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

Section 715: museums and art galleries

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 applies to all museums and art galleries and covers a range of property types from purpose-built National and Major City centre museums to small local museums run by volunteers in converted buildings. For rating purposes no distinction should be made between “museum” and “art galleries” as they are both effectively exhibition spaces vacant-and–to- let and hereafter referred to generically as “museums”.

It does not apply to historic visitor/tourist attractions including those typically occupied by the National Trust, English Heritage or CADW these are dealt with in Rating Manual: section 6 part 3 - section 1000 (historic properties).

The mode or category of occupation for this sector is wide ranging as determined by the UTLC in Stephen G Hughes (VO) v Exeter City Council [2019] RA 73. The mode or category for museums, historic properties and leisure attractions was considered (paras 45-48). Here reference is made to the Court of Appeal in Williams [2001] endorsing the use of general categories for the purposes of the reality principle and a reminder that differences in categories of business may influence the valuation method used but valuation method does not determine the mode or category.

The Tribunal concluded at Para 204 stating that the VO’s approach

“….focuses too narrowly upon what he acknowledges to be a broad spectrum of heritage assets”. The essential quality of such an asset is its cultural, artistic, historic or scientific value and significance. We do not think it is appropriate to categorise them too narrowly (and, at least in part, by inappropriate criteria) when undertaking a comparative exercise to see how they are valued in the market. We accept that differences between a specific museum such as RAMM and a specific visitor attraction such as Stonehenge may amount to relevant comparative factors, but we do not agree that there is a clear and material distinction between the two that warrants the one being, in effect, rendered ineligible to inform the type of broad analysis that is appropriate.”

1.2 There are various types of museums

1.2.1 Traditional Museums

Usually public museums are set up for the public good. Run by government departments, local authorities, charitable trusts or universities.

The types of buildings vary markedly and include iconic architect designed purpose-built and Victorian “statement” buildings of their era, the latter category being the most common in major towns and cities. They may also be housed in adapted buildings of historic interest with the museum collection being the main attraction but with some, albeit a minority, of artefacts related to and/or contemporary with the host historic building.

Many have been extended in their history and include substantial ancillaries for research/and or educational use. They house collections of importance for present and future generations. They meet a wide range of educational needs within the context of life-long learning. They may also use the collection as a basis for study and scholarship, by the museum’s own professional curatorial staff and by visiting scholars and students.

They divide into four main types:

1) National and Major City Museums

These museums will house collections of national and international significance. They will normally be situated in major regional cities or may be sited in development areas and thereby helping to revitalise the surrounding areas.

National museums are generally free to enter, although some may charge admission.

2) Regional City and Large Town Museums

Purpose built or converted museums with significant local and regional collections including ancient and modern history, geology, archeology and natural history. May be local authority, charity or privately operated.

The occupation of these museums is usually for socio-economic, non-profit, reasons and as such an admission charge may not be levied, although there may be charges for one-off exhibitions and some conferences. Gift shops and cafes may also generate some revenue, if they are in the control of the parent company. Revenues are usually used to off-set costs, not to attain a commercial level of profit. As a result many of these institutions are run at a loss

3) Local Museums in Smaller Towns (excluding commercial art galleries)

These museum types are many and varied. They usually have collections relating to local history or personal collections of local significance. They may be in purpose-built buildings but the majority will occupy converted domestic, civic, commercial or industrial buildings, housing collections of local significance. Those local authority or charity operated are unlikely to be operated commercially. Those that are run by families, individuals, or special interest groups will usually have an admission charge.

4) Transport, aviation and military vehicle museums

These museums are often housed in former industrial units or former hangers, usually located on fairly large and sprawling sites with a range of building types and ages. The bigger sites will have well laid out parking facilities and admission charges are usually levied.

2. List description and special category code

Museums - Contractor’s basis

  • List description: museum (or art gallery, or both) and premises
  • SCAT code: 195

Museums - non-Contractor’s basis

  • List description: museum and premises (or art gallery, or both)
  • SCAT code: 196

3. Responsible teams

This is a specialist class and responsibility for valuation will lie with the specialist teams within the National Valuation Unit (NVU). Queries of a complex nature arising from the valuation of individual properties should be referred to the NVU class facilitator via the class co-ordination team (CCT).

4. Co-ordination

The CCT has overall responsibility for the co-ordination of this class.

The CCT is responsible for the accuracy and consistency of valuations of museums and art galleries and will produce practice notes outlining the valuation basis for revaluation and provide advice as necessary during the life of a rating list.

Caseworkers have a responsibility to:

  • Follow the advice in this section and in the relevant practice note.
  • Not to depart from any subsequent advice given in relation to appeals or maintenance work during the life of a list without approval from the CCT or NVU technical advisor
  • Seek advice from the CCT or NVU technical advisor should issues arise which are not covered in this practice note.

5. Valuation Methods

With such a wide range of properties within this class it is essential that all valuation methods are fully considered.

  1. Rental Comparison - The VO should at all times have regard to the principles laid down by the Court of Appeal in the case of Garton v Hunter (VO) 1969 RA 11, and where rental evidence is available, its significance should be weighed. Extremely limited rental information is available as there are a relatively small number of occupiers who compete with other mode or categories of occupation, agreeing the market rate. A storage value (+) approach may fall under this head (see practice note for details).

  2. Receipts and Expenditure – following recent litigation this is likely to apply to the majority of museums as outlined within this guidance. This can include nuanced versions of the method such as a percentage of gross receipts, straight overbid/Local Authority overbid or a percentage of outgoings.

  3. Contractors Basis (CB) – following recent litigation this will apply to a minority of properties within this class as outlined within this guidance, mainly museums which occupy modern buildings.

The leading cases are Stephen G Hughes (VO) v York Museums & Gallery Trust [2017] RA 20 (aka the York museums case) and Stephen G Hughes (VO) v Exeter City Council [2019] RA 73 (aka the Exeter museum case). These cases related to historic museums and galleries and considered whether a Receipts and Expenditure (R&E) approach or a Contractors Basis (CB) was appropriate. In Exeter the VO (appellant) put forward a CB valuation (£690,000) in contrast to the respondents R&E valuation of £1.

Exeter museum fully endorsed the York decision and confirmed that on the evidence before it R&E was appropriate even where the motive for occupation was not for profit and clearly for socio-economic benefit. Para. 121 - For example, are social or socio-economic benefits attaching to the occupation of the premises only capable of being taken into account by using the CB, or could they also be reflected by using the R & E method? Can the CB method sometimes overstate the annualised sum derived from capital costs unless substantial reductions can be made at stage 5 to reflect other factors of the hypothetical letting, such as lack of commercial motive, affordability of rent and high operating costs? It could be said that for loss-making properties, just as the R and E method always results in nil valuations, the CB method always results in positive valuations, unless in either case, valuation judgment is applied by making adjustments, if appropriate, to reflect all relevant factors not otherwise taken into account (see e.g. stage 5 in the CB method)

In Exeter significant losses were incurred year on year and the occupiers were able to demonstrate that even when applying a notional entry fee to the visitor numbers there remained a substantial annual deficit. Although there was undoubtedly socio-economic value the measure of such value in Exeter was not evidenced. When considering the valuations proposed by the parties the Tribunal had a stark choice and followed the R&E approach, however there is clear dicta suggesting thy may have found for a positive value had the parties provided alternatives. Throughout the decision they state the value of socio-economic benefits should be based on valuer judgement.

Valuer judgement

Para 97….We have not been referred to, nor are we aware of, any valuation technique which enables the socio-economic motivation for a local authority’s occupation of a hereditament to be directly estimated as an annual letting value, or component thereof. Nevertheless, it is established practice for a valuer to use judgment in making significant adjustments to allow for this factor.

The decision specifically mentions alternative valuation approaches which should be adopted where an R&E shows a loss or low profit level and needs to be adjusted to adequately reflect the socio-economic value to the occupier.

