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

Section 550a: large shops

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

1. Scope

1.1 This instruction applies to Departmental Stores and Large Shops. The point at which a shop becomes a large shop to be valued on the overall basis, as opposed to a zoned shop, depends upon the marketplace and it is the point at which valuation on the zoning basis loses its integrity. This can be by requiring very small fractions of zone A rates on the least valuable areas or the excessive use of quantum in order to achieve devaluation to its rent. There is no fixed starting point in terms of size when the standard shop becomes a large shop. Size is relative to the nature of the town in which the property occurs.

1.2 In general (and outside of central London) all town centre shops with a total gross internal area (GIA) of over 1,850m² are classed as Large Shops.

1.3 This instruction does not apply to Large Shops SCAT coded 154 with a GIA between 750m² and 1,850m². Advice in respect of those shops under 1,850m² GIA is found in Rating Manual: section 6 part 3 - section 920 (Shops). In general such shops are dealt with by Generalist caseworkers.

1.4 This instruction excludes the large multi-floor purpose built retail properties occupied by the likes of IKEA. This type of property is the subject of a separate instruction. See section 6 part 3 – section 550b.

2. List Description & Special Category Code

2.1 Bulk Class: Shop

Primary Description: CS

List Description: Shop and Premises

SCAT Code 155. Suffix S (Specialist)

2.2 The VOA originally adopted two scat codes for large shops: 086 for Department Stores and 155 for large shops. For the 2017 Revaluation 086 and the description ‘Department Stores’ will be discontinued and 155 applied to all large shops valued on an overall basis.

3. Responsible Teams

3.1 Large shops are a specialist class of property to value but the work is split between Generalists and Specialists with the latter dealing exclusively with property over 6,000m² GIA but taking the lead on this class as a whole. Responsibility for inspection, survey and valuation rests with referencers and caseworkers with specialist training and knowledge in this class. The National Valuation Unit (NVU) provides support. For Reval 2017, it is anticipated that each unit will have a named individual responsible for the class. More than one individual is recommended for succession planning.

3.2 It is also recommended that each Unit should allocate a named co-ordinator, or Lead Valuer, to act as a point of contact within the Unit. This Lead Valuer will be responsible for assisting in the delivery of the Unit’s valuation scheme and also for liaising on value and technical issues with other Lead Valuers across adjoining Units. The Lead Valuer will be responsible for ensuring compliance with this Practice Note.

4. Co-ordination

4.1 The Large Shops Class Co-ordination Team (CCT) has overall responsibility for the co-ordination of this class. The team are responsible for the approach to and the accuracy and consistency of Large Shop valuations. This Practice Note describes the valuation basis for revaluation and NVU will provide advice as necessary during the life of the rating lists.

Caseworkers have a responsibility to:

  • follow the advice given at all times – Practice Notes are mandatory

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

There is no specific legal framework for this class of property.

6. Survey Requirements

6.1 Inspections should be carried out in accordance with the Valuation Office Agency Code of Practice.

6.2 Large shops should be measured to gross internal area (GIA) for rating purposes in accordance with the RICS Code of Measuring Practice 6th Edition or its replacement.

6.3 GIA is defined as the area of the building measured to the internal face of the perimeter walls at each floor level. It includes columns, stair wells, lift wells and escalator wells, internal projections, ducts and the like, and corridors of a permanent essential nature (e.g. fire corridors), but may not include atrium above the lowest floor. Note that escalator cores do not constitute an atrium.

6.4 An inspection checklist is included at Appendix 1.

7. Survey Capture

7.1 Rating surveys should be captured on the Rating Support Application (RSA) and plans and surveys stored in the property folder of the Electronic Document Records Management (EDRM) system.

7.2 RSA Data Entries

RSA large shop valuations are usually shown as simple one line entries for the main space. Floor levels will be recorded as Range of Floor (RF) and ‘Use’ as Total Floor Area (TFA). However, floor areas can be recorded on a floor-by-floor basis but always at the same rate per m².

8. Valuation Approach

8.1 Historically large shops were zoned with large end allowances for size and layout. By common consent the correct method to value a large shop is on an overall approach. The area of the property is multiplied by an overall rate per m² which reflects all its advantages and disadvantages. This is the polar opposite of zoning which relates ancillary space in terms of the most valuable part of the shop.

