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This section deals with the assessment of statutory and non-statutory dock and harbour undertakings.

For the purposes of this guidance Docks and Harbours are categorised as follows:

The NVU Utilities Transport and Telecoms Team are responsible for this class.

Notes

1. Potential case for larger hereditaments valued by reference to rents to be handled by the National Valuation Unit Utilities and Transport Team (UTT). To be discussed on a case specific basis.

2. Receipts threshold. This should not be considered to be prescriptive. Individual cases will need to be discussed with the CCT in order to determine ownership.

3. Non-Domestic Rating (Miscellaneous Provisions) (No 2) Regulations (SI 1989/2303)

The Ports class co-ordination team has overall responsibility for the co-ordination of this class. The team is responsible for approach, 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 and referencers 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 class co-ordination team
• seek advice from the class co-ordination team before starting any new work

5.1. Definition of a harbour.

5.1.1 The relevant rating regulations do not define dock or harbour but according to the Harbours Act 1964 a harbour is defined as follows:

鈥渆xcept where used with reference to a local lighthouse authority, means any harbour, whether natural or artificial and any port, haven, estuary, tidal or other river or inland waterway navigated by sea-going ships and includes a dock, a wharf鈥︹�� and 鈥︹��. has the meaning assigned to it by s.742 of the Merchant Shipping Act 1894鈥�.

5.1.2. The Merchant Shipping Act 1894 (s.742) definition is:

鈥渢o include harbours properly so called, whether natural or artificial, estuaries, navigable rivers, piers, jetties and other works in or at which ships can obtain shelter or ship and unship goods鈥�.

5.1.3. A 鈥淪tatutory harbour undertaking鈥� is defined in the Statutory Harbour Undertakings (Form of Accounts etc.) Regulations 1969 (鈥渢he 1969 Regulations鈥�) as:

鈥渁n undertaking or part of an undertaking the activities whereof consist wholly or mainly in the improvement, maintenance or management of a harbour in the exercise of powers vested under the Harbours Act 1964, by another Act or by an Order or other instrument (except a provisional Order) in the person by whom the undertaking is carried on (other than river works powers as defined in s.57 of the Harbours Act 1964), in the performance of duties so vested in him (other than river works duties as so defined) or in the exercise and performance of powers so vested in him (other than river works powers as so defined) and duties so vested in him (other than river works duties as so defined)鈥�.

5.2. Identification of the Hereditament 鈥� Statutory Undertakings

5.2.1. Whilst formula rating ceased with effect from 1 April 2005, legislation remains in place governing the identification of the hereditament in respect of qualifying statutory undertakings. This is in the form of Reg 5 of the Non-Domestic Rating (Miscellaneous Provisions) (No 2) Regulations (SI 1989/2303) and is often referred to as 鈥淩egulation 5鈥� and/or 鈥減rescription鈥�.

5.2.2. Where a qualifying undertaker occupies any hereditament which contains both operational and non-operational land, then the part or parts situated on the operational land shall be treated as a hereditament (鈥渢he new hereditament鈥�) separate from the remainder (Reg 5(3)).

5.2.3. Regulation 5(5) defines operational land as land which is used for the purpose of the carrying on of the undertaking, not being land which, in respect of its nature and situation, is comparable rather with land in general than with land which is used for the purpose of carrying on of statutory undertakings (within the meaning of the Town & Country Planning Act 1971).

5.2.4. The Lands Tribunal considered the application of Regulation 5 in the case of Barratclough (VO) v Tees and Hartlepool Port Authority. In this case it was agreed that the port offices were used for the purpose of the carrying on of the respondent鈥檚 undertaking, and the evidence therefore related to the question whether or not in respect of its nature and situation it was comparable with land in general rather than with land used for the purpose of statutory undertakings.

5.2.5. The President stated in the decision that what was required was an overall comparison that takes both the nature of the land and its situation into account. He then examined the nature and the situation separately:

i. Nature: essentially 鈥榦rdinary鈥� office accommodation (they were purpose built for the port in the nineteenth century)

ii. Situation: regard to both its location in relation to other parts of the respondent鈥檚 undertaking and to its surroundings (office located in an area where buildings were in a variety of urban uses and separated from the statutory dock undertaking)

5.2.6. In this case it was held that the building was comparable with land in general rather than with statutory undertaking land.

