by reference to Double Bed Units (DBUs) owing to the different factors used by offices to adjust non-standard rooms to a DBU equivalent. These have mainly arisen when co-ordinating the larger hotels, but also in cross office boundary co-ordination of small hotels.

For the 2000 list the various factors adopted across the country were reviewed and, following consultation, a standard basis for analysis was agreed. This should be continued for the 2005 lists. Any minor local variation from the national guidelines will be exceptional and need to be supported by local evidence. The room size guide excludes the en-suite area and is for guidance only, with layout, and actual use taking precedence in room classification. The number of DBUs should be expressed in accordance with the agreed standard factors set out below:

DBU FACTORS

En-Suite

Size Guide

a)

Double or Twin

1

10 - 20 m2

b)

Single

0.7

Up to 10 m2

c)

Family

1.25

20 - 30 m2

d)

Suite - Standard

1.5

2 rooms or over 30 m2

e)

Suite - Superior

2

2 rooms or over 30 m2

These factors apply to ground and first floors and also basement and upper floors where served by passenger lift(s). The above factors should be reduced by 15% for rooms on basement and second floors without a passenger lift, and by 25% for rooms on the third floor and above if not served by a lift. Where rooms do not have en-suite facilities these factors should be reduced by 0.25. (For example, a ground floor double room without a bath/shower or WC would have a factor of 0.75.)

Some offices have also expressed the areas of revenue-earning space in terms of DBUs. Differences in terminology and factors adopted have sometimes caused confusion. It was agreed, following the review referred to above, that where the revenue-earning areas are expressed in terms of DBUs, the figure should be referred to as Equivalent Double Bed Units (EDBUs). If the number of DBUs and EDBUs is summed, the resultant figure is referred to as the number of Adjusted Double Bed Units (ADBUs).

The factors to be adopted in converting areas of revenue-earning space to EDBUs are as follows:

a) Bars, Restaurants, Lounges, Function/Conference Rooms, Public Bars, Night Clubs - the NIA should be multiplied by 5% (ie at the rate of 20m2 = 1 EDBU). Eg 1,000 m2 NIA equals 50 EDBUs.

b) If the areas referred to at (a) above are at basement or lower ground floor level, with or without natural light, the NIA should be multiplied by 4% (ie at the rate of 25m2 = 1 EDBU). Eg 1,000 m2 NIA at basement level equals 40 EDBUs.

c)Leisure Complexes - the GIA should be multiplied by 1.5% (ie at the rate of 66.7m2 = 1 EDBU). Eg 1,000 m2 GIA equals 15 EDBUs.

Comparison using EDBUs is mainly of use for 4/5 star and major chain operated hotels, valued by the SRU valuers. VOs should not re-reference hotels where areas of revenue-earning space are not already recorded unless, exceptionally, the Group or SRU hotel specialist considers it necessary in respect of a particular hotel. Where use is already made of this method as a means of comparing hotels the above factors should be adopted.

7. IT Application

The licensed property application should be used to value all hotels, by both SRU and groups.

Practice Note 1: 2005: Appendix 1: Agreed Provincial Hotel Scales

The following scales give a percentage range for any figure of accommodation receipts per DBU. The range should be interpolated between the points shown, as illustrated in the attached charts.

(These scales should be read together with para 5 of the Practice Note)

4 Star Hotels (and equivalent)

Per DBU (£) Post 1984 1960 - 1984 Older Hotels
Minimum Maximum Minimum Maximum Minimum Maximum
27,500 11.5 13.0 10.0 11.5 9.5 11.0
25,000 11.125 12.75 9.625 11.125 9.0 10.375
22,500 10.5 12.25 9.0 10.5 8.25 9.5
20,000 9.875 11.5 8.5 9.875 7.75 9.0
17,500 9.0 10.5 8.0 9.25 7.375 8.5
15,000 8.125 9.625 7.5 8.75 7.125 8.125
12,500 7.5 9.0 7.0 8.25 6.75 7.75
10,000 7.0 8.5 6.5 7.875 6.25 7.25
7,500 6.75 8.25 6.25 7.75 6.0 7.0

