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

Section 845: pharmacies

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

1. Scope

1.1 This section applies only to premises occupied by pharmacies within or adjacent to surgeries and health centres.

1.2.1 This section does not apply to pharmacies which are remote from surgeries or health centres for example those located in high streets and neighbourhood parades or those located in superstores.

1.3 A number of different situations can be envisaged for pharmacies covered by this section.

1.3.1 Type 1 A pharmacy integrated within a modern health centre, or surgery with no other retail units located at the health centre or surgery.

1.3.2 Type 2 A pharmacy integrated within a modern health centre surgery which contains other retail units, for example there may be an opticians in the premises.

1.3.3 Type 3 A pharmacy located within the curtilage of the health centre or surgery in a separate building with no other retail present.

1.3.4 Type 4 A pharmacy located close to the health centre or surgery but outside the curtilage with no other surrounding commercial activity this can include being situated on the opposite side of the road to the health centre or surgery.

1.3.5 Type 5 A pharmacy located close to the health centre or surgery but outside the curtilage and the only other commercial activity is another pharmacy(s). It should be noted that this type includes where a pharmacy is also located within the health centre.

1.3.6 Type 6 A pharmacy located close to a health centre or surgery with other surrounding commercial activity.

This is not an exhaustive list and additional situations maybe identifies.

2. List Description And Special Category Code

Bulk Class: shop

Primary Description: CS

List Description: Shop and Premises

SCAT code: 425; suffix G

3. Responsible Teams

3.1 Pharmacies within or adjacent to surgeries and health centres are a generalist class.

3.2 Each unit will be responsible for identifying, and valuing their own pharmacies within or adjacent to surgeries and health centres. It is recommended that units appoint named co-ordinator(s) or Lead Valuer(s) to act as point of contact within the Unit so that they can liaise with other Lead Valuers within other units on technical and valuation issues.

4. Co-ordination

The Pharmacies Class Co-ordination Team has overall responsibility for the co-ordination of this class. You can find contact details here VP and CCT Members . .The team are responsible for overseeing the approach to pharmacy 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 – Practice Notes are mandatory

  • Not depart from the guidance given on appeals and maintenance work, without approval from the class co-ordination team

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

5.1.1 England

Historically the NHS (Pharmaceutical Services) Regulations 1992 introduced control of entry regulations which meant that any pharmacy wishing to obtain an NHS contract had to satisfy the relevant authority it was either necessary or desirable to grant an application to secure adequate provision of pharmaceutical services in a particular neighbourhood.

5.1.2 The National Health Service (Pharmaceutical Services ) Regulations 2005 provided for several exemptions to the control of entry regulations most notably being where a pharmacy stayed open for at least 100 hours per week for the provision of pharmaceutical services.

5.1.3 The National Health Service (Pharmaceutical Services) Regulations 2012 ended this exemption to the control of entry regulations. These regulations introduced the requirement for Primary Care Trusts (PCT) to develop and publish a Pharmaceutical Needs Assessment (PNA) which were to set out the needs of a PCT regarding pharmaceutical provision. Under the regulations applications for changes to pharmacy provision should only be approved where the grant of an application would meet an identified need within the PNA.

5.1.4 The National Health Service (Pharmaceutical Services and Local Pharmaceutical Services ) Regulations 2013 were passed following The Health and Social Care Act 2012. Under the 2013 Regulations, Local Health and Well Being Boards are now responsible for the development and publication of PNA which forms the basis of the market entry test as set out in National Health Service Act 2006 s 129 (2A).

5.1.5 The market entry test is the system NHS England uses to assess an application for entry on the pharmacy list on the basis of

  • Meeting an identified future or current need

  • Meeting identified or future improvements or better access to pharmaceutical services

  • Provides unforeseen benefits not identified in the PNA

5.1.6 There are two types of application

  • Routine Applications – which included applications from persons not on the pharmaceutical list or opening new premises or relocating premises to a different area

  • Excepted Applications – include applications from persons already on the pharmaceutical list and to relocate premises that do not result in a significant change to pharmaceutical services for example only moving premises a very short distance.

5.2.1 Wales

Historically the regulation of pharmaceutical services in Wales was set out in NHS (Pharmaceutical ) Services Regulations 1992 where applications had to be made to Local Health Boards. There was no change in the regulations in Wales in 2005 or 2012.