Percentage of Gross Receipts and Overbid

Exeter Para 162 - there is no legal principle or valuation practice which would preclude the modification of the R & E method for properties of the unusual kind we have in this appeal, e.g. by use of an appropriate overbid or uplift, or a revenue-based method (for example percentage of gross receipts), or perhaps a percentage or amount related to outgoings, to reflect a socio-economic or cultural motivation to occupy, so long as all relevant considerations are taken into account and weighed.

Para. 278 - When viewing the matter and the circumstances as a whole and applying “the real value criterion” (see 26 above), taking into account every intrinsic quality of the hereditament, the CB method does not sit well with the key factors that we identified in [43] above and in our judgment the result of the CB method is manifestly too high and we do not give it weight. We do not say the hypothetical tenant would necessarily be unable to pay any rent at all, because the parties did not explore the possibility of refinements of the R & E method such as a percentage of gross receipts or an overbid.

Para. 223 - Neither expert considered alternative approaches to valuing by reference to trading potential, such as an overbid or a percentage of revenue, although Mr Forsdick QC submitted that:

A shortened receipts approach of 2.5% of receipts is generally adopted for ‘visitor attractions’ occupied for non-profit motives – and is out of all proportion to the outcome of the CB. Here 2.5% of FMT with entrance fees charged would be just £30,000 RV.

By not exploring such alternatives we think the experts failed to consider properly the totality of the circumstances and conditions under which RAMM was occupied and therefore did not fully consider the value of the occupation to the hypothetical tenant….

Other cases pertinent to the valuation approach for museums all referred to in York and Exeter museums include:

  1. a) The National Trust v Hoare (VO) and Spratling (VO) 1998/RA/391
  2. b) Tomlinson (VO) v City of Plymouth and Plymouth Argyle Football Co Ltd (1960)( 6 RRC 173)
  3. c) Garton v Hunter (VO) [1969] 2 QB 37
  4. d) Imperial College of Science and Technology v Ebdon (VO) and Westminster City Council [1986] RA 233
  5. e) Scottish Exhibition Centre Ltd v Assessor for Strathclyde Region [1994] RA 209
  6. f) Eastbourne Borough Council and Wealdon Borough Council v Allen (VO) [2001] RA 273
  7. g) Warwickshire Cricket Ground v Rennick (VO) [1959] R&IT 787
  8. h) London County Council v Erith and West Ham (Church Wardens and Overseers) [1893] AC 522
  9. i) R v School Board for London [1886] 17 QBD 738
  10. j) Brighton Marine Palace and Pier Co v Rees (VO) [1961] 9 RRC 77

Valuers must use all aides and tools available and consider a variety of approaches to inform their valuer judgement in arriving at the rateable value (see practice note for practical application advice based on the facts and evidence). In doing so a wide range of research will need to be undertaken, including attempts to evidence wider economic benefits. Online reports from national museum bodies may assist in this pursuit.

6.1 “Historic” Museums

In York four “historic” properties were considered:

  1. The Castle Museum was found to be commercially viable and an assessment of £183,000 decided based on actual receipts using R&E.
  2. Yorkshire Museum (including Hospitium) decided at £1 based on an R&E.
  3. York Art Gallery decided at £70000 using R&E with notional receipts applied to existing visitor numbers.
  4. Heritage Centre decided at £10,000 based on a spot figure.

The Exeter Museum decision fully endorsed York in applying an R&E approach, or modifications thereof, to such historic buildings:

158 – From York: the Tribunal expressed the view that, in the case of historic buildings used as museums or for other cultural purposes, the CB is detached from reality, and the existence of the theoretical relationship between capital cost and value is difficult to accept.

161 - It is a mainly historic building and the owner (or hypothetical tenant) faces considerable ongoing responsibilities and costs for the maintenance and occupation of the property which are all the more onerous because of its age and status as a listed building. The hereditament is incapable of making a profit. Accordingly, it is beneficial for the hypothetical landlord to have a tenant who takes on those responsibilities. It is well established that such liabilities may have a negative effect on rental value and may even result in a nil rent being payable, provided that all relevant circumstances are taken into account by the valuer. We also bear in mind that this is not a case where the Respondent (or even some other public body or interest) incurred the capital cost of constructing the major part of the hereditament in recent times. Far from it. The transfer to the Respondent took place nearly 150 years ago because the charitable status of the original foundation was unsustainable. For such reasons this is a highly unusual hereditament.

6.11 Commercially viable museums

Full R&E valuations should be undertaken for commercially viable museums where possible. In this context “commercially viable” means a hereditament which is occupied solely for the purposes of making a profit (NB profit, not a mere operating surplus). Such hereditaments account for a tiny minority of the overall museum stock.

6.12 Non-commercially Viable Museums Occupying Historic Property

What constitutes “historic” property is a matter of judgement based on the facts; as such no prescriptive definition can be provided. It will likely apply to a property which has listed building status as a product of the property’s historic importance, but other factors such as age, maintenance liability, the range of hypothetical tenants and reasons for its original provision should also be considered.

A range of possible valuation options is considered below (NB this is in no particular order, the weight given to any particular method is dependent on the facts):

6.12.1 Percentage of Gross Receipts

For such museums which are clearly loss-making but have socio-economic value the valuer should consider a percentage of Gross Receipts approach, as commonly used for historic visitor attractions to reflect socio-economic value to the occupier. This approach is a form of R&E “overbid” adjustment. The Exeter decision held that these types of museums sit within the same mode or category as historic visitor attractions, such as ancestral residences or historic ships.

Where no admission charge is levied and thus no receipts are available, a level of notional receipts should be estimated by multiplying typical average annual visitor numbers by an assumed admission charge, the latter requiring comparison and valuer judgement. Gross receipts (actual/notional) indicate the level of use and popularity of the hereditament, along with reflecting locational advantages. The socio-economic benefits that can vary from one institution to another can be reflected in the level of percentage adopted (see PN for further guidance on this).

6.12.2 Straight Overbid/ LA Overbid

The Valuer should also consider whether the result of R&E based approach adequately reflects value to occupier (socio-economic value) and decide whether an overbid should be applied. This may be applicable where occupation is by a public body. An overbid is valuer judgement informed in part by evidence but mostly by opinion relating to the financial and social benefits of occupation and may require research in order to support the basis for that opinion (as referred to above).

See:

  • Morecambe and Heysham Corporation v Robinson [1961] 1 WLR 373
  • Oswestry Borough Council v Plumpton (VO) [1961] 180 EG 487
  • Taunton Borough Counil v Sture (VO) [1958] 51 R&IT 749
  • Hereford City Council v Taylor (VO) [1960] DRA 611

6.12.3 Storage Value (+)

A minimum underpinning of value could be derived from a storage value (+) consideration. This is an analogous approach that is based on the fact that the hypothetical tenant (HT) holds a collection of artefacts and if he were to walk away from the deal with the hypothetical landlord (HL) he would have to pay rent to store these items somewhere else. Therefore at a basic level it sets a minimum below which the rent for the museum would not likely fall.

The (+) element stems from the fact that some, if not all, of the HT’s chattels will be valuable; indeed some maybe priceless. That means the storage accommodation required would have to be secure and of excellent quality. The price adopted would need to reflect this and the size of area adopted would need to be commensurate with storing (as opposed to displaying) the artefacts. Thus this approach calls for valuer judgement. There is no mode or category conflict in the use of this method, the valuer is still valuing the subject museum building. Storage (+) is merely a proxy for that value, effectively valuation by analogy based on the facts and circumstances that exist in reality. There is some support for this view in the Exeter decision:

Exeter Para 45 – “ The parties are agreed that the mode or category of occupation of the hereditament is that of “museum and premises”. They agree that it follows, in accordance with the decision of the Lands Tribunal in Allied Domecq Retailing Limited v Williams [2000] RA 119, that the hypothetical landlord may only let the hereditament for museum purposes and any prospective change of use from those purposes is to be disregarded [p.152]. However, the Tribunal made it clear that that rule does not prevent regard being had to rental evidence or assessments on other properties in a different mode or category of occupation in so far as that is relevant to the hereditament.”