8.2 The adoption of the single overall rate per square metre being applied to the Gross Internal floor area for a rating valuation was confirmed in Harrods Ltd v Baker (VO) which was the first Lands Tribunal decision to adopt the new methodology. This method may however lead to comparability issues as all valuation factors (see below) are, in effect, rolled up into base price per m²

8.3 The valuation approach for this class of property is founded on actual rents, which after adjustment will normally be the starting point. Lotus & Delta Ltd v Culverwell (VO) & Leicester City Council [1976] RA 141. The overall rate per m² adopted will vary according to the size, location and physical characteristics of the store.

8.4 Unit of Assessment Rating Manual - section 3 part 1: Occupation and The Hereditament

Consideration must be given to Unit of Assessment on a continuing basis for all maintenance and appeal work related to Large Shops. However, the general assumption would be that, after consideration of the tenets of rateable occupation, most ‘concession type’ occupiers in Large Shops would not satisfy the tests of seperate occupation and therefore the host hereditament will remain unaltered. However each case must be considered on its merits and merely because an operator has a concession does not automatically mean separate assessment is not appropriate. Currently known exceptions, where separate assessment is considered appropriate, include Hotel Chocolate in John Lewis, York and M&S Banks within an ever-increasing number of M&S stores.

8.5 The advice provided in Rating Manual section 4 part 1 - practice note 1: 2017 on rental adjustment and analysis should be followed. Rating Manual section 4 part 1 - practice note 1 2010

8.6 Valuation Considerations

Large shops vary considerably and value significant factors include location, age, size, the number of floors and intercommunication between floors. The single overall rate per m² applied to each large shop has to reflect every factor, which may affect rental value. The overall value therefore, takes account of a large number of influences deriving from the individual characteristics of each particular property. The valuer’s task in undertaking a valuation of a large shop for rating purposes is to appraise the rental evidence in the light of the characteristics of the rented comparables and apply the results to the specific characteristics of the subject hereditament being valued.

8.7 Most open market valuations are based on comparable rental evidence often obtained from wide geographical areas with much debate about the relative value of the evidence. Adjustments of rents to accord with the Statutory basis of rating are required to reflect both lease terms and physical attributes. Rental adjustment and analysis is critical for this class of property. The physical factors that influence a large shop valuation are not always the same as those that have a bearing on a standard zoned shop. As large shops are valued on a different basis to standard shops there is no direct relationship between patterns of Zone A levels nor valuation trends between the revaluation dates. It may be interesting to analyse trends in changes of zone A rates against each other but this is of little assistance in arriving at a valuation of a large shop on an overall GIA basis. Standard shops compare to standard shops and large shops measured on an overall basis compare to similarly valued large shops which exist in a different market to zoned shops with a different supply and demand dynamic.

The two most important valuation factors for large shops are location and size.

8.8 Location of the Retail centre and ranking

Location is the most important factor affecting value. To this end the Zone A level within a town can be taken as an indicative measure of the relative strength between towns where detailed population, expenditure and catchment information is not available. However, treat Zone A’s with caution – they provide a hierarchy of value between similar locations but do not give an indication of positioning within that hierarchy. For example, if town A had a Zone A value 20% higher than comparable town B it would be demonstrated that town A is higher ranked than town B. It would not however give an indication of the value differential between the locations to be reflected in the overall rate per m² of similarly sized large shops in the two locations, which would be unlikely to be as high as 20%.

8.9 The strength of a particular retail centre to support a large shop will primarily depend on the extent and quality of the catchment area and the competition within it. It is important to compare like with like and a system has developed of ranking towns. Comparison should be considered between units in the largest traditional centres such as London, Birmingham, Manchester, Newcastle, Leeds and Liverpool (the premier league). Likewise the modern Regional Centres of Meadowhall, Bluewater, Metro Centre, Trafford Centre, Lakeside, Merry Hill, Cribbs Causeway and White Rose should be considered together. Equally it is possible to compare towns further down the retail ranking. The smaller the centre the less the need to compare over a wide geographic area as there should be sufficient rental evidence in the locality (although not always within the same VOA Unit boundary). The very largest hereditaments, or those in specific individual locations (such as Bath, York, Cambridge and Oxford) may still require to be considered across the national groupings.

