Serviced apartments
This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.
1.1 This class is split between Rating Valuation Units (RVUs) and the National Valuation Unit (NVU) will be responsible for single units and smaller complexes. The largest complexes operating in the manner of hotels or lodges will be dealt with by the NVU. Responsibility for effective co-ordination lies with both RVUs and the NVU.
1.2 Special category code 722 and primary description code CH1 should be used for all types of serviced apartments, large and small, with the description overwritten Serviced Apartment(s) as required, the appropriate suffix letter will be G. (Aparthotels should continue to adopt special category code 138 S).
2.1 As a class, serviced apartments (SA) have grown out of demand for more self-contained living accommodation, from regular hotel users. The market is usually aimed at regular business users requiring high quality accommodation, for the short term, but who would prefer to have more independence than checking into a hotel. The accommodation in many cases is cheaper than the equivalent hotel accommodation.
2.2 They will be fully serviced in terms of services, cleaning and provision of utilities. The fees will be inclusive of taxation. Booking accommodation will be similar to booking a hotel room and in the largest properties there will be a reception desk where the complex operates as a hotel albeit letting apartments rather than bedrooms. In occasional instances there may be ancillary bar or restaurant facilities and breakfast may be supplied as part of an inclusive rate for an apartment. The larger properties operating in this manner are often known as aparthotels.
2.3 SA are most commonly found in the larger towns and cities where the focus is on business use with some weekend break use but are also to be found in some towns in tourist areas where the focus is use by tourists and holiday makers.
3.1 The class can be difficult to fit into a category, and full factual information will be needed as to the nature of occupation of the premises, the nature of the business carried on and the identification of the ‘relevant person’ mentioned in the legislation.
The law S66 LGFA paragraph 2B
3.2 Section 66 defines what is and is not domestic property. Para 2B states:
A building or self-contained part of a building is not domestic property if:
a. the relevant person intends that, in the year beginning with the end of the day in relation to which the question is being considered, the whole of the building or self-contained part will be available for letting commercially, as self catering accommodation, for short periods totalling 140 days or more, and
b. on that day his interest in the building or part is such as to enable him to let it for such periods.
The situation in Wales differs in as far as The Non-Domestic Rating (Definition of Domestic Property) (Wales) Order 2010 amends section 66 of the Local Government Finance Act 1988 so that in Wales - from 1 April 2010 for a furnished property to be assessed for non-domestic rating purposes as opposed to council tax it must meet the following conditions:
i) for the 12 months prior to assessment -
a) it must be available for commercial letting to the public for periods which amount, in aggregate, to not less than 140 days;
b) the periods for which it is so let amount, in aggregate, to at least 70 days; and
ii) for a period comprising at least 12 months following the assessment, it must be available for commercial letting to the public for periods which amount, in aggregate, to not less than 140 days.
The approach therefore is similar to the existing approach adopted in England but with the additional requirement to consider both the 12 months prior to assessment and the periods for which the premises are let total at least 70 days.
Application
3.3 Whilst the law is applicable to holiday flats and cottages let commercially whether in blocks or individually, it will also sweep up serviced apartments under the same principles. An apartment, or block of apartments, let out commercially for short periods (28 days or less) in the course of a business, will fall under this non-domestic provision, and will therefore be included as an entry in the rating list. In Wales application of the law is outlined in the Rating Manual Section 480: holiday accommodation (self-catering) paragraph 5.4.
Short period
3.4 Where a single apartment is clearly not let for a short period, but a longer term arrangement is in place, then this will fall to be banded for CT if it is let to an individual(s) and is their permanent residence. The definition of ‘short period’ is not defined anywhere in the legislation, but the VTE decision Bridge Street Limited & Room Space Limited v David Jackson (VO) and Andrew Ricketts (VO) (28 November 2017) provided clarification and certainty as to what constitutes ‘short periods’ in relation to the legislation.
3.5 This particular case concerned whether the hereditaments in question were non-domestic, and so subject to business rates, or domestic dwellings subject to council tax. The hereditaments had been included in the rating list as serviced apartments but the appellants contended that ‘short periods’ referred to in the Act should constitute 28 days or less and not one day less than six months as proposed by the respondent Valuation Officer and therefore subject to council tax.
3.6 The VT President determined that short periods for the purpose of S.66 (2B) of the Local Government Finance Act 1988 was 28 days or less. It should also be reiterated that paragraph 2B(a) of the Act states intention of the relevant person is to be analysed and this is noted in the VT decision.