6.12.4 Contractor’s Basis

It is unlikely that a CB valuation will be appropriate for these types of museums, but this may be possible if the facts materially differ from those in the Exeter and York decisions. The method should not therefore be automatically ruled out for this type of museum.

Many public bodies conduct asset valuations of their specialist property via a depreciated replacement cost approach which is similar to CB. Obtaining this data can help to sense check the outcome of a CB or possibly lend additional weight to its use for rating purposes.

6.13 Non-commercially Viable Museums Occupying Modern Property

The contractor’s basis is likely to be the most appropriate valuation method to reflect value to occupier for modern museums, many of which are likely to be purpose-built. Clearly where a recent capital expenditure has been made and the property’s existence is not an historic accident or a burden due to its age with commensurately high maintenance costs, the CB analogy reflects value to occupier.

Exeter Museum endorsed the RICS Contractor’s Basis Guidance Note in that the further the valuer strays from reality the less weight can be attached to the resultant valuation. In this regard para 247 confirms the use of the existing GIA and rejects the respondent’s expert’s adoption of a much reduced GIA for the modern substitute. It should also be noted that museums seldom reduce in size as artefacts do not become less interesting or valuable as they get older. Indeed, most museums seek to extend their accommodation and/or secure off-site storage facilities.

What constitutes a “modern” museum is a matter of judgement based on the facts. For example, many museums occupying “historic” property have had modern extensions erected. The fact and degree of such works is a material consideration in determining whether the hereditament as a whole is modern or historic.

Exeter museums endorses this approach in these circumstances when referencing Eastbourne Borough Council v Allen [2001] RA 273, concerning two loss-making sports centres where a CB approach was preferred to a percentage of gross receipts by the Lands Tribunal President of the time:

Para 140 – “The Lands Tribunal determined that two local authority leisure centres (not in historic buildings) should be assessed to substantial rateable values.”

Para 141 – “The fact that each authority had constructed the facility for itself, and in one case had built the whole premises, and in the other an extension, relatively recently, made the CB a particularly suitable method of valuation [71-72]. Nothing we say in this decision should be treated as casting any doubt on the soundness of that reasoning in relation to properties of the kind dealt with in Eastbourne, namely purpose-built, relatively recent, public facilities.”

The CB is therefore to be considered most appropriate for modern museums as the means of determining the value to occupier as it is clear the CB analogy applies in these circumstances.

(NB the point in 6.12.4 above in respect of asset valuation data)

7. Ability to Pay Considerations

“Ability to Pay”, or affordability as it’s sometimes known, is a relevant consideration for any hereditament where the conceivable HTs are limited or amount to just one. The principle stems from the Court of Appeal’s (CoA) decision in Tomlinson (VO) v Plymouth Corporation and Plymouth Argyle Football Co Ltd and Plymouth City Council [1958] 51 R&IT 815. The CoA held that if the only conceivable HT of a hereditament has insufficient funds to pay the hypothetical rent the HL cannot extract any more rent than the funds will allow. Hence it forms part of the “reality principle” and allowances can range from 1% to 100%, depending on the facts and evidence.

Any ability to pay consideration must be investigated in detail. It is important to consider not only the revenue received by the incumbent occupier but also whether a HT might be able to increase that revenue by operating different working practices (see Marylebone Cricket Club v Morley (VO) [1960] 53 R&IT 150). All the available finances of the HT must be considered, along with the HT’s capacity to reduce costs. Where the HT is a Local Authority this enquiry may be substantial (see Eastbourne Borough Council and Wealdon Borough Council v Allen (VO) [2001] RA 273).

The principle featured in the Exeter decision, but the UTLC’s interest was relative to the valuation outcome achieved via a CB valuation and the operating costs of a historic property, both of which were considered to be very high.

Therefore if the valuation advice provided above is followed according to the facts of each case ability to pay is unlikely to be a consideration. Any such claim by a ratepayer or their representative must be evidenced.

8. Survey Requirements

8.1 Unit of Assessment

It is essential that prior to embarking upon a valuation of a museum the hereditament is correctly identified. It should not be assumed, for example that a shop, café or other commercial undertaking within the confines of a museum are occupied by the same undertaking that occupies the remainder of the museum. Many museums are now managed by charitable trusts established specifically to take advantage of the fiscal advantages that such a status brings with it, not least partial or total relief from rating liability.

However because running a commercial undertaking such as a shop or café could undermine their charitable status (as defined by charity commission rules), a separate legal entity (a trading company) is often created to undertake the museums commercial undertakings and that company which, subject to the usual rules relating to the hereditament and paramount occupation, will likely be the rateable occupier of the café/shop which will fall to be separately assessed. It is also possible that an entirely independent operator or operators may be in occupation of parts of the museum and these again should be fully investigated to ensure the correct unit of assessment is identified and valued; in short, a “veil of incorporation” may have descended between the two occupations which can only be pierced or lifted in exceptional circumstances.

A two stage test is required. Firstly establish whether a corporate veil exists and, if so, whether the circumstances in which it descends give rise to rateable occupation by the company (usually the case). Secondly establish whether the area in question is physically identifiable as a separate hereditament. Further guidance can be found in the Rating Manual: section 3 part 1 - hereditament.

Due consideration needs to be given to issues around the lifting of the corporate veil where Trusts and Local authorities are concerned. The guidance given in Rating Manual: section 3 part 1 – hereditament should be strictly adhered to.

8.2 R&E based properties

Following Exeter the majority of valuations will be undertaken by reference to Receipts and Expenditure. Full account details and management accounts should be requested, as a minimum the number of visitors and Gross Receipts are required.

Brochures should be obtained and dated where available and record entry charges including details of any concessionary rates, yearly rates, free admissions.

Where entry is free an assessment of a notional charge having regard to other leisure attractions in the area will be required to arrive at notional Gross Receipts based on visitor numbers.

8.2.1 Basis of measurement

  • Where an R&E based approach is adopted: In order to understand the extent and nature of activities to be included in the valuation it is essential that a site plan is provided which details all the features of the property and where practicable all buildings should be measured to Net Internal Area (NIA) in accordance with the VOA Code of Measuring Practice.

8.3

Where the Contractor’s basis is the appropriate valuation method: the standard method of measurement to be adopted is Gross Internal Area (GIA) of the buildings (see VOA Code of Measuring Practice for Rating Purposes). Note should also be made on inspection of the extent of any car parking areas (including the number of car spaces) and details of other external works - car park barrier controls, CCTV, external lighting, paved and landscaped areas. Plant should be noted in the form of heating, air conditioning and fire suppressant systems. Green energy plant (photovoltaic panels, wind turbines, etc.) should also be noted.

The site area should be recorded and comment made on file regarding whether the developed site is adequate or under or over-sized for the building it serves.

8.4

Where rental/comparable method is the appropriate basis: the standard method of measurement to be adopted is Net Internal Area (NIA) of the buildings (see VOA Code of Measuring Practice for Rating Purposes).

In cases where the valuation approach is not clearly identified before referencing, measurements should be taken on both the GIA and NIA standards.

9. Valuation support

Valuations should be completed on the appropriate spreadsheets held on the Non-Bulk Server (NBS).

Practice note 1: 2017

1. Market Appraisal

Nationally visitor numbers continues to increase, however in line with public spending generally funding from Central Government is decreasing and local authorities are having to prioritise their spending accordingly. Consequently employed staff, hours of opening and number of exhibitions mounted have been reduced and more volunteers taken on.

To reduce overheads, many local authorities have created operational Trusts. This may affect the manner of operation and unit of assessment. The Museum Association’s report of July 2011 stated that 48% of local authorities surveyed are considering or have implemented a move to trust status.

The trusts often create a separate enterprise company responsible for any retail and/or commercial arms (e.g. the museum shop and/or café).