8.10 Size

A quantity adjustment is a result of the interaction of supply and demand of properties at larger sizes resulting in a lower rental value rate (in terms of rate per m²) than that of smaller properties. Within the Large Shop class this is expressed as a reduction of the basic rate. However there must be evidence to support such a variation. The simplest way to reflect size is to reach the valuation by comparing properties of the same or similar size. Generally, the closer the size of the comparable to the subject property, the more weight it can be afforded. When lack of evidence requires comparison of dissimilar sized shops in geographically spread locations careful consideration and interpretation of all available evidence is needed.

8.11 Surplus Accommodation

Surplus accommodation needs to be considered with the property ‘vacant and to let’ at the AVD and not solely related to the demands of any one single occupier.

8.12 Other Valuation Factors: Location and prominence within the retail centre

Within any town, large shop values do not vary in direct proportion with Zone A rates. Considerable changes in Zone A pitches can result in much smaller changes to the overall rate applied. Therefore, the important factor to note is that the value applied to a large shop bears little relationship to the much more location specific standard shop valuation. However, both location within the retail centre and the prominence of the large shop can be value significant. Prominence is provided by a combination of factors including the relative size of the shop, the scarcity of other large shops and physical factors such as architectural features.

8.13 It must also be acknowledged that the larger the shop is the more it becomes a destination store and less reliant on its trading pitch and pedestrian footfall.

8.14 Quality generally: Fitting Out

Large shops and department stores are valued for rating as fitted units. Rents for this class of property are frequently on a shell basis. Before any analysis occurs it is essential to discover the terms of the letting in relation to fit. It must also be borne in mind that a fitted rent on a particular property might not actually reflect the current physical state of that property. It could relate to the historical situation that existed when the original lease was entered into therefore ignoring considerable tenant’s improvements which must of course be reflected in the rating assessment.

Lease terms can also include provisions stating that at review the property is assumed to be fit for immediate occupation. Landlord and Tenant case law has considered this point and it need not be interpreted that the property is to be valued in a fitted condition for rent review purposes.

It is universal practice to add a percentage to the shell rent to get to the fitted condition at rent review. The percentages adopted are not agreed and rent review evidence varies considerably. However it would seem to point towards the following:

New fittings, or up to 10 years old on review (Second review) +10%</p>
Fittings greater than 10 years old on review</p> +5%</p>
Fittings which are close to physical obsolescence to old</p> 0% to +5%</p>

8.15 Air Conditioning

Every large shop assessment thus intrinsically reflects its fitted condition and it should be noted that this fitting addition incorporates the air conditioning at the store. There is no specific amount attributable to this aspect but as a rule of thumb it may be prudent to compare the air conditioning system, included as part of the general level of fit, at any subject property with that of its comparables. Paradoxically if there is no air-conditioning at all then no specific reduction should be considered if the store comprises an older one assessed at a lower level than its modern equivalent which has air conditioning.

8.16 Vertical circulation

Modern requirements are met by escalators with extra wide almost atria like openings affording the shopper an uninterrupted view of the retail offer whilst making speedy upward progress through the floors. The rate of such ‘upwardness’ (measured by the reduced number of people reaching the higher floors) is referred to as ‘decay’. Enclosed escalators which force the shopper to walk round the escalator banks to see the retail offer (as opposed to the modern open feel) are inferior. The provision of lifts and stairs alone will further reduce the vertical circulation thus increasing decay. Careful consideration of relevant rents of large shops demonstrating varying vertical circulation characteristics can help in identifying the valuation effect of this feature.

8.17 A further consideration in valuation can be the number of floors, although this is also a factor that is heavily size influenced. This again underlines best practice that, as far as possible, comparisons should be made between large shops of a similar size, a similar number of floors and similar physical characteristics.

8.18 Compartmentalisation and Horizontal circulation

The general ideal demand within the current large shop market is for clear open space with uninterrupted sight lines. When the space is interrupted with structural walls, the sales area becomes compartmentalised and clear sight lines disappear. This is an aspect that has to be taken into account in the valuation. This feature generally occurs in older properties although it can be turned to an advantage by being made to provide an alternative ambient atmosphere for the sale of luxury or specialised goods. Usually however it can be regarded as a disadvantage to the shop.

8.19 If the floor plates are significantly large, the store operator may seek to sub divide that space for his convenience – for example to segregate different types of franchise by non-structural partitions. The shop will be valued rebus. On the other hand compartmentalisation by structural walls will have a negative effect on the valuation as it decreases the flexibility to alter the size of those sub divisions.