Post 1984 4 star hotels chart (click to enlarge)

1960 - 1984 4 star hotels chart (click to enlarge)

Older 4 star hotels chart (click to enlarge)

3 Star Hotels (and equivalent)

Accom receipts Guide % to RV
per DBU (£) Post 1984 1960 - 1984 Older Hotels
Minimum Maximum Minimum Maximum Minimum Maximum
27,500 11.75 13.25 10.75 12.25 10.25 11.75
25,000 11.5 13.0 10.25 11.75 9.75 11.25
22,500 10.875 12.5 9.375 10.875 8.875 10.25
20,000 10.125 11.75 8.75 10.125 8.25 9.5
17,500 9.25 10.75 8.25 9.5 7.75 9.0
15,000 8.5 9.875 7.75 9.0 7.25 8.5
12,500 8.0 9.25 7.25 8.5 6.75 8.0
10,000 7.375 8.75 6.5 8.0 6.25 7.5
7,500 6.5 8.0 5.5 7.25 5.5 6.75
5,000 6.0 7.5 5.0 6.75 5.0 6.25

Post 1984 3 star hotels chart (click to enlarge).

1960 - 1984 3 star hotels chart (click to enlarge)

Older 3 star hotels chart (click to enlarge)

2 Star Hotels (and equivalent)

Accom receipts Guide % to RV
per DBU (£) Post 1984 1960 - 1984 Older Hotels
Minimum Maximum Minimum Maximum Minimum Maximum
20,000 11.75 13.25 9.0 11.0 8.5 10.5
17,500 11.5 13.0 8.75 10.75 8.25 10.25
15,000 11.0 12.5 8.25 10.25 7.75 9.75
12,500 10.5 12.0 7.75 9.75 7.25 9.25
10,000 9.75 11.25 7.25 9.25 6.75 8.75
7,500 8.75 10.25 6.625 8.625 6.25 8.25
5,000 7.875 9.25 5.875 7.875 5.75 7.75
2,500 7.5 8.75 5.5 7.5 5.5 7.5

Post 1984 2 star hotels chart (click to enlarge)

1960 - 1984 2 star hotels chart (click to enlarge)

Older 2 star hotels chart (click to enlarge)

5 Star Hotels

In view of the small number of these they should be valued individually. However, regard should generally be had to the 4 star scales with a further allowance to reflect the additional costs of providing a 5 star service, and to a full receipts and expenditure valuation.

Country House Hotels

See the main RM section for characteristics. In view of the very individual nature of such properties it is not possible to provide a set valuation scheme for country house hotels. It is expected that valuations will normally fall in a range of 5.5% - 8.5% of FMR and, depending on the individual hotel, guidance should be taken from the older 3 and 4 star hotel scales with allowance as necessary for any additional expenditure incurred above that typical for an older 3 or 4 star hotel. In some cases it may be appropriate to undertake a full receipts and expenditure valuation.

Application of the Agreed Scales

When deciding on the appropriate percentage to adopt, the following approach should be taken:

Firstly, having established the AA star rating of the hotel to be valued (or equivalent if not in fact AA rated), decide on the appropriate age scale. Where an older hotel has had a major later extension, or a major refurbishment, which changes the character of the hotel it may be appropriate to have regard to the modern age scale, albeit making allowance for any disadvantages due to the mixed age/piecemeal development in the percentage finally adopted within that scale.

Then, once the appropriate age scale has been selected, the valuer must consider where to pitch the percentage within the relevant range. Having calculated the accommodation receipts per DBU, the general approach should be to start from the mid-point of the range. All factors relevant to the valuation should then be considered when deciding whether to adopt a percentage higher or lower than this mid-point. In particular, the following should be taken into account:

Accommodation Receipts

After the rooms yield (accommodation receipts per DBU), the primary indicator of profitability and value is the percentage that the accommodation receipts (the most profitable hotel income stream) comprises of the total trade.

The “norm” for post 1960 3 & 4 star hotels is between about 45% and 55%, and for older 3 & 4 star hotels between 40% and 50%.