Notable new developments can be found using online sources.

2. Changes from the previous practice note

Following the Upper Tribunal (Lands Chamber) (UTLC) decisions in Stephen G Hughes (VO) v York Museums and Gallery Trust [2017] RA 20 and Stephen G Hughes (VO) v Exeter City Council [2019] RA 73 it is necessary to provide revised guidance on the valuation of museums and art galleries (hereafter referred to generically as “museums”).

The UTLC in both decisions endorse a bespoke approach relative to the material facts of each individual hereditament, facts which vary markedly in one of the least homogenous of all rating classes. The facts and circumstances of Exeter were described by the tribunal as being highly unusual and the “historic” nature of the property combined with the hereditament’s provision having been an accident of history rather than design appear to be factors which weighed heavily in the tribunal’s reasoning. The tribunal also endorse the use of valuer judgement to overcome valuation difficulties where present and prefer a range of valuation options to be considered.

As such there is no “one size fits all” valuation solution to museums and only broad, general, guidance can be provided in this practice note.

Both decisions should be read by the valuer before attempting a valuation in this class. The Exeter decision, which found for a £1 RV, held that the York decision was correctly decided and soundly reasoned. The York decision found for positive RVs on three of the four subject matter hereditaments, also of a “historic” nature. A fourth hereditament occupying “historic” property was held to be £1 RV.

Where the £1 RVs are concerned there is clear inference from the Exeter decision that this was the product of the tribunal having been given limited valuation alternatives by the parties, from para 278:
We do not say the hypothetical tenant would necessarily be unable to pay any rent at all, because the parties did not explore the possibility of refinements of the R & E method such as a percentage of gross receipts or an overbid.

Therefore while a £1 value cannot be ruled out in any instance and should be adopted if the facts and evidence support such an outcome, it should not be automatically adopted for hereditaments which are occupied for purpose and appear to provide a benefit in occupation. All possible valuation options should be explored in conjunction with the facts and evidence.

3. Valuation Scheme

It is for the valuer to exercise judgment to establish the most appropriate method given the guidance in the Rating Manual which must be read in full before a valuation is undertaken.

3.1 Commercially Viable Museums

Full R&E valuations should be undertaken for commercially viable museums; i.e. museums for which the hypothetical tenant’s motive for occupation is solely to make a profit (NB profit, not a mere operating surplus). No other valuation method need be considered for hereditaments of this nature, which make up a tiny minority of the overall museum stock and are usually significantly smaller than the typical city centre institutional type museums. In the absence of full accounts information such museums should be valued on the comparative approach, by reference to a percentage of Fair Maintainable Trade, net of VAT, in line with other Leisure attractions.

3.2 Non-commercially Viable Museums Occupying “Historic” Property

What constitutes “historic” property is a matter of judgement based on the facts; as such no prescriptive definition can be provided. It is likely to apply to a property which has listed building status as a product of the property’s historic importance, but other factors such as age, maintenance liability, the range of hypothetical tenants and reasons for its original provision should also be considered.

A range of possible valuation options is considered below (NB this is in no particular order, the weight given to any particular method is dependent on the facts and evidence):

3.2.1 Percentage of Gross Receipts Approach

For such museums which are clearly loss-making but have socio-economic value the valuer should consider a percentage of Gross Receipts approach, as commonly used for historic visitor attractions to reflect the socio-economic value to the occupier. This approach is a form of R&E “overbid” adjustment.

The Exeter decision held that these types of museums sit within the same mode or category as historic visitor attractions, such as ancestral residences, historic monuments and historic ships.

Where no admission charge is levied and thus no receipts are available, a level of notional receipts should be estimated by multiplying typical average annual visitor numbers by an assumed admission charge, the latter requiring comparison and valuer judgement. Gross receipts (actual/notional) indicate the level of use and popularity of the hereditament, along with reflecting locational advantages. The less tangible socio-economic benefits that can vary from one institution to another can be reflected in the level of percentage adopted. The range will typically be 2.5% minimum to 11% maximum, the choice being a matter of valuation judgement based on the facts.

3.2.2 Straight Overbid/LA Overbid Approach

A straight overbid approach may also be considered. This may be applicable where occupation is by a public body (for example a Local Authority), from which the method evolved through case law in the 1960s (see Morecambe and Heysham Borough Council v Robinson (VO) [1961] WLR 373).

An overbid is pure valuer judgement, partly informed by evidence but mostly informed by opinion relating to the less tangible and sometimes intangible socio-economic benefits of occupation. The Exeter decision does not preclude large overbid adjustments based on valuer judgement where large operating deficits exist, in fact it sees no problem with this.

There are a variety of means of estimating or evidencing the overbid adjustment including: using actual estimates of value to the wider economy, percentage estimates of social benefits or simply adopting a percentage of the operating deficit; all these possibilities are mentioned in the Exeter decision.

Online report material from national museum bodies can be useful in quantifying the wider economic benefits. The “social” benefits are harder to quantify because they encompass less tangible benefits such as contributions to art, culture, history and education, hence more valuer judgement is required here.

3.2.3 Storage Value (+) Approach

A minimum underpinning of value could be derived from a storage value (+) consideration. This is an analogous approach that is based on the fact that the hypothetical tenant (HT) holds a collection of artefacts and if he were to walk away from the deal with the hypothetical landlord (HL) he would have to pay rent to store these items somewhere else. Therefore at a basic level it sets a minimum below which the rent for the museum would not likely fall.

The (+) element stems from the fact that some, if not all, of the HT’s chattels will be valuable; indeed some may be priceless. That means the storage accommodation required would have to be secure and of excellent quality. Therefore comparable rental evidence for this purpose should be drawn from top quality secure storage facilities of a size commensurate with storing (as opposed to displaying) the artefacts. Thus valuer judgement may be needed in adjusting the evidence base used to underpin this method if it differs from the HT’s requirements.

There is no mode or category conflict in the use of this method, the valuer is still valuing the subject museum building. Storage (+) is merely a proxy for that value, effectively valuation by analogy based on the facts and circumstances that exist in reality. There is some support for this view in the Exeter decision:

Para 45 – “ The parties are agreed that the mode or category of occupation of the hereditament is that of “museum and premises”. They agree that it follows, in accordance with the decision of the Lands Tribunal in Allied Domecq Retailing Limited v Williams [2000] RA 119, that the hypothetical landlord may only let the hereditament for museum purposes and any prospective change of use from those purposes is to be disregarded [p.152]. However, the Tribunal made it clear that that rule does not prevent regard being had to rental evidence or assessments on other properties in a different mode or category of occupation in so far as that is relevant to the hereditament.”

3.2.4 Contractor’s Basis

It is unlikely that a CB valuation will be appropriate for museums under this head, but could be considered if the facts materially differ from those in the Exeter and York cases. The method should not therefore be automatically ruled out for this type of museum.

Many public bodies conduct asset valuations of their specialist property via a depreciated replacement cost approach which is similar to CB. Obtaining this data can help to sense check the outcome of a CB or possibly lend additional weight to its use for rating purposes.

3.3 Non-commercially Viable Museums Occupying Modern Property

The contractor’s basis is likely to be the most appropriate valuation method to reflect value to occupier for modern museums, many of which are likely to be purpose-built. Clearly where a recent capital expenditure has been made and the property’s existence is not an historic accident or a burden due to its, age with commensurately high maintenance costs, then the CB analogy reflects value to occupier. (NB the point in 3.2.4 above in respect of asset valuation data).

The Exeter decision endorsed the RICS Contractor’s Basis Guidance Note in that the further the valuer strays from reality the less weight can be attached to the resultant valuation. In this respect para 247 confirms the use of the existing GIA, rejecting the respondent’s expert’s adoption of a much reduced GIA for the modern substitute. This is supported by reality in that museums seldom reduce in size as artefacts do not generally lose their importance or value as they get older. Consequently many museums look to extend their existing accommodation and/or acquire off-site storage facilities.

