Commercial rate valuations

Irish Motor Management September/October 2007

There has been much disquiet in the motor industry about the methods employed by local valuation officers when assessing dealers' premises for rates. Tony O'Brien, Director at Grant Thornton, looks at the valuation process and how dealers can appeal if they feel their premises have been over-valued.

About 40 years ago, Sean Lemass was quoted as saying “that the people pay their taxes in sorrow, and pay their rates in anger”. This was a prelude to 1977, when rates on private houses were not abolished as many believe, but the liability for paying domestic rates to local authorities was transferred to the Exchequer. Since then, there have been a number of changes in the way that local authorities are funded, but commercial rates have remained a consistent part of the overall funding sources. Today, rates provide about 25% of local government funding, yet the basis for determining rates remains a source of mystery to many business people.

Commercial rates are determined by two factors:
The “net annual value” placed on a business premises by the Valuation Office, and
The Annual Rate on Valuation struck by the relevant local authority.
The Valuation Act 1852 provided for a uniform valuation of properties and for general national revaluations every 14 years. A major national revaluation started in November 2005 and was completed in June 2007 in the South Dublin County Council area. The revaluation exercise has now been started in Fingal County Council. Pending the completion of this national revaluation, the approach used by the Valuation Office across most of the country is to estimate the “net annual value” of a property by reference to the level of rental values in November 1988 – in other words, what rental income would this property have produced at that time. Rental income depends on a range of factors, such as location, access, what the space can be used for, building condition etc., and the Valuation Office seeks to take account of these factors and of comparable premises in the area.


Different parts of premises can be valued differently. The following table is based on decisions produced by the Valuation Tribunal in recent years and shows the different values placed on specific areas in a number of motor dealerships. The figures seek to reflect what rental income the properties would have earned in November 1988, and the table illustrates that wide variations can occur, depending on the location of the business, when valuing motor dealerships.

Take, for example, a car dealership with 800 sq.m of showroom space, 100 sq m of offices, 700 sq m of workshop space, 100 sq m of storage space and 150 parking spaces on the Cork City fringes. Multiply each of these areas by the € per square metre value shown in the fourth column above; add them all up and you’ll get a total of €117,400. This illustrates the approach through which a valuer arrives at a “net annual value”.

The next stage is that an adjustment factor is applied to this net annual value to reflect the factors (mainly location ones) that would affect the actual rent achieved by a premises. There are three different adjustment percentages. The highest, 0.63%, applies to the five City Councils; the three Dublin County Councils (Dun Laoghaire, South Dublin and Fingal) and a few boroughs and town councils. The second adjustment percentage, 0.5%, applies to most county, borough and town councils, except for Ennis Town Council, which somehow is alone with an adjustment factor of 0.4%.
Take our hypothetical dealership with a net annual value of €117,400; if it is located in Cork City, then we must apply an adjustment factor of 0.63% to the net annual value (€117,400 x 0.63%) to provide a rateable value of €739.62. If the premises were located in Cork County, however, the adjustment factor would be 0.5% and the rateable value would be €587.00. So the precise location of a premises can be important.

The final stage is to multiply the rateable value by the Annual Rate on Valuation (ARV) struck by the local council to get your rates bill. Using the relevant 2006 ARVs (€70.75 in Cork City and €71.30 in Cork County) the rates bill would be €52,328.12 (739.62 x €70.75) if the premises are located in the City, but would be €41,853.10 (587 x €71.30) if they are located in the County. What this means is that a competitor could have identical premises close by, but could be paying much lower rates if it is in a different council area.

If you question your current rates bill, you can do several things. One is to see what comparable premises are valued at, and this can be done on the Valuation Office website. Go to the Valuation Office homepage, www.valoff.ie and click on “Search the Valuation List” in the menu on the right hand side of the page. Enter the address and occupier of the premises and you will see the valuation. If you are unhappy with your current valuation, there are several avenues open to you, ranging from a Revision Application to an Appeal to the Valuation Tribunal. Many doing so, however, consult with a professional adviser specialising in property valuation before going that route, as reductions in valuations are not guaranteed.

Tony O’Brien
Director
Grant Thornton
T +353 (0)1 6805 805