Showhouses
This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.
This instruction relates to the valuation for rating purposes of Show/View Houses and Flats. Accordingly, it should be read in conjunction with the appropriate Practice Note and Appendix 1.
Hereditaments will normally be described in rating lists as ‘Show House and Premises’ or ‘Show Flat and Premises’ together with any principal additions, for example a marketing suite. Regard in this respect should be had to the Supreme Court decision in Woolway-v- Mazars. However, in most show house complexes there will be a functional link between the contiguous examples of the Developers work.
Special Category Code 250 should be used.
As a Unit Class the appropriate suffix letter should be G.
This is a National Scheme Class dealt with by Units who are responsible for implementing the scheme as set out within the relevant Practice Note.
The NVU have responsibility for the content of Practice Note, conduct of central negotiations and providing support and advice.
Responsibility for adherence to the scheme of valuation and ensuring the effective co-ordination of assessments rests with the appropriate Unit Head/Valuation Panel. See Rating Manual – Section 6 - Part 1 - Para 1:3.5.
The Show houses Class Co-ordination Team and the Commercial Valuation Panel have responsibility for this class ensuring effective co-ordination across the business units. The team are responsible for the approach to and accuracy and consistency of show house valuations. The team will deliver Practice Notes describing the valuation basis for revaluation and provide advice as necessary during the life of the rating list. Caseworkers have a responsibility to:
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follow the advice given at all times
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not depart from the guidance given on appeals or maintenance work, without approval from the co-ordination team
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seek advice from the co-ordination team before starting any new work
Rateability
It is use from day to day that confers rateability on a hereditament (s.42(1) and s.67(4) and (5) LGFA 1988), and unless it appears that when next in use houses will be used wholly as living accommodation (s.66(1)) they will be rateable as non-domestic property (s.66(5) and s.67(5) LGFA 1988).
Thus the VO needs to establish, as a matter of fact, that the premises, including any garage, are being used as the showhouse/flat (viewhouse/flat) for a particular type or will be so used when next in use. If there is more than one designated showhouse/flat of a type on a large development, all property so used will be rateable.
Show houses/flats are completed houses, which the house builder carpets and furnishes. They are open to inspection by potential purchasers and once the development is complete will be used for private occupation as domestic property.
View houses/flats do not have furniture but are carpeted and curtained, they may also demonstrate the “finishing touches” which provide prospective purchasers with installed coordinated carpets, curtains, blinds, borders and wall finishes.
Further guidance may be obtained from the Lands Tribunal decision in Walker (VO) –v- Ideal Homes Ltd RA/1995/347 and the Scottish Valuation Appeal Court in The Old Course Ltd –v- Fife Council Assessor 2016
Composite hereditaments may arise if, for example, a garage only is used as a sales office and the house is not a showhouse.
It is occupation by the developer and use as a show house/flat or view house/flat which establishes rateability. Accordingly it is important to record any elements of occupation and use.
Any particular type of house/bungalow/flat used as an example of a finished property for sale, as opposed to one of a number of finished properties of that type all being available for inspection, is a showhouse:-
a.whether or not it is concurrently for sale;
b.whether or not it is furnished, partly furnished or unfurnished; and
c.whether it is called a “showhouse” or “viewhouse”.
A sign or notice indicating that an individual property is a showhouse (or viewhouse) is good evidence of its non-domestic use. It does not become domestic property when not in actual use or locked for security reasons, unless it is apparent that when next in use it will be used wholly as living accommodation (e.g. when it is sold).
Houses “bought in” or finished houses merely awaiting sale will be domestic property unless used as the showhouse for a development. If a showhouse becomes the last of its type on the development, the developers fixtures and furnishings are removed (not a phase of the development necessarily), it should also be regarded as no longer a showhouse, merely a house awaiting sale. However, in small developments of differing individual types, care should be exercised as a house may still be in use as a ‘showhouse’.
Appendix 1 (Appendix 1: Rateability of showhouses) includes some examples of showhouse use and rateability as confirmed by CEO to the Home Builders Federation (HBF). Sales Offices/Marketing Suites
Premises or parts of premises used as sales offices are not domestic property and are rateable. There is a trend of some developers to set up high quality marketing suites with ‘mock-up’ accommodation. Full details – size construction details of this accommodation should be recorded on EDRM.