The “norm” for post 1984 2 star hotels varies widely depending largely on whether or not the hotel includes a proper restaurant and bar; generally accommodation will form between about 55% and 75% of total trade where there is a proper restaurant, and over 75% where these facilities are limited and the hotel is more akin to a lodge-type operation.

There may however be other factors involved such as exceptionally low, or high, price structures. Alternatively, a low percentage, coupled with high accommodation receipts per DBU, may be due to high levels of non-resident food and beverage trade and not to poor performance of the accommodation aspect.

Care should also be taken where there are “exceptional” receipts, for example high income from a leisure club, or major conference trade. (“Room Hire” receipts will normally be shown separately or under “Other” receipts; this is also a very profitable income stream, so where these are significant a percentage towards the top of the range should normally be adopted.) It may be appropriate to analyse the percentage accommodation receipts both including and excluding the “exceptional” receipts.

Taking into account all of the above factors, percentage accommodation receipts in excess of the “norm” for type and age of hotel would point to a percentage above the mid point on the scale being adopted, whilst those below the “norm” would suggest a percentage below the mid point.

The size of the hotel

Where a hotel is significantly larger than the norm for its type, and still attracts a good level of accommodation receipts both in terms of £/DBU and as a percentage of overall trade, this will indicate high profitability due to economies of scale and the hotel should be valued towards the top of the relevant range. Conversely, where a hotel has a significantly smaller number of letting rooms than the norm for its type, though it may still attract a good level of accommodation receipts in terms of £/DBU, this may form a lower percentage of overall trade, which would indicate lower profitability and suggest the hotel should be valued towards the bottom of the relevant range.

The construction and layout of the hotel

These will have an effect on running costs, including staff costs and maintenance.

Airport Hotels

London Airport hotels - these are characterised by high occupancy rates, high levels of accommodation receipts per DBU and high percentages of accommodation receipts compared to most provincial hotels. Where these suggest higher profitability it will be appropriate to go above the % to RV set out in the scale. Regard should also be had to values adopted for Central and Outer London hotels.

Provincial Airport hotels - should normally be valued in accordance with the scales. Where a hotel is directly connected to an airport terminal building, eg via a covered walkway, it may be appropriate to adopt an uplift of up to 1% over these scales. The benefit of the direct connection however may be reflected simply in higher accommodation receipts per DBU, and therefore care should be taken not to “double count”.

Practice Note 1: 2005: Appendix 2: Budget Hotel / Lodge Scales

For purpose built lodge accommodation adjoining a public house; public house restaurant/licensed restaurant or roadside restaurant the rental percentage will be determined according to the amount of fair maintainable receipts per bedroom, irrespective of whether it is let for single, double or family occupancy. A standard lodge bedroom will be treated as one Double Bed Unit (DBU).

The rateable value of the lodge accommodation should be determined in accordance with the table below, which applies throughout England and Wales, including London. These percentages may be increased by up to 1% where a lodge, of a similar physical type and situated in a similar location to those operated by the major chains, is run by a solus operator.

Accommodation receipts % to RV
per DBU - £
18,000 & Over 17.5
17,000 – 17,999 17
16,000 – 16,999 16.5
15,000 – 15,999 16
14,000 – 14,999 15
13,000 – 13,999 14
11,000 – 12,999 13
9,000 – 10,999 12.5
7,000 – 8,999 12
5,000 – 6,999 11.5
Under 5,000 11

Accommodation receipts should be valued on the above scale where a stand-alone lodge/budget hotel has an integral bar and restaurant. Where the hereditament consists of the basic lodge only – ie bedrooms, reception and storage cupboards only, but no breakfast restaurant/bar or alternative eating establishment – the percentage arrived at on the above scale should be reduced by 0.5%.

Where the lodge/budget hotel is converted from a building designed for another use, eg an office, the percentages shown in the above scale should be reduced by 0.5% to reflect the higher maintenance and running costs involved.