What constitutes a “modern” museum is a matter of judgement based on the facts. For example, many museums occupying “historic” property have had modern extensions erected. The fact and degree of such works is a material consideration in determining whether the hereditament as a whole is “modern” or “historic”.

Other valuation methods should not be ruled out for modern museums if the facts and evidence warrant it.

4. Ability to Pay Considerations

“Ability to Pay”, or affordability as it’s sometimes known, is a relevant consideration for any hereditament where the conceivable HTs are limited or amount to just one. The principle stems from the Court of Appeal’s (CoA) decision in Tomlinson (VO) v Plymouth Corporation and Plymouth Argyle Football Co Ltd and Plymouth City Council [1958] 51 R&IT 815. The CoA held that if the only conceivable HT of a hereditament has insufficient funds to pay the hypothetical rent the HL cannot extract any more rent than the funds will allow. Hence the doctrine forms part of the “reality principle” and allowances can range from 1% to 100%, depending on the facts and evidence.

Any ability to pay consideration must be investigated in detail. It is important to consider not only the revenue received by the incumbent occupier but also whether a HT might be able to increase that revenue by operating different working practices (see Marylebone Cricket Club v Morley (VO) [1960] 53 R&IT 150). All the available finances of the HT must be considered, along with the HT’s capacity to reduce costs. Where the HT is a Local Authority this enquiry may be substantial (see Eastbourne Borough Council and Wealdon Borough Council v Allen (VO) [2001] RA 273).

The principle featured in the Exeter decision, but the UTLC’s interest was relative to the valuation outcome achieved via a CB valuation and the operating costs of a historic property, both of which were considered to be very high.

Therefore if the valuation advice provided above is followed according to the facts of each case ability to pay is unlikely to be a consideration. Any such claim by a ratepayer or their representative must be evidenced.

5. Contractors Basis of Valuation

a) Stage 1 Estimated Replacement Cost

i) Build Costs

The Estimated Replacement Cost (Stage 1) of the building(s) should be ascertained by applying the appropriate substitute building cost obtained from a consideration of Appendix 1 and the 2017 VOA Cost Guide (the Cost Guide) to the gross internal area (GIA). Areas within the building (s) that are not used at the antecedent valuation date and have no prospect of being used should be excluded from the GIA.

ii) External Works

An addition for external works will be made in the case of museums in accordance with the guidance in Appendix 2.

iii) Contract Size Adjustment

To be applied in accordance with the Cost Guide.

iv) Location factors

To be applied in accordance with the guidance contained in the Cost Guide.

v) Fees

Guidance on the amount to be added for fees is provided in the Cost Guide. The fee addition should have regard to the nature of the building under consideration. Many museums will attract the premium addition of 4%.

b) Stage 2 Age and Obsolescence (A&O) Allowances

Age and obsolescence allowances should be applied in accordance with the appropriate scale in the Rating Manual Volume 4 Section 7. Where a museum has been the subject of a scheme of refurbishment then the allowance should be amended to reflect the improvements particularly where internal re-modelling has taken place to enhance the functional aspects of the museum. Where a museum is of a particularly poor quality of construction and has not been subsequently improved additional allowances can be given subject to a maximum allowance for A & O of 65%. This may be appropriate for some 1960/70s buildings but is expected to be the exception rather than the norm. Before giving additional allowances approval should be obtained from the Class Coordination Team (CCT) lead for museums.

c) Stage 3 Land Value

Land value should be arrived at by having regard to values prevailing in the locality, in accordance with Rating Manual Section 4 Section 3. A reduction of up to 20% from the prevailing land use value may be appropriate to reflect the mode and category of use, but this should not be made where there is evidence of land being acquired for museum use at the full value for the prevailing use in the area.

Assistance on the level of value to apply can be found in the land value practice note

Where the site area is considered excessive for the current requirements of the museum, a lower site area, should be adopted. Extensive garden and play areas etc. should be added as undeveloped/amenity land. In all other cases the actual site area should be valued.

d) Stage 4 De-capitalisation Rate

The Adjusted Replacement Cost (ARC) of the hereditament shall be de-capitalised to an annual equivalent by taking the prescribed rate. Museums and art galleries should not be considered as “wholly or mainly” educational within the meaning of The Non-Domestic Rating (Miscellaneous Provisions) (No. 2) Regulations 1989 (as amended) As such they should attract the higher de-capitalisation rate.

e) Stage 5 End Adjustments (“Stand Back and Look”)

Any advantage or disadvantage, which might affect the value of the hereditament as a whole but which may not be reflected in the capital cost should be reflected at this stage. An adjustment under this head should not duplicate adjustments made elsewhere. Only in the very exceptional circumstances outlined in Rating Manual Section 4 Part 3 Appendix 2 should any account be taken of grant funding.

Specific End Adjustment

Buildings with a flat roof are to receive an end allowance.

  1. £80m2 ARC of the footprint of the flat roof for buildings constructed up to and including 2004.
  2. £60m2 ARC of the footprint of the flat roof for buildings constructed after 2004.

Where a building has varying roof types a reasonable apportionment should be made to arrive at the allowance.

What is flat as opposed to a pitched roof will generally be self-evident. In instances where an allowance is sought for pitched roofing caseworkers should seek advice from the CCT lead before proceeding.

6. IT Support

Where CB is appropriate the standard generic contractor’s spreadsheet (museums and art galleries) within the Non-Bulk Server (NBS) should be used. For properties valued by way of the R &E method the generic R&E spreadsheet on the NBS should be used.

Appendix 1: Building Costs

Description

Actual

Substitute for

Cost Guide Reference

Cost(£/m2)

High Quality Museums

Modern State of the art, including Millennium Projects, ‘Trophy Architecture’ etc.

Modern purpose built facility

63500A

From £3530 to £4120

Medium Quality

Simpler local authority and private museums.

Purpose built modern  museums, local authority or private

63500D

From £2650 to £3529

Basic Quality

Purpose built modern facility

63500E

To £2649

High Quality Storage

Secure, air conditioned storage facilities

As actual

63500G

£2200

 

Modern aircraft hangars, automotive or rail storage

Purpose built modern facility

63500J

£520

Basic Storage

Storage of robust items such as agricultural machinery, archaeological or mineralogical items, maintenance huts etc.

 Purpose built modern facility

63500L

£310

The application of the above costs should be considered having regard to the further guidance below:

Museums occupy buildings of a wide physical diversity, but the demands of their collections will indicate the likely quality of a building which would provide a suitable substitute for the existing. In general, the more recently a museum was constructed, the more likely that appropriate adjustment of its actual building costs will approach those of the substitute.

Case workers should feel free to adopt a range of costs where the museum provides a wide variety of building types within the hereditament, but a cost level should be applied to a whole building rather than its constituent parts (i.e. if there are various uses within a building, the mix should be related to a price which would be appropriate to the whole if reconstructed). Also any space which is clearly surplus to requirements due to adaptation from a different use should be excluded from the modern simple substitute to be cost, as should any areas unused due to Fire Regulations, Health and Safety requirements etc.

High Quality Museums

It should be expected that recent projects built to the highest standards (e.g. Imperial War Museum North, Lowry etc.) will be cost at the top of the range Similarly National Museums and anything else where the replacement building would be of the highest quality (e.g. V&A, Science Museum, Tate Britain) will be cost at the same price with appropriate allowance for obsolescence.

Most Art Galleries will fall within this bracket due to the need to provide sufficient viewing space, lighting conditions etc. as well as secure climate controlled housing for the paintings.

At the lower end of the bracket will be the more basic museum types, steel frame with profiled metal sheeting is typical, mostly open space internally except for administrative areas.

Only those museums built on or after 01 April 2015 should be based on actual costs adjusted to AVD.