A copy of the relevant sales brochure, pricing policy and particulars should be lodged on EDRM, together with a fully comprehensive record of the use of the Show house/flat. Particular regard should be had to the services offered including sales, finance/insurance, buy back, purchase options carpets, curtains, furniture, blinds additional electrics and other upgrades to the specification. A note should be made of opening hours, staffing, signage, brochures, flag poles etc. A photograph from the highway of the subject hereditament is often useful.
Other information to be gathered relates to the construction, size and use of any separate marketing offices, marketing suites etc. Survey details and Plans should be recorded in EDRM.
The valuation approach to be adopted is set out fully in the relevant Practice Note.
Units should request MIT to serve the Showhouse Form of Return on the developer in all cases. NVU will be responsible for CCT discussions, advice and support.
| Example | VOA’s Views | |
|---|---|---|
| 1 | An individual property, furnished and available for sale. It is generally kept locked and available for viewing via an agent of the builder. The only one of the type for sale and would include last of its type. . | Not Rateable - if the property is not an example of other properties for sale, it is effectively an unused property which appears when next in use will be as living accommodation – S.66(5) and (1) LFGA ’88 (as amended). Rateable – if used as a showhouse for others of a similar type to be built elsewhere or on the same development. |
| 2 | Similar to above but one of a number, and still available itself for sale. Not therefore reserved for the sole purpose of viewing. | Rateable – to be domestic property the premises must be used wholly as living accommodation – s.66(1) |
| 3 | Similar to (2) but the garage is used as a sales office. | House and Garage Rateable - as a wholly non-domestic hereditament. |
| 4 | Similar to (2) but inside partially used as a sales office (rather than the garage) | Rateable – Sales offices showhouses should not be valued on a separate basis to the house/flat itself unless wholly so used, in which case the basis would be similar to that for garages in (3) above. |
| 5 | Houses not for sale, only available for viewing by appointment. | Rateable – until the occasional showhouse/office use cease and it appears when next in use the house will be domestic property. See (2) above and s.66(1) and (5) |
| 6 | House not for sale, has office in the garage. | House and Garage – Rateable as for (1) and (3) above. |
| 7 | House not for sale, inside partially used as sales office. | Rateable - as for (1), (2) and (4) above. |
1. Market Appraisal
The home building industry remains buoyant within the UK, with the number of new home registrations reaching record levels.
This was in part, boosted by government targets of building 300,000 new homes a year as announced in the 2017 Budget, with parliament pledging support for capital funding, loans and guarantees to support the UK’s housing market over the next five years. In addition, relaxation of planning rules back in 2012 is now showing a marked impact on the amount of land being released for housing development, as is the continuation of the governments ‘Help to Buy Scheme’ and Stamp Duty Exemption from July 2020 to July 2021, for properties bought for £500,000 or less.
The number of joint venture schemes between housing associations, local authorities and developers are increasing, with the aim of providing large scale developments of which a good proportion (generally half) are marketed as being ‘affordable housing’. In an effort to meet demand, investment in modular housing is increasing, where homes are constructed off site, then erected in situ. This leads to a much shorter build period compared to traditional building methods.
The majority of new homes (approximately 80%) are constructed by building firms. Regional variations are apparent with the South East, London and the South West showing a higher proportion of new builds than other parts of the UK, although Yorkshire and Humberside are recording significant growth when compared to previous years.
Investors continue to buy show houses from developers on ‘sale and leaseback’ arrangements. These benefit both parties, providing individuals with a guaranteed rental income prior to the subsequent sale of the dwelling (once its requirement as a showhouse ceases), and in addition assists the developer by releasing cash for reinvestment elsewhere.
2. Changes from the last Practice Note
There are no substantial changes in the valuation methodology from the 2017 rating list scheme, although the rentalisation factor has increased to 7%
3. Ratepayer Discussions
Central discussions have taken place with representatives of the house building industry, who although have no mandate to agree the basis set out below, they have been consulted on the process, which the VOA intends to adopt for Reval 2023. The valuation methodology of applying a rentalisation factor (%) to the capital value, has again been well received. However we have not been able to agree the percentage factor to be applied to the capital value of the show/ view houses at the Antecedent Valuation Date (AVD).
4. Valuation Scheme
4.1 Method of Valuation
As for earlier Rating Lists, a valuation approach based upon the adoption of a percentage of capital value as at the AVD, is the valuation method to be adopted for 2023 Rating Lists
In general terms rental information shows a consistent range of de-capitalisation rates where rents passing are compared to capital value. It is known that many developers use this approach to arrive at rental value and have stated as such when completing Forms of Return. The evidence is representative across a wide range of property types constructed by developers and it is considered that a departure from the basic factor will be a rare occurrence.