8.20 Circulation issues (vertical and horizontal) should always be considered together as there is clear interaction overlap. However, it is important to avoid double counting when considering the valuation affect of other physical features.

8.21 Car parking

Any incremental value arising from car parking being within the same occupation may need to be considered when comparison is being made with other large shops without such facilities.

8.22 The Ratio of Gross Internal Area to Net Internal Area

This ratio indicates the relative efficiency of the building. Most large shop and department stores have a ratio of between 75% and 85% NIA to GIA. This ratio is another factor to be considered when comparing properties. The ratio will vary according to the age and character of the property

8.23 Varying floor levels – Ceiling heights

These can only really be regarded as value significant if they are pronounced and obviously apparent. The market is sufficiently robust to simply ignore these factors unless providing a severe disability.

8.24 Second Entrances

Adjustment for the presence, or absence of such a feature will be largely dependent on the size of the property and the location and quality of the additional access. However a prime second access can add a significant amount to the overall rate of a store.

8.25 Return Frontages, Age and Shape of Property

These are aspects which can influence value but normally are only contributory to features such as circulation; sight lines, prominence and position.

8.26 Loading and sorting facilities

Loading and sorting facilities are generally not value significant unless they are of such a nature that they incur significant additional operational costs to the occupier.

8.27 Comparison between properties

Broadly speaking, there are two alternative approaches to the rental analysis and valuation of large shops. These approaches are:-

(i) Mathematical factorisation: This requires the application of percentage adjustments for the relevant valuation factors for each hereditament. For example, x% may be added for a rear customer entrance, in all properties which have this characteristic. In practice the adjustments are rather fluid and an overall percentage adjustments emerges from comparison, reflecting an aggregate variation for all factors of difference.

(ii) Overall factorisation: This is the market approach. The comparables are ranked in ascending order of value. A holistic view is made by the valuer of the relative merits of the subject property, in relation to the comparables and the property is placed accordingly in the hierarchy. Adjustments for all the physical factors are considered together to arrive at an overall rate.

8.28 The methods have advantages and disadvantages:

(i) Mathematical factorisation: This method appears in theory to achieve uniformity but the percentage adjustments are difficult to validate by reference to evidence as often there is only a single overall figure. In the Lands Tribunal decision of Harrods Ltd v Baker (VO) at paragraph 85, the Tribunal rejected the ratepayer’s valuation approach which was on this basis for two reasons :

  • Many of the individual factors interact.

  • It was not possible to attribute any particular adjustments for individual factors from the agreed comparable properties

(ii) Overall factorisation: This is the market approach which adopts an overall figure to take account of the features of the property. It is difficult to demonstrate uniformity.

8.29 It is difficult to use rents from large shops to demonstrate the value effect of a particular characteristic. Each rent reflects a multiplicity of factors and it is hard to isolate a particular factor by rental comparison. Comparison is always made on the basis of multiple factors being balanced against each other to derive a general measure of rental value. However, with experience it is possible to make some broad adjustments. Valuations can only be undertaken on the basis of detailed personal knowledge of each store. From this knowledge, valuers rank the comparables in value order based on their overall perception of the interaction of the factors in each case. The valuer’s task is then to determine where the subject property fits in to this hierarchy, based on a range of the advantages and disadvantages of each store. This provides upper and lower values within which a judgement can be made.

8.30 In practice both the mathematical and overall factorisation methods will need to be used together as there is little to distinguish them. The reasoning behind an overall large shop valuation for rating must always be recorded.

8.31 Key rents

All properties on which a key rent has been identified must be inspected.

9. Valuation Support

  • Rating Support Application (RSA)

  • Survaid

  • Class Coordination team for Large Shops

  • National Valuation Unit

Appendix 1

Large Shopsinspectionchecklist (GIA)

Inspections should be carried out in accordance with the Valuation Office Agency Code of Practice.



Retail type


Predominant use:


Unit of Assessment. ATM; Bank; other retailers of goods or services; Cafe; pharmacy; Community use; medical or dental practice; Soft play; Nursery; gymnasium; photo-booth; drop box; car wash; tyre bay; advertisements; petrol filling station.


Car Parking Allocated/ communal, open/ covered, number of spaces, staff/ customers, free/ charge made/ refund given

Competition/ comparables

Building External


No. of floors


Main display

Secondary display

Customer access

Delivery and Loading

Other points


Building Internal


Fit out:



Access from loading


Standard/ prestige. Front/ side/ rear.





