Section 720: night clubs and discotheques
This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.
This class of hereditament will embrace properties of an extremely diverse nature, from the large central London nightclub, that may be part of a national chain, to the small provincial, back street, proprietary nightclub.
2. List description and special category code
List description: Nightclub and Premises Primary Description Code: CL2 SCAT code 199, suffix G
3. Responsible Teams
This is a generalist class of property, however in many instances, due to the interface with public houses, the Unit Licensed Property Valuers should have overall responsibility for the class within their Unit.
The Pubs Class Co-ordination Team has overall responsibility for the co-ordination of this class. Contact details are in P:\CEO1\Intranet\Reval 2017\VP & CCTs. The team are responsible for the approach to and accuracy and consistency of valuations. The team will deliver Practice Notes describing the valuation basis for revaluation and provide advice as necessary during the life of the rating lists. Caseworkers have a responsibility to:
follow the advice given at all times
not depart from the guidance given on appeals or maintenance work, without approval from the co-ordination team
seek advice from the co-ordination team before starting any new work
5. Legal Framework
This class of hereditament is now governed by the Licensing Act 2003, effective from 24 November 2005. The Act abolished all previous types of licence and replaced them with two main licenses; a Premises Licence for the property and the Personal Licence for the Designated Premises Supervisor and other individuals authorising the sale of alcohol. In addition to the sale of alcohol the licence will cover the provision of regulated entertainment including the playing of recorded music and live bands together with the provision of late night refreshment.
In respect of members’ nightclubs, the Registered Club Certificate was abolished and replaced under the Licensing Act 2003 with a Club Premises Certificate.
Democratically accountable licensing authorities (English district or county councils and county or borough councils in Wales)have replaced Licensing Justices in the regulation of all licensed premises.
The most significant change introduced by the 2003 Act was the removal of restrictions on permitted hours for the sale of alcohol subject to approval from the local Licensing Authority.
6. Survey Requirements
Nightclubs and discotheques should be measured to net internal area (NIA) in accordance with the VOA Code of Measuring Practice for Rating Purposes.
The survey should include the following information:
type of premises e.g. purpose built, conversion;
its age and date of last refurbishment;
location and competition;
number of bars;
plan and details of the ancillary facilities including: kitchen, dining area, car parking, smoking shelter;
details of the Premises Licence or Club Premises Certificate (available from the local Licensing Authority) including the permitted hours and any conditions imposed.
7. Survey Capture
All plans, surveys and checklists should be stored in the property folder of the Electronic Document Records Management (EDRM) system with the rating survey captured on RSA.
8. Valuation Approach
8.1 Rental Method
Nightclubs are generally valued using a rentals approach, with evidence being analysed in terms of rent per square metre. This produces a more reliable result as it reflects the more constant value of the building.
Nightclub businesses are notoriously volatile owing to their susceptibility to changes of fashion, the cost and frequency of fitting out / refurbishment, and the cost of entertainment required to maintain turnover. Other operating costs can also be very high, particularly security costs, rendering comparison in terms of a percentage of receipts unreliable.
8.2 Interface with Public Houses
The effects of the Licensing Act 2003 in enabling public houses to compete in the late night entertainment market has brought the borderline between these two classes of property into sharp focus. The type of property, its characteristics, use, demand and planning code all need to be considered if it is not readily apparent whether the property is a public house providing late night entertainment or a nightclub. The current Use Classes Order 1987 (as amended) classifies Nightclubs as sui generis and Public Houses A4 in England (A3 in Wales) with no permitted change between the two.
The suitability of the nightclub hereditament for use as a public house/restaurant should be considered where this is consistent with the two limb rule of rebus sic stantibus, as defined in the Court of Appeal decision of Williams (VO) v Scottish and Newcastle Retail Limited and Another (RA/41/2001). This is where any alterations needed to facilitate the alternative use can be viewed as minor, and rental evidence suggests a hypothetical tenant wishing to use the property in the same mode or category as a nightclub would pay a rent at a similar level to that of the alternative use.
The impact of the 2003 Licensing Act increasing competition for the late night market means that the valuation of a nightclub should not be carried out in isolation. Due regard must be had to the location of the property, the levels of value for the properties occupied by main competitors and the suitability of the property for other uses where this is consistent with rebus sic stantibus. This will ensure that a consistent approach is adopted, especially where the physical characteristics are similar.
9. Valuation Support
All valuations should be entered onto RSA.
Additional support is available through:
Class Co-ordination Team for Pubs.