4.2 Rentalisation Factor
The basis of valuation to be adopted for R2023, is 7% of the capital value at the antecedent valuation date (AVD) for the standard show house without a garage converted to a sales office. Where the garage of the show house has been converted to a sales office the following additional sums will be added.
- Double garage conversion £1,700
- Single garage conversion £1,200
4.3 Properties at the top end of the market or within high value locations
These include very high value regions and properties which are substantially higher in value than the usual ceiling price for that location, a rentalisation factor of 6.5% or marginally lower may be considered. This will require a stand back and look approach and will generally only be appropriate for properties over £2.5M. Approval for this will need to be sought from the National Valuation Unit
Allowances for show/view house hereditaments comprising of complexes of 3 to 6 different styles of dwelling, remain as for previous Rating Lists. These hereditaments will comprise contiguous properties, normally ring fenced with the dividing fences between houses being removed to give the impression of greater space. The prospective purchasers normally enter through a sales office and are sign posted via a one-way system from one house to another. In these circumstances an element of quantum may exist and as a matter of principle quantum allowances should be given, as set out below:
Number of houses in complex, maximum % to be deducted from total rental value
3 to 4 Houses 5%
5 houses + 10%
This class of property is valued using the non-bulk server application.
4.4 Sales Offices
Premises or parts of premises used as sales offices are not domestic property and are rateable.
Most standalone sales centres will comprise portable buildings and these can very between very high quality bespoke structures, such as premium mobile buildings (VOA cost guide reference 42U55S) with expensive fittings, to the more basic (reference 42U55A) or even converted sea containers. Such structures should be valued on the contractors test basis, with building costs obtained from the VOA’s ‘2023 Cost Guide’
Costs will vary dependent on the size and facilities available, with further additions considered appropriate for site works, electricity, water and washrooms.
4.5 Show House Marketing Suites with Unfinished First Floors
Developers often used the ground floor only of a show house as a sales office/marketing suite, without completing the first floor. In such examples, completion works to the first floors often extend beyond minor works that a tenant would undertake on taking a tenancy, for example staircase, floors and plumbing/ electrics are not complete. Generally, the ground floor comprises an open plan marketing suite with staff WC.
The industry has been informed that VO’s will value such hereditaments as follows -
OMV of house type at AVD x 7% multiplied by RCA of ground floor plus external area of any garage divided by RCA of total dwelling
Example:
OMV of House £250,000 x 7% = £17,500
RCA of ground floor with garage 73 sq m / RCA of total dwelling 120 sq m = 0.61
£17,500 x 0.61 = £10,675 Rounding rules to be applied.
Additions for garages converted into sales offices, should be the figures covered under the rentalisation factor as detailed above.
If a billing authority serves a non-domestic completion notice on a show house of this nature and it is not already in the rating list. The valuation officer should assume the whole building is complete and value both ground and first floors.
4.6 Show House Rental Spreadsheet
Rental information is stored on the L Drive within the designated SCAT information folder. This data is regarded as ‘Restricted’ and must not be disclosed outside the VOA, other than in challenge/appeal proceedings.
1. Market Appraisal
The Building Industry was buoyant at AVD with all the major companies showing healthy share prices, after the decline following the financial recession in 2008/2009. Throughout the 2010 Rating List the main House Building Companies have continued to offer and rent back showhouses from investors. The arrangement continues to offer both sides unique advantages and benefits. There is evidence that more builders are prepared to offer new properties on this basis although less pro-active than the major players. During the period major builders collaborated with Hearthstone Investment Company, who acquired showhouses then sold property bonds to the general public under their UK Residential Fund. Bonds could then be traded. How successful this venture has been is not known.
2. Changes from Last Practice Note
There are no substantial changes in the valuation methodology from the 2010 rating List scheme.
3. Ratepayer Discussions
Central discussions have taken place with representatives of the house building industry, who although have no mandate to agree the basis set out below have been actively involved in the consultation process for Reval 2017. The valuation methodology of applying a rentalisation factor (%) to the capital value has again been favourably received. However we have not been able to agree the percentage factor to be applied to the capital value of the Show/view house at AVD.
4. Valuation Scheme
4.1 Method of Valuation
As for the earlier Rating Lists, a valuation approach based upon the adoption of a percentage of capital value (OMV) as at AVD, is the valuation method to be adopted for the 2017 Rating List.