5.2.2 The National Health Service (Pharmaceutical Services) (Wales) 2013 have replaced the 1992 regulations. Under these regulations applications must be made to the Local Health Board (LHB) for inclusion on the pharmaceutical list and applications can only be granted if the LHB is satisfied that it is necessary or expedient to grant the application to secure in the neighbourhood adequate provision of all or some of the services specified in the application. This is known as the expedient test.

5.2.3 Among the changes between the two sets of regulations is changing time limits when applications can be made and adjustments to the regulations concerning certain types of relocation and including safeguards regarding fitness of providers of pharmaceutical services.

6. Survey Requirements

6.1 Pharmacies within types 1 to 5 should be measured to GIA.

6.2 Type 6 pharmacies (see 1.3.6 above) are to be valued and measured in relation to the other retail premises within its locality. The approach to measurement (GIA/NIA) should reflect the approach taken in the rest of locality for similar types of property.

6.3 The survey should include the following information:

6.4 The Inspection Check List set out in Appendix 2 should be completed for each pharmacy. In addition it is mandatory that photographs of the exterior of the property and its surroundings in relation to the surgery health centre are taken assist with the valuation of the pharmacy.

7. Survey Capture

7.1 Pharmacy types 1-5 should be scat coded 425.

7.2 Pharmacy type 6 should be scat coded 249

7.4 Types 1-5 sub location code PHAR should be adopted,

7.5 Type 6 should be sub located on the relevant local retail matrix and data captured in accordance with other similar properties

7.6 Analysis scale to be adopted is ( refer to CCT)

7.7 Valuation Scale to be used is (refer to CCT)

7.8 Car parking should be captured separately where part of the hereditament and valued in accordance with the local tone

7.9 Survey Data should be captured in RSA. Plans and surveys should be stored in the property folder of the Electronic Data Record Management

8 Valuation Approach

8.1 The rental method is the primary method adopted for this class of property.

8.2.1 Types 1, 3, 4 and 5

The key issue in determining the value of this type of pharmacy is its location in relation to the health centre or surgery. The close proximity of the pharmacy means that it is in the prime position to ‘capture’ customers seeking to have their prescriptions made up after they have visited the medical practice. It is the location of the property which encourages the demand from pharmacies. Whilst other users within the same mode or category of occupation may also be in the market for the property they are likely to be out bid.

8.2.2 The location is what drives the demand for these properties and hence the rental bid which reflects the goodwill attaching to the property which should be taken in to account when analysing the rent. This should be distinguished from personal goodwill which would normally be disregarded when analysing a rent.

8.2.3 The rent does not reflect the presence of the pharmacists dispensing contract (which is personal) and any argument that it does should be resisted. The property is in a prime location for its purpose and what sets it apart from others is its position which creates the demand. The licence does not create the demand as it is in the possession of a pharmacist who will pay a rent acceptable to the landlord. The pharmacist is not paying a rent for a property with a licence. Whilst the licence is personal, it is not correct to ignore the actual circumstances. Therefore it can be taken into account that potential hypothetical tenants will be in possession of pharmacy licences and would operate from the unit as pharmacists if their rental bid for the property was successful.

8.2.4 It is not uncommon for a premium to be paid by a pharmacist entering into a lease on a new development. This does not represent payment for goodwill which has accrued as part of the business, but rather it is payment for inherent goodwill, which forms part of the property and reflects its special suitability/position and accordingly can be taken into account when calculating the rental value. Alternatively it may be argued that the premium represents key money. Such a payment reflects the potential value of occupying a particular property by a particular user. Given that the only user competing for such a unique property will be pharmacist, key money can be regarded as being representative of value to that particular, unique class of occupier. It is capitalised rental payment and reflects the locational advantages to that class of occupier.

8.3 Type 2

Where a pharmacy is located within health centre where there are other retail units, and the other unit(s) would be equally attractive to the pharmacy operator, the unit occupied by the pharmacy must be valued taking into account the rent passing on the other retail premises as the operator would have a choice of premises. In these circumstances the property has to be valued in accordance with the decision of Fir Mill Ltd v Royton UDC and Jones (VO) 1960 R&IT 389 where it was held; The mode or category of occupation by the hypothetical tenant must be conceived as the same mode or category as that of the actual occupier. A dwelling-house must be assessed as a dwelling-house, shop as shop, but not as any particular kind of shop; a factory as a factory but not as any particular kind of factory.