3.7 The Upper Tribunal decision in Godfrey & Godfrey v. Simm (VO) RA/15/1999 provides clarification with regards intent. In this case the appellants’ intention was to advertise the property throughout the year for holiday letting at any time but not to grant lettings for periods exceeding 139 days in any year. The decision stated ‘ If on the material day a would-be tenant had approached the owners with an application to take the property for a fortnight in each of the twelve months of the year, he would have been refused on the ground that they were not willing to let for short periods totalling 140 days or more’. In essence in this case the property was not available for ‘short periods’ which totalled 139 days and as such the appeal was allowed and the Rating List amended to delete the NDR entry.
3.8 Before agreeing to delete an existing rating list entry or deciding not to make a new entry, Valuers should expect to see some evidence that a conscious decision has been made to limit the bookings accepted. For example, Mr Godfrey was able to demonstrate that he had operated at, or just below, the 139-day limit for many years and had occasionally declined bookings that would have taken him over this limit. (Advertising material and proof of letting restrictions should be sought).
4.1 As in any valuation for rating the first and fundamental step is to establish and identify the hereditament. From case law a number of broad rules can be discerned particularly now from the judgement of the Supreme Court in Woolway (VO) v Mazars. [2015] RA 373. With serviced apartments, however, the problem can be difficult, where some units are short stay and some are long stay. It is vital where a mixture exists that the correct identification is made. This may result in individual apartments being separately assessed in circumstances where the relevant units are not contig.uous. The Mazars decision needs to be considered in line with The Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018 where if conditions of contiguity are met two or more hereditaments occupied or owned by the same person are to be treated as one hereditament for rating purposes.
5.1 Each apartment type should be measured to NIA in accordance with the VO Code of Measuring Practice for England and Wales. The area of bedrooms should include that of any en-suite bath- or shower-room. Details should be taken of the standard of fittings, general level of fittings and fit-out, services supplied by the operator and any ancillary facilities to the apartments.
5.2 If a brochure exists, this should be obtained together with tariff details and occupancy rates, if available.
6.1 There is unlikely to be any direct rental information available for the specific use. In this absence of direct evidence consideration should be given to the nature of the occupation. SA bear a strong resemblance to self-catering holiday accommodation, in many cases the terms are interchangeable. It is therefore appropriate for single SA and small complexes to have regard to the valuation advice set out in Rating Manual: section 6 part 3 - section 480 holiday accommodation – self catering and the relevant practice notes.
6.2 For larger complexes which operate much as lodges or budget hotels – aparthotels – it will be appropriate to have regard to the guidance on these types of hotels set out in Rating Manual: section 6 part 3 - section 510 hotels and the relevant practice notes. For comparison purposes the DBU factors to be adopted will be as set out below:
En-suite |
DBU |
a) Studio - bed-sitting type with kitchenette |
1.5 |
b) One bed - with sitting area / kitchenette |
2 |
c) Two bed - with sitting area / kitchenette |
3 |
d) Three bed - with sitting area / kitchenette |
4 |
6.3 The valuations should be carried out using the Licensed Property Application of RSA.
6.4 If a particular property or complex does not fit into the above categories then accounts should be obtained for the three years preceding the valuation date and a full receipts and expenditure valuation carried out – see Rating Manual: section 6 part 3 - section 5.
1. Market appraisal
1.1 The demand for serviced apartments is largely driven by the numbers of domestic and international tourists and business travellers. Hence occupancy and turnover are heavily influenced by factors which impact on decisions to travel to and within the United Kingdom (UK).
1.2 The 12 months leading up to antecedent valuation date (AVD), 1 April 2021, were dominated by the COVID19 pandemic. However, this market appraisal reflects the whole period since April 2015.
1.3 Following the previous AVD (1 April 2015), and prior to the COVID19 pandemic, the hospitality industry generally experienced favourable market conditions. The increase in ‘staycations’ experienced during the 2009-2010 downturn was maintained, aided by exchange rate movements. This made the UK a cheaper destination for travellers from Europe and the USA, whilst at the same time making foreign holidays more expensive for UK residents.
1.4 Published analyses show that for the calendar years 2015 – 2019 annual occupancy rates generally remained high whilst achieved room rates increased, resulting in increased revenue per available room (RevPar).
1.5 Throughout this period there was an increase in supply as new serviced apartments and hotels opened, predominantly in London and the major cities.