Where receipts from food, liquor and other sources are less than 25% of the total turnover these should be valued at 9%, although in London this percentage may increase up to 12%. Where receipts from food, liquor and other sources are in excess of 25% of total turnover, and the property benefits from significant non-resident food and liquor trade, regard should be had to valuation bands for liquor and food, contained within the Valuation of Public Houses Approved Guide.

Practice Note 1: 2005: Appendix 3

Interface between Public Houses/Inns and Hotels/Guest Houses

1. Valuation

Public houses/Inns

These are to be valued in accordance with RM : S6: Pt 3: S825 and the 2005 Practice Note. The scales agreed with the British Beer & Pub Association (BBPA) to determine the rental percentage for different income streams broadly increase as trade increases until the thresholds of £500,000 (liquor) and £400,000 (food) are reached. Accommodation receipts derived from letting six or less bedspaces will be added to the dry trade; for more than six bedspaces a separate percentage will be applied to accommodation receipts. Below the threshold, the resultant effect is the greater the liquor, food and accommodation receipts, the higher the overall rental percentage to rateable value becomes.

Four & five star and major chain operated hotels

These are to be valued in accordance with RM : S6 Pt 3: S510 and the 2005 PN. The valuation scheme for each hotel type uses specific indicators as a guide to likely profitability. Thus, in very broad terms, the higher the accommodation receipts (the most profitable of the income streams), expressed both as a proportion of total receipts and per double bed unit, the higher the percentage to rateable value adopted. Conversely, the greater the proportion of liquor, food and other turnover, the lower the overall profitability of the business is likely to be and therefore a lower percentage will be applicable.

Independent three star hotels

Should be valued in accordance with local evidence, as set out in RM : S6: Pt 3: S510 : PN 2005.

Purpose built lodges

Purpose built lodges adjoining or attached to public houses, should be valued using the scale for budget hotels/lodges and the liquor, food and other income streams for the public house valued in accordance with the Approved Guide. (See Appendix 1.)

2. Effect of Valuation Bases

When applying the public house and hotel scales to the same level of fair maintainable receipts, different values may arise, particularly for older properties, or those with a relatively low proportion of accommodation receipts.

Publicans/innkeepers and hoteliers however serve different markets, they have different expectations, incur different costs and achieve different levels of profitability. Thus any differences arising when applying the two valuation bases to fair maintainable receipts are to be expected and reflect the nature of the business and the different rental markets. This should not cause problems provided the hereditament is correctly identified as either a public house or hotel and valued accordingly.

3. Distinction between Public Houses/Inns and Hotels

In most cases there will be no problem in identifying public houses/inns and hotels. Where, however, the distinction is blurred it is important to identify the exact nature and type of property that is being valued, and the likely occupier.

If the property provides public rooms, service and other facilities in addition to bedrooms, though it may have a significant licensed and restaurant trade (possibly at a relatively low profitability), it is likely to be an hotel. It is likely, on the other hand, to be a public house/inn if, whilst having letting rooms it does not have the usual facilities or provide the services normally associated with an hotel.

The physical characteristics of the property, the nature of business being carried on and the most likely occupiers of the property if vacant must be identified. The following factors, whilst not exhaustive, should be considered and may give some guidance:

  • type of licence (pending full implementation of the Licensing Act 2003, whether this is an “on-licence” or “Part IV” (restaurant and residential) licence granted under the 1964 Act),

  • amount and relativity between the income streams for liquor trade, catering, accommodation and other,

  • physical factors such as separate entrance, reception, sitting rooms, dining room etc. provided for residential guests and segregated from bar areas and licensee’s/proprietor’s or manager’s living accommodation,

  • arrangement of letting bedrooms, type and standard of accommodation,

  • whether bedrooms have en-suite facilities or bathrooms/WCs are shared, and if so with other guests or staff,

  • level and type of services provided for residential guests,

  • the type of staff employed, e.g. receptionist/telephonist, housekeeper, chambermaid, cook, waiters/waitresses, bar staff, night porter etc.,

  • the history of occupation of the property and whether the occupier (or potential occupier) is likely to be a publican/innkeeper, who sees the opportunity to increase profit by utilising spare accommodation for letting purposes, or a hotelier who sees the opportunity to increase profit by attracting non-residential restaurant and bar trade,

  • whether the property is run by a proprietor or managed on behalf of a company running a number of public houses/inns or hotels.