8.4 Type 5

There can be circumstances where a pharmacy is located with other retail premises but these premises are also occupied by pharmacies. In this case the evidence should be derived from the rents passing in relation to all of the pharmacies in the locality as this will reflect the benefit of the location but the fact there is competition. The value of such properties may therefore differ from other retail properties in the locality. Where there is also pharmacy located within the health centre its value will reflect the benefit of its prime location in relation to any pharmacies adjoining the health centre or surgery.

8.5 Type 6

Where a pharmacy is in a location close to the health centre but is surrounded or adjoins other retail properties Fir Mill Ltd v Royton UDC and Jones (VO) 1960 R&IT 389 applies as set out in 8.3 above. This means where a pharmacy is surrounded by other units which are of a similar character, the basket of rents of all such units be considered rather than just the passing rent of the pharmacy. This is because vacant and to let, more than one of the properties would be suitable as a pharmacy. So evidence from all similar units must be considered when valuing the subject property. In practice this usually means that the property should be valued in accordance with the local retail tone.

9. Valuation Support

The following sources are available to Referencers and Valuers dealing with the maintenance and defence of pharmacies within or adjacent to health centres or surgeries.

  • Rating Support application (RSA)

  • Survaid

  • Class Co-ordination Team for pharmacies

  • National Specialist Unit

Appendix 1

PHARMACY Scat 425 .  INSPECTION  CHECKLIST
Occupier    
Address    
Rental details    
Pharmacy Type See RM section 6 part 3 section and additional information required Type 1 Pharmacy integrated within health centre no other retail present Type 2 Pharmacy integrated within health centre containing other retail premises. Details and location of other premises including rent to be provided. Type 3 Pharmacy located within curtilage health centre no other retail present. Details of location in relation to entrance of pharmacy to be provided including photographs showing location of pharmacy relative to health centre Type 4 Pharmacy located outside curtilage of health centre no other retail present. Details of location in relation to entrance of pharmacy to be provided including photographs showing location of pharmacy relative to health centre Type 5 Pharmacy located outside curtilage of health centre with only other pharmacies located nearby. Details and location of other pharmacies including description and photographs of their location in relation to subject premises and health centre Type 6 Pharmacy located outside curtilage with other non-pharmacy surrounding retail premises. Brief details of other premises and their location – this type not to be valued as pharmacy but in accordance with local retail tone  
Location  
Size TOTAL AREA RETAIL AREA
Car Parking Allocated/ communal, open/covered, number of spaces, staff/customers, free/ charge made/ refund given  
Competition addresses of  pharmacies in locality  
Building External Built:   No. of floors  
Construction  
Customer access  
Delivery and Loading  
Other points   continued.../
Building Internal Refurbished:   Fit out:  
Disabilities  
Accommodation  
Extraordinary features    
Natural light  
Other occupiers in the building     Shared facilities:  
Services.  Fire Precautions. Security  
Air Conditioning (age) Cassette or ducted. Purpose.  Extent of area covered. Heating. Fuel. System      
Surplus Accommodation. Notes should be made of any accommodation which is not in use  
General remarks Including opening hours    
Date of survey   Survey by:  

Practice note: 2017: pharmacies within/adjacent to surgery/health centres

1. Market Appraisal

1.1 The number of community pharmacies (this is all types of locations including those not covered by this section of Rating Manual) in England as at 31 March 2013 was 11,495. 60% are owned by ‘multiples’ (five or more pharmacies and supermarkets).

1.2 The number of pharmacies has grown by 18% since 2005/2006. Prior to 2005/2006 the number of pharmacies was stable at around 9700 from the mid 1990’s (source Improving Health and Patient Care Through Community Pharmacy – Evidence Resource Pack published by NHS England). This growth in numbers coincided with the exemption to the control of entry provisions which were introduced in The National Health Service (Pharmaceutical Services) Regulations 2005. The exemptions ended in 2012 with the passing of The National Health Service (Pharmaceutical Services) Regulations 2012.