Medium Quality Museums

The most recognisable type within this bracket will be the Victorian museums within large towns, often close to or part of a substantial town hall. They should be cost at the higher end of the range. Smaller towns will have similar, but less grand, museums of this type and these will be cost towards the lower end of the range. Few non-purpose built museums will fall in this bracket unless the conversion works indicate that substantial improvements have been made to accommodate the change of use to a museum.

Low Quality Museums

It is unlikely that a modern example will be found for this level of value. The range will however accommodate museums converted from houses or commercial premises, particularly where the size of the galleries is restricted by the physical construction of the original property. The poorest purpose built museums will also fall in this category and are likely to be those built since the last war and before the 1970’s fuel crisis, probably of reinforced concrete, with flat roofs and poor insulation. The appropriate level of value within the range will depend on the size of the galleries and how readily they can accommodate modern museum display techniques.

High Quality Storage

The best buildings, which may come close to archive specification, may well also have climate control and will be well insulated. In some instances there may be public viewing, but it will not be the primary use for the building, and internal finishes will be to a lower standard than the above categories.

Medium Quality Storage

Includes primarily those buildings used to store large artefacts, where both overall size and height are paramount, but the artefacts are not so temperature/humidity sensitive. Typical of the range will be modern hangars or warehousing at the top end, to the wartime hangars of the most basic construction at the bottom. It is still possible that there is some public viewing within these buildings.

Basic Storage

At the lowest end will be Nissen Huts or small barns, often still with earth floors, which may be open on one side. These types are likely to be restricted in both height and overall size, thus limiting the size of collection items to tools, smaller agricultural machinery, single cars etc. Public viewing may be limited by access, and the building itself is quite likely to form part of the collection (e.g. open air museums).

Appendix 2: Addition for External Works

An addition for external works will be made in the case of museums and art galleries within the range of 2.0% - 12.5%. The following percentages would typically apply but are not intended to be prescriptive.

% Addition Building ratio*/description
2% Town centre or island site typically with n 90% or greater building ratio, no more than a small yard or garden area, and either no car parking, or a very limited number of spaces within the hereditament.
2.5% As above, but typically with an 80% to 90% building ratio, limited parking, external lighting and landscaping and some boundary fencing.
5% Site typically with 50%/75% building ratio, some landscaping around buildings, secure boundary fencing, adequate parking, external lighting and landscaping with limited general parking within the hereditament and boundary fencing.
7.5% As above, but typically with 25%/50% building ratio, landscaping around buildings, secure boundary fencing, external lighting, adequate parking within the hereditament which falls short of full requirements.
12.5% Site typically with about 25% building ratio, landscaping around buildings, secure boundary fencing, external lighting and adequate parking within the hereditament for all staff and other users.

Practice note 1: 2010

1. Co-ordination Arrangements.

Responsibility for this class now lies solely with SRU’s and they are responsible for ensuring effective co-ordination. For further information see Rating Manual Volume 2: Section 1: Practice Note 1: 2010.

The 2010 Special Category Codes for Museums and Art Galleries are 195 for Contractors Basis (Team 4) and 196 for Non-Contractors Basis (Team 2). The appropriate suffix letter is ‘S’.

2. The Choice of Valuation Method.

The selection of valuation method is a question of fact depending upon the particular attributes of the individual hereditament. It is for the valuer to use judgment to establish the most appropriate method given the following guidance: -

2.1 Direct Rental Evidence.

Rental evidence for Museums and Art Galleries is known to be scarce, however where it exists for a particular hereditament and the rent passing accords with the rating hypothesis without the need for too much adjustment, then it may form the most reliable evidence of value. Details of all rents that fall into this category should be forwarded to CEO- Rating Civics Team to enable the compilation of a database of evidence.

2.2 Comparable Rentals.

Use of the comparable rentals method depends upon the availability of rental evidence from properties in the same mode or category of occupation and the suitability of the hereditament within the physical restriction of the rebus sic stantibus rule.

In reality, it is expected that only former shops, offices, industrials and the like, that are being used as museums with the most minor of adaptations will fall to be valued under this method. However, evidence of offices converted from dwellinghouses should not be relied upon to indicate values for dwellinghouses used as museums or art galleries.

2.3 Receipts & Expenditure (R&E) Method.

Before adopting this method, care must be taken to ensure that the property is clearly being run with the intention of making a commercial level of profit. Some museums levy a charge and conceivably make a small operating surplus, but clearly this is not the main motive for occupation and in cases such as these the use of an R&E method is usually inappropriate. Some of the types of museums below are capable of being run in a commercially viable manner but it is in the nature of their occupation that any potential surplus is re-invested in the museum in improving facilities/collections rather than make a profit.

Where the R&E method is appropriate, it is preferable to obtain full accounts for at least three full years leading up to AVD. A full receipts and expenditure valuation should be undertaken in accordance with Rating Manual Section 4 Part 2. A percentage of receipts approach is acceptable where the museum is similar to a class of property where this method is used, e.g. historic properties or leisure attractions.

Where the R&E method is appropriate, consideration should be given as to whether the property is more appropriately described as a Leisure Attraction and should rightly be transferred to and dealt with by Team 2, in accordance with Rating Manual Section 6 Part 3: Section 1085.

2.4 Contractor’s Basis.

Where no appropriate rental evidence exists and the motive for occupation is not one of profit, then the appropriate method of valuation is the Contractor’s Basis unless the occupier is an individual or charitable Trust with a limited ability to pay a notional rent (see section 5 below), or the hereditament is of a type which is not capable of being reproduced (as in the case of agent ruins, homes of famous people, and many instances of historic buildings and industrial heritage/social history museums).

3. The Appropriate Valuation Basis.

3.1 Traditional Municipal Museums/Art Galleries

The contractor’s basis will be the appropriate valuation basis, having full regard to any areas that are surplus to requirements, and giving full consideration to the effects of functional and physical obsolescence of buildings that are listed.

If occupied by a charitable trust, regard should be had to ability to pay (see section 5 below.)

3.2 Open Air Museums/Industrial Heritage and Social History Museums

For this type of museum careful consideration should be given to any direct rental evidence that may exist but additions must be made for any subsequent improvements either by reference to rental levels or decapitalised costs.

If capable of being run to make an operating surplus (see para 2.3 above), the receipts and expenditure method should be used. If after full reflection of grants/donations, and having regard to any subsidisation of running costs (whether through voluntary labour or other means), there is the probability of a surplus capable of supporting rental payment, however small, then that will provide the appropriate valuation (see section 5 below).

The contractor’s basis should be considered, only where buildings have been added recently, although regard should be had to grant funding. Where there is recent evidence of actual site (with or without relevant buildings) acquisition costs this should be used and any subsequent improvements valued in the usual way.

If occupied by a charitable trust, regard should be had to ability to pay (see section 5 below).

3.3 Historic Buildings with collections (Inc. Country House type Museums)

This type is distinguished from other ‘Historic Buildings’ by the presence of a collection; the purpose is both the preservation of the building and the display of this collection. Where a building is being preserved simply for the appreciation of the architecture, or the history of the building itself, this would fall into para 3.7 below.

Direct rental evidence, where it exists may be the best indication of value so long as it is at arm’s length and accords with the rating hypothesis. If it requires adjustment for repair liability then great caution should be exercised. Any type of percentage adjustment will be highly subjective.

Because of the uniqueness of these properties it is unlikely that many comparative rents will be available.

If capable of being run to make an operating surplus (see Para 2.3 above), the receipts and expenditure method should be used.

Alternatively, the contractors’ basis may be used, as the hypothetical tenant wishing to display or at least store their collection would consider the cost of an alternative when formulating their rental bid for the property. If the subject property is particularly suitable for the purpose and/or the collection, the tenant may be prepared to increase his bid and the appropriate place to reflect this is at stage 5. However, in many cases, because the interest lies in the actual building itself with the collection in situ, the hypothetical tenant would not consider a modern substitute, and therefore the contractor’s basis is not appropriate, and the hereditament should be considered on the same basis as for those in 3.7 below.