In general terms the trawl for rental information obtained from the Data Teams shows a consistent range of decapitalisation rates where the rents passing are compared to the capital values. It is known that a number of developers have used this approach to arrive at rental value and have either stated this approach on the FOR or it has been revealed following enquiries made afterwards. The evidence is fairly representative across the full range of the types of properties constructed by speculative developers and it is considered that a departure from the basic factor will be a rare occurrence.
4.2 Rentalisation Factor
The basis of valuation to be adopted for Reval 2017 is 5.5% of the capital value at the antecedent valuation date – 1 April 2015 (AVD) for the standard show house without a garage converted to a sales office. Where the garage of the show house has been converted to a sales office the following additional sums will be added.
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Double garage conversion - £1500
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Single garage conversion - £ 1000
4.3 Properties at the top end of the market, or of substantially greater value than the norm for the local office area.
This will require a stand back and look approach and if it is deemed a house or flat is of substantially greater value than the usual ceiling price for a locality, a rentalisation factor of 5% can be considered. Approval for this will need to be sought from the National Valuer Unit
Allowances for Show/View House hereditaments comprising complexes of 3-6 different styles of dwelling remain as for 2000, 2005 and 2010 Rating Lists. These hereditaments will comprise contiguous properties, normally ring fenced with the dividing fences between houses being removed to give the impression of greater space. The prospective purchasers normally enter through a sales office and are sign posted via a one-way system from one house to another. In these circumstances an element of quantum may exist and as a matter of principle Units should give quantum allowances as set out below:
| Number of House in Complex | Max % Deducted from Total Rental Value |
|---|---|
| 3-4 Houses | 5% |
| 5 houses + | 10% |
This class of property is valued using the new non-bulk server application. The manual can be accessed here.
4.4 Sales Offices
Premises or parts of premises used as sales offices are not domestic property and are rateable.
Most standalone Sales Centres will comprise portable buildings and these can very between very high quality bespoke high quality structures (such as Portakabin Ultima42U55S) with expensive fittings to a Portakabin (42U55A) or even a converted sea container. Local Office’s would normally value such structures on the contractors test basis with building costs obtained from the Reval 2017 Cost Guide located on the Intranet by:-
(i) Typing “Portable Buildings” in the ‘Search Cost Guide‘ box,
(ii) Click on “GO” button,
Building Costs will vary depending on size and facilities available i.e. additions should be made for site works (separate costings), electricity, water and washrooms.
Until the Cost Guide is fully loaded onto the Non- Bulk Server these Costs can be found on the ‘P’ Drive.
4.5 Show House Marketing Suites with Unfinished First Floors
A developer has used the ground floor only of a Show House as a sales office/marketing suite without completing the first floor, this can be a recurring theme with a number of developers’ showhouses.
The ground floor comprises an open plan marketing suite with staff WC.
In the particular example the first floor was incomplete. A staircase was not installed and access was only by ladder. It is possible to walk around the first floor as tongued and grooved chipboard has been laid and windows are installed; stud partitions divide the area into various rooms, but these have not yet been plastered and no ceilings have been installed and the area is completely open to the roof space. There are no bathroom/WC fittings, nor has the final electric or plumbing fix been completed. Therefore, rebus sic stantibus, the first floor area is not complete and probably extends beyond minor works that a tenant would undertake on taking a tenancy.
A number of agents including the agent acting for the Home Builders Federation have been advised VOs will be valuing these hereditaments as follows:-
The basic agreed valuation approach is:
OMV of house type at AVD x 5.5% multiplied by
RCA Ground Floor plus external area of any garage divided by RCA of Total Dwelling
Example:
OMV of House £250,000 x 5.5% = £15,000
RCA of ground floor with garage 73 sq m / RCA of total dwelling 120 sq m = 0.61
£15,000 x 0.61 = £9,150
Apply rounding rules
RV £9,100
Additions for garages converted into sales offices, should be the figures covered under rentalisation factor above.
If a billing authority serves a non-domestic completion notice on a showhouse of this nature and it is not already in the rating list. The valuation officer should assume the whole building is complete and value both ground and first floors.
4.6 Show House Rental Spreadsheet
The Showhouse rents can be found in the relevant P Drive folder. This evidence is regarded as ‘Restricted’ and must not be disclosed outside the VOA other than in appeal proceedings.