1.3 The removal of the exemptions to the control of entry provisions had ceased to have an effect on the market by AVD.

1.4 The number of Community pharmacies in Wales as at 31 March 2015 was 714, an increase of 2 from 31 March 2014.

1.5 The number of items prescribed in England reached 1 billion annually in 2012. Year on year growth has been around 4-5% since 2001. Almost 60% of all prescriptions are for those over 60 years of age. (Source Improving Health and Patient Care Through Community Pharmacy – Evidence Resource Pack published by NHS England

1.6 The Electronic Prescription Service was in the process of being introduced at AVD in England. Effectively this is where a prescription is sent electronically to the pharmacist direct from the medical practitioner.

1.7 As at AVD electronic prescriptions could only be used where the patient nominated a pharmacy. As at February 2015, the Health and Social Care Information Centre were predicting that 51.9% of GP surgeries would be connected to the live system and 97.7% of pharmacies by March 2015 (source Electronic Prescription Service Stakeholder Forum 25 February 2015).

1.8 The NHS leaflet entitled A New Way To Get Your Medicines and Appliances advises that this service is most suited to patients with stable conditions requiring repeat prescriptions. Data from NHS England showed that for the period July – September 2013 the average for repeat dispensing rates across the country was 6.6%. (Source Improving Health and Patient Care Through Community Pharmacy – Evidence Resource Pack published by NHS England)

1.9 As at AVD it was only possible for prescriptions to be processed electronically where the patient has nominated a specific dispenser to receive the electronic prescription. It is planned under phase 4 of the project to make it possible for all prescriptions to be processed electronically and if a patient has not chosen to nominate a pharmacy, then they will be able to collect their electronic prescription from any dispenser but patients will still be able to nominate a dispenser of their choice.

1.10 In 2014 Bestway group purchased 780 pharmacies from the Co-op. These have been rebranded as the Well Pharmacy. Bestway have stated that it is their intention to invest £200 million over the next five years in the chain.

1.11 Against the background described above there is evidence of continued growth of pharmacy rents which has remained buoyant since 2008. In 2014 GP Surveyors refer to significant rental growth for the period 2011 to 2013 and Christies in their Outlook for 2014 predicted pharmacy values would continue to increase.

2 Changes From Last Practice Note

No Practice Note was published for 2010

3 Ratepayer Discussions

None to date

4 Valuation Scheme

4.1 There is no agreed valuation scheme. Pharmacies attached to or adjacent to doctors’ surgeries are to be valued in accordance with RM section 923.

4.2 The valuer must bear in mind the following factors before arriving at their valuation.

1 Location

a) The most prime location is likely to be a pharmacy which is integrated into a large modern health centre with no other retail nearby.

b) If the pharmacy is located adjoining the health centre the distance between the entrance to the health centre and its position in relation to any patient car park can have an influence on value. The further the pharmacy is from the entrance to the health centre/surgery there is more chance of the patient not using it.

c) Visibility of an adjoining pharmacy from the entrance of the health centre can also have an influence on value.

d) Generally the precise location of a pharmacy should be reflected in any passing rent.

2 Competition

a) The presence nearby of other pharmacies situated in nearby parades of shops may be reflected in the rent paid.

b) With the cessation of the 100 hour exemption is less likely that a competing pharmacy will now be able open in nearby retail premises and it should not therefore be assumed that competition could move into an area where there is currently no other pharmacy present.

3 Size

Generally speaking it is incorrect to adjust the analysed level of rent to reflect the size of a premises. Pharmacies can operate from relatively small areas and the rent paid will reflect the area of the premises and the facilities that can be provided. Properties of differing size may command a similar level of total rent. Therefore it should always be borne in mind that analysed rents may show a wide disparity on a £/sq m due to the differing size of the premises. There are rare circumstances where the premises are of a size which is excessive for the use of the pharmacist and in such cases the analysed rent per m2 will reflect this.

4.3 Having considered the above factors, the valuer must always refer to the rent on the subject property and always seek to compare to similar pharmacies with surgeries or health centres showing similar characteristics to that associated with the subject property.

4.4 Where it is necessary to find comparable evidence, the size of the patient list of associated surgery/health centre can be of assistance. Generally speaking the larger the patient list the more prescriptions are likely to be issued and the more profitable the pharmacy is likely to be.