If occupied by a charitable trust, regard should be had to ability to pay see section 5 below.

3.4 Museums of Ancient Ruins

Where the hereditament is unattended; * Entry is not regulated by any charge; and * There are no permanent staff on site; and * No facilities provide accommodation for visitors, e.g. surfaced car parking, WCs, etc. Then, there is no beneficial occupation.

Where there is beneficial occupation: - a. Direct rental evidence, where it exists may be the best indication of value so long as it is at arms length and accords with the rating hypothesis. If it requires adjustment for repair liability then great caution should be exercised as any type of percentage adjustment will be highly subjective. Because of the uniqueness of these properties it is unlikely that many comparative rents will be appropriate b. If capable of being run to make an operating surplus (see Para 2.3 above), the receipts and expenditure method should be used. c. Where an unimproved hereditament is incapable of being occupied for profit a nil assessment would be appropriate. Further advice on this point is to be found in RM 5 Section 1000: Historic Properties paragraph 6, and Appendix 1, Section B. However where buildings have been erected for display of finds, interpretation, visitor facilities, permanent protection and research these should be valued on the Contractor’s Basis. The Contractor’s Basis should not however be applied to mere temporary structures enveloping excavations. It is possible that, due to position of the hereditament (e.g. basement area of commercial building), the simple substitute building may be of considerably lower standard than the actual building on site. d. If occupied by a charitable trust, regard should be had to ability to pay see section 5 below.

3.5 Commercially Operated Leisure Attractions

Hereditaments in this class will be capable of being occupied for a commercial profit (see para 2.3) and the receipts and expenditure basis is the appropriate method of valuation to apply.

It is more likely that such properties would be more appropriately described as ‘Leisure Attractions’.

3.6 Homes of Famous People

Direct rental evidence, where it exists may be the best indication of value so long as it is at arms length and accords with the rating hypothesis. If it requires adjustment for repair liability then great caution should be exercised as any type of percentage adjustment will be highly subjective and actual year-to-year costs would be a better indicator.

Where the property is of a type that exists in the locality and comparable rental information for other houses open to the public is available this may be appropriate subject to para 2.2, however consideration should be given to uplifting the rental value to reflect the particular suitability of the premises given the prominence of the particular famous person concerned.

If comparable rental evidence is not available but the hereditament is capable of being run to make an operating surplus (see section 2.3), the receipts and expenditure method of valuation should be adopted.

Where the property also displays a collection, then it is reasonable to assume that the hypothetical tenant may consider the cost of constructing an alternative to house the collection when formulating their rental bid. However, in many cases, because the interest lies in the actual building itself with the collection in situ, the hypothetical tenant would not consider a modern substitute, hence the contractor’s test may be used only rarely. If used, a stage 5 additions may be appropriate to reflect the particular suitability of the property, given the prominence of the particular famous person concerned.

If occupied by a charitable trust, regard should be had to ability to pay see section 5 below.

3.7 Historic Buildings Without collections

This category requires clarification. It can be distinguished from the Country House (3.3) and the Small, Private (3.8) museum by virtue of the fact that it is the building itself that is the exhibit.

Direct rental evidence, where it exists may be the best indication of value so long as it is at arms length and accords with the rating hypothesis. If it requires adjustment for repair liability then great caution should be exercised. Any type of percentage adjustment will be highly subjective.

Due to the diversity of this type of property, it is unlikely that much local comparative rental evidence will be available. It is suggested therefore that it may be necessary to consider evidence across a wider area and that cross SRU scales should be established for particular types of property such as Forts, Lighthouses, Mills, Towers, etc. It is unlikely due to repair liability that these buildings would be commercially occupied for a profit. And because the interest lies in the actual building itself, the hypothetical tenant would not consider a modern substitute; therefore the contractors’ method is inappropriate.

If occupied by a charitable trust, regard should be had to ability to pay see section 5 below.

3.8 Small, Private Museums

Direct rental evidence, where it exists may be the best indication of value so long as it is at arms length and accords with the rating hypothesis. If it requires adjustment for repair liability then great caution should be exercised. Any type of percentage adjustment will be highly subjective.

Because of the individuality of these properties it is rare that any comparative rental evidence will be appropriate.

If rental/comparable evidence is not available but the hereditament is capable of being occupied for a commercial profit (see 2.3), the receipts and expenditure method of valuation should be adopted.

Where neither the rentals or R&E method applies, and it is reasonable to assume that the hypothetical tenant would consider the cost of constructing an alternative to house the collection when formulating their rental bid the contractor’s basis should be used. However, stage 5 additions may be appropriate to reflect the particular suitability of the property in relation to displaying the collection.

If occupied by a charitable trust, regard should be had to ability to pay see section 5 below.

3.9 Museums, which contribute to Economic Regeneration

These museums are deliberately sited in developing areas and thereby help to revitalise the surrounding area. To this end, they are likely to have benefited from capital grant-aid; they are also likely to be large buildings. Examples are: The Museum of Science and Industry in Manchester, The Tate Gallery at St.Ives and the Royal Armouries Museum in Leeds. There will sometimes be admission charges.

Although they are not operated for commercial profit, they may achieve an operating surplus. They may or may not receive revenue grant. The appropriate method of valuation for this class of property is the contractor’s basis, based on the actual construction costs. Details of the amount and source of grants should also be ascertained at an early stage along with the structure and purpose of the body running the museum. It will be necessary to establish whether the grants were vital for the scheme to go ahead. The effects of grant should be considered in accordance with Rating Manual Section 4: Part 3 - Appendix 2 and appropriate allowances made at stage 5.

One alternative method for cross checking the valuation, is to estimate the GIA of a substitute building on the basis that grant would not have been available and then apply the indicative costs given later in this practice note to the contractors test basis. The valuation produced should eliminate any over specification or fanciful design; it will then be necessary to consider stage 5 allowances for Pioneering/Location contributing to regeneration. The resultant valuation should be similar to that derived from the actual costs adjusted for grant.

For revaluation purposes, it will be necessary to continue the allowance for grant where actual costs, whether current or projected, have been used. This is because the actual buildings tend to be larger and of more complex design than they would have been had the grant not been available and therefore it is still pertinent to reflect this. It may be that because of the passage of time, it is no longer appropriate to use actual costs and in such cases the preferred method is to estimate the GIA of the equivalent substitute building and cost it by reference to the figures given later in this practice note. In such circumstances, as the cost will no longer reflect excessive size and design, it will not be appropriate to allow for grant. Careful consideration should be given to stage 5 allowances to reflect any disadvantages that may persist.

When valuing new hereditaments of this type, guidance should be sought from the lead valuer or the CEO Specialist to ensure effective co-ordination.

4. Valuation on Contractors Basis

4.1 Stage 1 – Estimated Replacement Cost

With the exception of areas that are patently not used and have no prospect of being used, the GIA of the museum should be used to calculate the Estimated Replacement Cost (Stage 1) of the building by applying the most appropriate substitute building cost in accordance with the table in Appendix 1.

Where there is no evidence that a substitute museum would be constructed, as a very minimum, collections would need to be stored. This table also gives guidance as to storage rates that may apply when considering the substitute for non-purpose built museums.

External Works.

An addition for external works will be made in the case of museums and art galleries within the range of 2.5% - 10%. The following percentages would typically apply but are not intended to be prescriptive.

Description Addition
A site with almost 100% site coverage, will typically apply to town or 2.5%
A small site with possibly 2-3 car parking spaces for staff/disabled access, minimal amount of landscaping 5 %
A typical site with adequate car parking and sufficient landscaping considering the scale of the museum. 7.5%
An expansive site, with large amounts of parking and landscaping. The site itself will effectively form an amenity to the museum with recreational areas 10%
Contract Size & Location Adjustments.

Contract size adjustments should be made, and location factors applied in respect of this class in accordance with standard scales in the cost guide.

Fees

General guidance on the amount to be added for fees is provided in the R2010 Cost Guide.