4. Valuation at the Interface

Very exceptionally where, following consideration of the essential nature of the hereditament, the current mode of operation and the likely operation of the hypothetical tenant, it is still not possible to determine whether the property should be regarded primarily as a public house/inn or an hotel, it may be necessary to adjust the percentage adopted to reflect the actual circumstances. In these circumstances, the following guidance may assisted in the determination of the appropriate valuation method to be adopted:

a) where the percentage accommodation receipts are greater than 40% the hotel basis is most likely to be appropriate. The rental percentage adopted should generally be increased if a substantial part of the other income streams arises from a profitable bar. The resultant valuation should not exceed the valuation based on the public house scale,

b) where the accommodation receipts are below 30% the public house basis is most likely to be appropriate,

c) between 30% and 40% the property should be valued on both the public house basis and the hotel basis. If the hotel basis is increased (by say 1%) to reflect the profitability of the wet trade, or if a lower band/point within a band is adopted on the public house scale and the catering/accommodation are valued to reflect any extra services and lower profitability, any differences between the two bases should be minimised. This will also reflect the additional tenant’s capital required, and the increased complexity of the business, compared to a typical public house.

d) the above points must also be viewed in terms of the total receipts. For example, 40% of total FMR of £100,000 may still indicate that the property should be regarded as a public house/inn. On the other hand, 40% of total FMR of £1,000,000 is more likely to lead to the conclusion that the property is an hotel,

e) in cases where it is still not possible to determine the nature of the property, where the actual operator is an individual entrepreneur it is more likely that the property is being run primarily as a public house/inn. Where the property is being managed on behalf of a company running a number of public houses and hotels then, with the exception of the large, branded public house/restaurant chains, it is more likely that it will fall to be treated as an hotel.

5. Overview

In the vast majority of cases consideration of the factors set out in paragraph 3 above should enable the valuer to determine whether the hereditament should be regarded primarily as a public house/inn or an hotel. In those exceptional cases where the valuer is still uncertain as to the primary use of the property regard to the further considerations at paragraph 4 above should provide assistance and enable a conclusion to be drawn.

As with all valuations it will be necessary to stand back and look at the resultant figure to ensure the assessment is reasonable compared to other public houses/inns and older hotels in the locality.

Practice Note 1: 2005: Appendix 4: Agreed Central London Hotel Scale

Percentage applied to Gross Receipts
Accommodation receipts as % of total (interpolate intermediate percentages) min max Heathrow min Heathrow max
A 2/3/4 Star Hotels with accommodation receipts up to £37,500 per DBU 50% 65% 80% 100% 11.00% 12.00% 12.75% 13.5% 14.00% 15.00% 16.00% 17.00% 10.00% 11.00% 11.75% 12.5% 13.00% 14.00% 15.00% 16.00%
B 4/5 Star Hotels with accommodation receipts up to £60,000 per DBU 20% 50% 80% 100% 9.5% 10.5% 11.75% 12.5% 12.5% 13.5% 15.00% 16.00%
C 5 Star Plus Hotels with accommodation receipts in excess of £60,000 per DBU and gross receipts in excess of £95,000 per ADBU 40% 55% 70% 8.75% 9.25% 10.00% 11.75% 12.5% 13.5%

The interface between B and C is subject to consideration of the relative RV per equivalent double bed unit for similar hotels.

The percentage is applied to the level of trading as at the Antecedent Valuation Date.

A comparison needs to be made between this level of trading and that adopted for the 2000 Rating List - the relativity between the two is an additional factor to those considered in previous schemes, which will be utilised to inform the decision as to the appropriate position on the scale to be adopted.

DBU = double bed unit

ADBU = adjusted double bed unit, where additional revenue earning space has been factorised in terms of its equivalence to a double bed unit and added to the DBU total for the hotel.