1.6 In recent years, prior to the pandemic, demand is outstripping supply, with an increasing number of operators seeking expansion, predominately in major cities. Extended stay and serviced apartment popularity continued to gain momentum, as an increasingly mobile workforce sought additional space and amenities.
1.7 The COVID19 pandemic had a major impact on hotels and serviced apartments in the period leading up to AVD (1 April 2021). Details of the various restrictions implemented by statute in response to the pandemic, and of the vaccination rollout, can be found online. In February 2021 the UK Government published its Roadmap out of lockdown for England which set out four steps to relax restrictions. Step 1 had already taken place by the AVD, although hotels and serviced apartments were still allowed to open only for restricted categories of guests, e.g., key workers, people quarantining, people attending funerals etc.
1.8 The later three stages of the Roadmap for England included
- the opening of outdoor hospitality and self-contained accommodation, including serviced apartments if self-contained, and outdoor dining (Step 2, no earlier than 12 April)
- the opening of remaining accommodation types including hotels, subject to social distancing measures (Step 3, no earlier than 17 May)
- the removal of remaining restrictions on openings/events (Step 4, no earlier than 21 June)
1.9 Subsequent to 1 April 2021 Steps 2 and 3 took place as planned, but Step 4 was delayed four weeks to 19 July.
1.10 International travel was prohibited at the AVD, except for a small number of permitted reasons. Holidays abroad were not allowed. As part of the February Roadmap announcement the government referred to a review of global travel, to report on 12 April, possibly for inclusion at Step 3. At AVD the outcome of this review was unknown. At the AVD international arrivals from certain countries had to quarantine in hotels near airports at their own cost.
1.11 The situation in Wales, both leading up to and after the AVD, was similar although not identical.
1.12 As trading conditions were very restricted for most of the period from mid-March 2020 to 31 March 2021, various reports show large decreases in occupancy rates, achieved room rates and revenue per available room (RevPAR) compared to 2019.
1.13 Reports show that this performance varied significantly between locations and types of hotel, with London hotels performing particularly poorly. Generally regional cities performed
less well than more rural locations and those focused on domestic leisure business. Once allowed to open, hotels in rural and tourist locations benefitted from the increase in ‘staycations’ through summer and early autumn 2020.
1.14 It was also reported that accommodation types with more private space and the facility to cook and eat separately, such as serviced apartments, showed smaller declines in occupancy rates and achieved room rates than more traditional hotels.
1.15 Various reports and commentary on the hotel industry published in late-2020 and early-2021 set out views on the likely recovery of the sector in the context of what was known at the time, including the UK Government Roadmap for England which (as noted above) specified dates as the earliest for which each stage of the lifting of restrictions would happen. At AVD these included the following expectations:
- domestic leisure business would recover first
- domestic business and smaller meetings and events would recover more slowly than leisure
- large conferences and events would also recover more slowly
- inbound (international) leisure and business would be slower to recover than domestic leisure in particular, disadvantaging cities such as London heavily reliant on inbound tourists, business and large events
- self-contained accommodation such as serviced apartments would continue to do relatively well compared to forms of accommodation with lots of shared facilities
- some costs might increase.
2. Changes from the last practice note
2.1 There are no significant changes to the broad principles followed for the 2017 rating list whereby reference to serviced apartments was made in the hotels and holiday accommodation (self-catering) practice notes. Serviced apartments have been allocated a new Special Category (SCat) code - 722 G.
3. Ratepayer discussions
3.1 At the time of writing the VOA is having discussions with the rating advisor to the main hospitality industry trade body regarding chain operated hotels and serviced apartments.
4. Valuation scheme
4.1 Single serviced apartments and smaller complexes
4.1.1 Serviced apartments bear a strong resemblance to self-catering holiday accommodation, in many cases the terms are interchangeable. It is therefore appropriate for single serviced apartments and small complexes to have regard to the valuation advice set out in Rating Manual: Section 5a: holiday accommodation - self catering and the relevant practice note.
4.2 Larger complexes
4.2.1 For larger complexes i.e. those with 5 or more apartments which operate much as lodges or hotels – aparthotels – valuers should have regard to the guidance set out in Rating Manual: Section 5a: hotels and the relevant practice note. This involves applying a single percentage (from the scheme) to the total fair maintainable trade (FMT) to arrive at the rateable value (RV).
4.2.2 For larger complexes valuers should adopt the lodge / aparthotel scale set out within the hotels practice note.
4.2.3 Where there is sufficient rental evidence on larger complexes a scheme can be derived and used as a basis for valuation.