Extraordinary features

Natural light

Customer WCs

Lifts and Escalators Lifts: Type manual/ automatic, goods, passenger, staff/ customers, capacity, floors served.

Escalators: number, up/down, between which floors, where sited

Other occupiers in the building

Shared facilities:

Customer restaurant


Fire Precautions.


Air Conditioning (age) Cassette or ducted. Purpose.

Extent of area covered. Heating. Fuel. System

Surplus Accom.

General remarks

Date of survey

Survey by:

Section 550a: Practice note: 2017: Large shops

1. Market Appraisal

1.1 The 2010 Revaluation had an AVD at the market peak just prior to the biggest recession of recent times. Retail was one of the worst affected of the property sectors with several retailers having gone into liquidation and several towns’ high streets being left with high vacancy rates. Large shops in many of these towns may have had subsequent rent reviews resulting in nil increases. This effectively means that for the purposes of the 2017 revaluation with an AVD of 1 April 2015 there may be rental evidence of limited value, affected by upwards only review provisions.

1.2 There will however be some new evidence available as the country has polarised in that certain areas have continued to prosper whereas others have dropped into decline. The ‘premier league’ of main cities and centres (see paragraph 8.9 of Rating Manual section 550a) will still have new letting and rent review evidence as they have not been so badly affected by the recession and the revaluation in these centres is more likely to be based upon more reliable evidence.

1.3 The remainder of the country may be more difficult. Towns will have to be ranked on a consistent basis so that comparability can be made. What evidence of new lettings and rent reviews there is must be adjusted and analysed on RSA in order to ensure a consistent approach.

2. Differences Between the 2010 and 2017 PNs

2.1 There was no Practice Note for the 2010 Revaluation.

3. Ratepayer Discussions

A meeting has been arranged with the Rating Surveyor’s Association for 06-Oct-15.

4. Valuation Scheme

4.1 Large shops are measured to gross internal area and valued overall with a check to a zoned approach at the margins in accordance with market practice. There is one scale which applies nationally with all relativities set to 1.000.

Practice note 1: 2005: Large shops

1. Co-ordination

This is an SRU Class. Co-ordination responsibilities are set out in Rating Manual section 6 part 1.

For Large Shops with a Gross Internal Area (GIA) over 1,850m2, the following Special Category Codes should be used: 155 (Large Shops) or 086 (Department Stores). As a Specialist Rating Unit Class, the appropriate suffix letter should be S. This Practice Note deals specifically with those Large Shops above 1,850m2 Gross Internal Area (GIA) or a Net Internal Area (NIA) of approximately 1,500m2.

The Primary Description Code of CS should be used when creating an assessment.

The Rating manual Section 6 part 3: 550: should be read in conjunction with this practice note. All definitions and size indicators found in the main manual section are intended to assist when making comparisons across wider boundaries. Rating Manual advice in respect of those shops under 1,850m2 GIA (1,500m2 NIA) is found in Rating Manual Section 6 part 3: 920 (Shops); in general such shops are dealt with by Groups.

2. Introduction

Large Shops over 1,850m2 GIA (1,500m2 NIA) have a dedicated Rating Manual 5:550, which should be referred to in conjunction with this note. Shops smaller than 1,850m2 GIA (1,500m2 NIA) are dealt with in Rating Manual section 6 part 3:920

3. Overview of the Large Shops Sector at 2003

3.1. Retail Centre Ranking and Comparability

The strength of a particular retail centre to support a large shop or department store will primarily depend on the extent and quality of catchment area and the competition within it. The following indicators may be useful when comparing one retail centre with another:

  • Peak Zone A rate and its extent

  • Catchment population and demographic profile

  • Total retail sales space (the critical mass)

  • Total retail sales space of all large shops /dept stores excluding food stores

Town ranking can also be a useful tool when comparing one centre with another. Various research organisations periodically produce league tables of retail centres. However, it is important to establish the basis on which such league tables are constructed before placing too much reliance on them. The quality of the core data and the criteria on which these rankings are made can vary quite substantially.

It is important to compare like with like. For example, in 2003 the following could still be considered to be in the “Premier League” of traditional city shopping centres: Birmingham, Manchester, Newcastle, Leeds, Cardiff, Bristol.

Equally, the following modern Regional Centres could be considered together: Lakeside, Bluewater, Meadowhall, Metro Gateshead, Trafford, Merry Hill, Cribbs Causeway, White Rose.