Practice note 2017 : Night clubs and discotheques
1. Market Appraisal
The late night entertainment scene has experienced a fundamental change and nightclubs have been hit by a combination of several factors which has led to a significant decline in market share.
Legislation in the form of the Licensing Act 2003, introduced in November 2005, allowed other drinking establishments to have extended licensing hours taking away the main competitive advantage that nightclubs once enjoyed. Public houses and bars have taken full advantage of this opportunity and many have entered fully into the late night entertainment scene offering live music, DJ entertainment and dance floors which were once the late night preserve of nightclubs. It now demands a very good offer from a nightclub to incentivise the late night reveller to move from a public house or bar providing late night entertainment to a venue that charges entry fees with the associated queues at security points.
The economic downturn since 2008 hit the core market of nightclubs with high youth unemployment leading to less disposable income. Those nightclubs in university towns and cities have felt the effects of the introduction of tuition fees in 2012 with the consequential impact on student income making clubbing unaffordable to many, or a much less frequent option than had previously been the case. According to Mintel, in 2007 there were 178 million admissions to nightclubs, this figure had fallen to 133 million by 2012 and predictions are that this will fall to around 107 million by 2017.
The effects of these challenging trading conditions have taken their toll on the industry from the largest to the smallest operators and many towns and cities have seen traditional nightclubs close. Luminar, the UK’s largest club chain, fell into administration in 2011 despite reducing its estate from, at one time, 300 venues to 77. It was re-launched under new management having been reduced further in size to just 53 locations and in June 2015 comprised 58 venues.
The late night levy has been introduced in several cities and towns since 2013. This is a charge on those licensed premises operating between midnight and 6.00am. The charge is on a tapered scale based on the property’s rateable value with a maximum levy of £4,400 pa per venue. Whilst this is an additional cost for some nightclubs there is currently no evidence of any direct impact on the nightclub market.
Not withstanding the above, not everything can be said to be negative in the nightclub market. Those clubs, particularly at the top end, which have sought to re-invent themselves and adapt to customer demands have seen some success. Many have entered into the live band music scene which has become increasingly popular. There is also a following for top end touring DJs, however, this all comes with considerable costs and can only be managed by the bigger players. That said, the increasing popularity and frequency of music festivals around the countryside has served to impinge on the nightclubs’ share of such offerings.
Greater flexibility and diversity are the new watchwords as the large, big box nightclubs cannot all remain profitable on three full nights a week. However, there remains room for well-operated multiple, and niche independent, operators.
The economic outlook at AVD is still challenging although there are signs of recovery with falling unemployment, low inflation and falling oil prices having a positive effect on disposable incomes. However, the general economic picture varies considerably across the country. The nightclub market is likely to remain very competitive and particularly the middle and bottom ends of the market will continue to struggle against the late night competition from public houses and bars.
2. Changes from Last Practice Note
There was no Practice Note for this class for the 2010 Revaluation.
3. Ratepayer Discussions
There have been no 2017 List discussions on this class of property.
4. Valuation Scheme
Rental evidence from within the Unit and, where necessary, from adjoining Units should enable a judgement to be made as to the extent the different types of nightclub building and/or location affect value in terms of rent per square metre.
When considering the rental evidence and valuations regard should be had to:
a.Building type -The age of the building and the type of construction will influence the value of the nightclub only to the extent that it impacts on repair and maintenance liabilities.
b.Licensed capacity - This determines the maximum number of people allowed to be admitted to the premises at any one time and will thus affect the potential level of trade, especially where the property is trading at around its licensed capacity.
c.Location -Traditionally, many nightclubs have tended to be located in suburban, town or city centres, often in premises converted from a previous use. More recently, as with other leisure uses, large, modern nightclubs are frequently located on the edge of towns. Lack of public transport does not appear to have a significant effect as most users rely on cars or taxis. Location in relation to target population is also important, with the majority of demand coming from the 18-30 age range. For example, proximity to a university or college will generally provide the potential for higher mid-week trade although price concessions are frequently granted.
d.Competition - The number of nightclubs in relation to the catchment population and the target clientele of competing premises will affect the trading potential of the club, and hence the value of the property.
In larger towns and cities nightclubs can trade in a complementary fashion, including catering to different ages or music tastes. A locality that offers a variety of venues may attract customers from a wider area than one that has a more limited choice. Alternatively, a nightclub which enjoys a monopoly position by being the only choice of venue for customers within its catchment area could be affected more dramatically if a second operation opens in the same locality or by late night competition from public houses.