For Museums and Art Galleries a range of 13% to 15% will be appropriate.

The lower end of this range will apply to most basic types, increasing with complexity up to the Millennium and modern “state of the art” types.

4.2 Stage 2 – Age & Obsolescence

The standard age-related allowances scale should be applied in most circumstances. However, in the case of buildings that have been significantly refurbished a lower allowance may be applicable, particularly where the works undertaken have enabled internal re-modelling to improve the functional aspects of the museum.

The standard age-related allowances scale can be found in the R2010 Cost Guide

The same age related allowance scale applied to the buildings should also be applied to the external works.

4.3 Stage 3 - Land Value

Land value should be arrived at by having regard to values prevailing in the locality, in accordance with Rating Manual Vol 4: Section 7. A reduction of up to 20% from the prevailing land use value may be appropriate to reflect the mode and category of use, but this need not be made where there is evidence of land being acquired at the full value for the prevailing use in the area.

With regard to most municipal museums, these are ‘civic pride’ buildings and it is unlikely that the hypothetical tenant would realistically envisage relocating to a fringe urban site. However with privately occupied museums, where it is reasonable to suppose that the hypothetical tenant would consider a fringe site it may well be appropriate to adopt such a site value as the lower cost alternative.

Where the site is excessive in size, reasonable assumptions should be made to arrive at an appropriate substitute, and consideration given as to whether gardens, play areas etc. should be added as undeveloped land. Where a site area is restricted in size only the actual area should be valued, but to avoid double counting, regard should be had to this when considering whether a further allowance at stage 5 is appropriate.

4.4 Stage 4 - Decapitalisation Rate

The Adjusted Replacement Cost (ARC) of the hereditament shall be decapitalised to an annual equivalent by taking the prescribed rate.

4.5 Stage 5 – End Adjustments

Any advantage or disadvantage, which might affect the value of the occupation of the hereditament as a whole should be reflected at this stage. An adjustment under this head should not duplicate adjustments made elsewhere.

Where the property has been grant funded allowances should be made to reflect the effect of the grant in accordance with Rating Manual Vol. 4 Section 7 Appendix 2.

5. Ability to pay

Where the actual occupier is the only likely hypothetical tenant, the resources of that occupier must be taken into account (Tomlinson (VO) v City of Plymouth and Plymouth Argyle Football Co Ltd (1160 6 RRC 173)). In such cases the actual occupier’s ability to pay rent, as measured by the income available to them (including donations) and their operating costs, having regard to their use of any voluntary help, may limit RV. “Ability to Pay” should only be regarded as relevant by VOs where: a. The actual occupier is the only likely tenant, and has very limited resources, and; b. There is no reason to suppose that the actual occupier would be prepared to cross-subsidise the costs of occupation of the hereditament by other resources (e.g. income derived from statutory revenue raising powers, revenue grants, donations etc).

Effectively therefore “Ability to Pay” of Public Bodies should not be regarded as a constraint on valuation. In the case of Museums & Art Galleries it will normally need to be considered only in the context of private occupiers, and more particularly Charities.

However the structure of Charitable Trusts must be considered. Recently many of these trusts have been established by Local Authorities. Where the LA is standing behind the Trust and financially supporting it, ‘ability to pay’ will not be an issue and the museum should be valued in the usual way.

6. IT. Support.

Where the Contractor’s basis is appropriate the standard generic Contractor’s Spreadsheet within the Non-Bulk Server (NBS) should be used. For properties valued by Team 2 the generic R&E spreadsheet on the NBS should be used.

Practice note 1: 2010: Appendix 1

Appendix 1 indicative building costs

Description Actual Substitute for Price
High Quality Museums Modern State of the art, including Millennium Projects, ‘Trophy Architecture’ etc. National Museums and Galleries such as V&A, British Museum, Tate £1900 - £2500
Medium Quality Simpler local authority and private Museums. Purpose built Victorian museums, local authority or private £1250 - £1900
Basic Quality Unlikely to find a recent example 1950’s – 1970’s local authority museums, conversions of domestic or commercial premises to museum use where display areas are likely to be restricted in size £900 - £1250
High Quality Storage Secure, air conditioned storage facilities As actual £1100 - £1600
Bulk Storage Modern aircraft hangars, automotive or rail storage Former RAF aircraft hangars, bus garages, engine sheds etc. £575 - £1100
Basic Storage Storage of robust items such as agricultural machinery, archaeological or mineralogical items, maintenance huts etc. Former barns, granaries, Nissen huts etc. £325 - £575

Practice note 1: 2010: Appendix 2 – Guidance on appropriate build cost levels where the Contractor’s Basis method of valuation is used

The Practice Note and Appendix 1 provide the basic framework for these valuations and this Appendix is intended to provide more detailed guidance on the appropriate replacement building cost once the valuer has decided that a Contractor’s Basis valuation is appropriate.

Museums and Art Galleries occupy buildings of a wide physical diversity, but the demands of their collections will indicate the likely quality of a building which would provide a suitable substitute for the existing. In general, the more recently a museum was constructed, the more likely that appropriate adjustment of its actual building costs will approach those of the substitute.

Valuers should feel free to adopt a range of costs where the museum provides a wide variety of building types within the hereditament, but a cost level should be applied to a whole building rather than its constituent parts. (i.e. If there are various uses within a building, the mix should be related to a price which would be appropriate to the whole if reconstructed.) Also any space which is clearly surplus to requirements due to adaptation from a different use should be excluded from the modern simple substitute to be costed, as should any areas unused due to Fire Regulations, Health and Safety requirements etc.

High Quality Museums

It should be expected that recent projects built to the highest standards (E.g. Imperial War Museum North, Lowry etc.) will be costed at £2,000 per m2. Similarly National Museums and anything else where the replacement building would be of the highest quality (e.g. V&A, Science Museum, Tate Britain) will be costed at the same price with appropriate allowance for obsolescence.

Most Art Galleries will fall within this bracket due to the need to provide sufficient viewing space, lighting conditions etc. as well as secure climate controlled housing for the paintings.

At the lower end of the bracket will be the more basic museum types, steel frame with profiled metal sheeting is typical, mostly open space internally except for administrative areas.

Only those museums built on or after 01 April 2003 should be based on actual costs adjusted to AVD.

Medium Quality Museums

The most recognisable type within this bracket will be the Victorian museums within large towns, often close to or part of a substantial town hall. They should be costed at the higher end of the range. Smaller towns will have similar, but less grand, museums of this type and these will be costed towards the lower end of the range. Few non-purpose built museums will fall in this bracket unless the conversion works indicate that substantial improvements have been made to accommodate the change of use to a museum.

Low Quality Museums

It is unlikely that a modern example will be found for this level of value. The range will however accommodate museums converted from houses or commercial premises, particularly where the size of the galleries is restricted by the physical construction of the original property. The poorest purpose built museums will also fall in this category and are likely to be those built since the last war and before the 1970’s fuel crisis, probably of reinforced concrete, with flat roofs and poor insulation. The appropriate level of value within the range will depend on the size of the galleries and how readily they can accommodate modern museum display techniques.

High Quality Storage

The best buildings, which may come close to archive specification, may well also have climate control and will be well insulated. In some instances there may be public viewing, but it will not be the primary use for the building, and internal finishes will be to a lower standard than the above categories.

Medium Quality Storage

Includes primarily those buildings used to store large artefacts, where both overall size and height are paramount, but the artefacts are not so temperature/humidity sensitive. Typical of the range will be modern hangars or warehousing at the top end, to the wartime hangars of the most basic construction at the bottom. It is still possible that there is some public viewing within these buildings.

Basic Storage

At the lowest end will be Nissen Huts or small barns, often still with earth floors, which may be open on one side. These types are likely to be restricted in both height and overall size, thus limiting the size of collection items to tools, smaller agricultural machinery, single cars etc. Public viewing may be limited by access, and the building itself is quite likely to form part of the collection (e.g. open air museums)