It should also be noted that it remains difficult to place London centres within any national framework because of the unique nature of this particular market.

3.2. Type of Large Shop

Previously, large shops have been considered comparable in discreet groupings; however, over the last 5 to 7 years these distinctions have become much more blurred. Operators increasingly move into larger and more varied premises and it is therefore advisable to view the demand in any given area as one for ‘large space’. The only possible exception to this blurring of boundaries could be certain larger traditional department store buildings if there is supporting evidence for a distinct and identifiable requirement, or demand.

In addition to the traditional High Street operators, there has been a recent trend for new operators to come to the market for large space, predominantly entering at the bottom end of the size range.

3.3. Size Considerations

Although this note deals generally with Large Shops over 1,850m2 GIA (1,500m2 NIA), in practice the threshold size at which a large shop should be valued on an overall basis (as opposed to zoning) is not so precise. Broadly speaking, the way that relevant evidence is analysed will indicate the approach taken and any threshold is likely to differ depending upon a variety of factors linked to town ranking and location. For example, it is likely that higher value locations have a higher threshold than poorer ones. Similarly, whilst there is a tendency for unit value to fall as size increases, this does not necessarily mean that the smaller store in a given area will always have a higher unit value than a larger one. This can be offset by other factors, such as location and layout.

The size of the store should be considered in relation to the retail centre and catchment that it serves. It is possible that some (usually older) stores are now oversized for the strength of their location. This is particularly true of certain small/ medium provincial centres where values have been relatively static in recent years, a possible reason for this being the strength of larger shopping centres in a particular locality.

3.4. Measuring Practice

Valuers should always consider the percentage of net space to gross space (NIA to GIA); this is important as the percentage can vary considerably store by store. A common reason for the difference will be due to varying numbers of floors and a resultant increase in unusable space. All other things being equal, a lower percentage should result in a lower overall value. This is why it continues to remain important to calculate and record both GIA and NIA when referencing large shops.

Generally, retailers will generally be looking for NIA of between 85-95% of GIA in a modern store.

4. Rental Adjustment and Analysis in 2003

In general, any adjustments to value should be evidenced by rents wherever possible. For further details, refer to Rental Adjustment Practice Note at RM 4:5 and also the main Rating Manual Section at Rating Manual 5:550, paragraph 5.

4.1 Initial lettings and the modern lease

It is now common practice for modern leases to incorporate side agreements (or side letters), which detail pertinent matters that need to be taken into account when adjusting the initial (or headline) rent. These matters typically take the form of rent-free periods and /or capital contributions given by the landlord, but could specify other factors too. These arrangements are often a means whereby the landlord can ensure a higher initial rent constitutes the minimum rent that can be paid following subsequent review(s), assuming the lease contains an ‘upwards only’ clause and has no break clauses. It will often be the case that amortisation over an inappropriate period of years produces a distorted answer – this can be a reflection of complex financial arrangements and not a true reflection of open market value. It is therefore important to establish the full facts in each case in order to determine the exact extent and intention of a particular inducement offered.

4.2 Fitting out and other Tenants Improvements

Almost all new shops are let on a shell basis with the tenant responsible for fitting out. The nature of the shell, and therefore the degree of tenant fit out required will vary and full facts should be established before adjusting rents.

Although not a substitute for the adjustment of actual costs (where known) expended on fitting out the subject property, it is current market practice to convert shell rents to arrive at a fitted basis by applying percentage uplifts.

This issue was considered at length for the 1990 List and the advice given in RM 5:550 Practice Note 1 1990 should continue to form the basis for 2005. Not all the percentages quoted in that Practice Note are agreed with the ratepayers’ agents.

4.3 Covenant to trade

These are usually referred to as ‘keep open’ clauses. They will normally be included in a lease where the landlord wishes to ensure that a tenant does not close down and leave the premises empty, and/or where the landlord wishes to control the trading times that the tenant operates. The tenant often regards such clauses as onerous, because they restrict the ability to make commercial decisions. The value effect of such clauses will depend upon the severity of the restriction and location of the store; however, allowances of around 5% are commonly agreed on reviews to reflect this restriction.

4.4 Non-alienation clauses

Where these are included in a lease, it should not automatically be assumed that the rental level has been affected. It is essential that full details are obtained in each case before an adjustment for non-alienation is considered.

4.5 Length of Lease Term

Shop leases are becoming increasingly shorter (90% of new leases are now made for 15 yrs or less). It therefore follows that a long lease (or long remaining term of an historic lease) may be perceived as a disadvantage for which an adjustment is warranted. Detailed information needs to be established in each case. Any such consideration would be distinct from ‘overage’, which is an adjustment made to reflect abnormally long review patterns.

4.6 Turnover Rents

Turnover rents are becoming increasingly common, especially in modern shopping centres. There are various forms of turnover rent, but the most common is probably where a base rent is agreed (say 80% of Open Market Value) together with a ‘top up’ provision if turnover exceeds a certain level. See RM 4:5:Part 16 for further information regarding turnover rents.

4.7 Other factors and weighting of evidence

The above are just some of the more common factors to potentially have an effect on rental value in terms of RV. Leases are becoming increasingly complex and Valuers must always be alert to any issues that may have had an effect on the passing rent.

Consideration should be given to the appropriate weight to be attached to:

  • Rents on new lettings

  • Agreed rents on review

  • Review rents determined by independent expert

  • Review rents determined by arbitrator.

Rents at or around the Antecedent Valuation Date (AVD) of 1 April 2003 will be paramount, but rents fixed up to two years either side of this date will still be important, albeit potentially subject to an appropriate adjustment for rental growth. Clearly, as the time gap increases between a rent date and AVD, the weight that can be attached to such evidence will diminish.

5. Possible Adjustments in Value

In general, any adjustments to value should be evidenced by rents wherever possible. For further details, refer to Rental Adjustment Practice Note at RM 4:5 and also the main Rating Manual Section at Rating Manual 5:550, paragraph 5.

5.1. Sales Ratios

Generally, the number of sales floors is expected to display a sense of proportionality relative to the size of the store. It would be misleading to prescribe any standard, but clearly larger stores can accommodate multi sales floors without losing proportionality. Valuers should consider a reduction in unit value if, for example, there is a high number of sales floors on a small footplate. The location and availability of inter floor access via stair/lift/escalator is also an important consideration.

EPOS and ‘Just in time’ systems have revolutionised stock control in recent years, which has resulted in a lesser need for storage accommodation. The demand for stock areas will therefore vary from operator to operator. There are many instances where redundant stock areas have been converted to sales, but there will be instances where space is genuinely surplus. Careful consideration must be given to whether this is a result of the actual operators preferred way of working, or whether it can be assumed that there would be no demand for the space from any potential tenant.

5.2. Effect of prevailing Zone A levels on Large Shops

The Zone A level of any particular location, whilst of interest, should not be decisive in determining the value of large shops, but it is indicative of that location’s retail strength for unit shops. Large shops and department stores are by their very nature ‘destination’ stores and can create their own footfall. Unit values should not vary in direct proportion to Zone A levels derived from standard shops.

5.3. Modern Servicing arrangements

Loading and servicing arrangements are often less than ideal in traditional High Street locations; where these arrangements are exceptionally poor, values may be affected. Conversely, arrangements in modern mall developments are usually far more satisfactory and are unlikely to warrant any adjustment to unit value.

5.4. Accessibility/Visibility within the shop

Higher than average changes in floor level, a high incidence of structural walls and generally any impediments affecting internal vision and efficient sales layout may depreciate value. Retailers generally prefer fewer sales floors of regular shape.

5.5. Secondary pedestrian shopper access points

The value effect of any secondary access for shoppers will depend on its nature. Good secondary access (e.g. from the rear of a High St store into a modern shopping mall) is a distinct benefit to a large store and this should be a factor to be reflected in the unit price adopted. Conversely, too many access points (especially to non retail streets) can give rise to increased security and staff costs.

5.6. Combined Effect of Valuation Adjustments

Comparison of one property against another by reference to each of the above criteria is not going to provide the full picture. It often proves misleading to isolate individual adjustments and Valuers should take a step back, having regard to the combined effect of these features on the value of any individual property, and ultimately on the sector overall.

It is important that the correct comparables and methods of comparison are used. Emphasis must be placed on town ranking (using peak Zone A as a guide), type of store, its size and location. Care must be taken when drawing comparison with stores that, although located in the same retail centre, have very different features. It is clear from evidence in the property press and elsewhere that, when determining rent reviews/renewals and new lettings, recourse is often made to the wider rental evidence available from similar stores across the country.