5.2.7. Where more than one 鈥渘ew hereditament鈥� is on the relevant day occupied by the same undertaker, those hereditaments shall be treated as one hereditament (Reg 5(4)).

Regulation 5 also provides that where the 鈥渘ew hereditaments鈥� are located in the areas of more than one billing authority, the 鈥渘ew hereditaments鈥� are still to be treated as one hereditament. This hereditament is treated as being situated in the area of the billing authority which contains, on the relevant day, the single largest 鈥渘ew hereditament鈥� in terms of area, measured at ground level. Once determined, this Billing Authority remains fixed for the life of the rating list, even if an alteration or alterations mean that the largest 鈥渘ew hereditament鈥� changes and is subsequently located in a different Billing Authority.

5.2.8. Occupations by the statutory undertaker that are regarded as exclusively non-operational land should be shown as separate hereditaments in the list.

5.2.9. Regulation 5 does not apply to any of the cases referred to in sub-paragraphs (a) to (f) below:

a. Non-statutory dock or harbour undertakings; i.e. those which are not carried on under authority conferred by or under any enactment.

b. Statutory docks or harbour undertakings with a relevant income of 拢50,000 or less in any accounting period of twelve months which ended between 31 December 1987 and 31 March 1988, or if there was no such accounting period, in the twelve months ending on 31 March 1988 (Article 3(2)(a)). Note that once exclusion or otherwise is established upon this ground, the undertaking will remain outside or within the provisions of the Regulation, as the case may be, irrespective of changes in relevant income in subsequent years.

鈥渞elevant income鈥� in relation to a period means all income by way of revenue included or falling to be included in the revenue or profit and loss account of the undertaking for the period, whether derived from the operations carried on under the authority whether statutory or otherwise, other than 鈥�

i. income in respect of pilotage;

ii. income from 鈥�

a. investments required to be shown in the accounts of the undertaking (other than investments in subsidiary companies);
b. loans or deposits;
c. rent or other payments receivable in consideration of the grant of permission for occupation or use of any property of the undertaking, or right over such property, which is or forms part of a hereditament which is shown on a local rating list;

iii. any sum receivable in respect of the disposal of land;

c. Where the persons carrying on the undertaking uses the dock and harbour exclusively or mainly for the purpose of bringing or receiving goods of one or more of the following types:

i. goods to be used by them for the manufacture of other goods or the production of electricity ii. goods they have produced or manufactured iii. goods that they are to sell
iv. goods manufactured or produced by an associated body, and to be sold by that body.

d. Any hereditament occupied by persons carrying on the undertaking which does not consist exclusively of operational land. This falls to be assessed separately, irrespective of its treatment for the purposes of calculating the relevant income of the undertaking.

e. Any part of the dock or harbour undertaking that is occupied by some other person (including a subsidiary of the statutory undertaker) under the terms of a letting or licence for more than a transient period, and where the occupation is exclusive for the purpose of the occupier, should be the subject of a separate assessment. Whether or not there is a separate occupation is a matter to be decided on the individual facts of the case, and if further guidance is required reference should be made to Westminster City Council v Southern Railway Co (1936) AC 511 HL for the principles involved. Where such a hereditament, situated on land which could qualify as operational land, becomes empty, it should not automatically be deleted from the rating list. If it is the intention of the undertakers to re-let the hereditament in due course, or even if they have no fixed intention as to what to do with it, it should not be deleted from the rating list.

f. New undertakings, which would otherwise qualify to be assessed under the Regulation, will be excluded under (b) since there will be no relevant income for the accounting period in question. It therefore follows that they will not come within the scope of the Regulation unless the Act setting up the undertaking makes specific provision for the Regulation to apply.

5.3 Identification of the Hereditament 鈥� Non-qualifying statutory docks and harbours and non-statutory docks and harbours

5.3.1. Where Regulation 5 does not apply (non-qualifying statutory docks and harbours and non-statutory docks and harbours) it follows that the legal framework is that applicable to any conventional assessment for all issues including identification of the hereditament.

Security and adherence to health and safety practices will be strictly imposed by dock operators. When arranging inspections the VOA inspection policy must always be followed.

6.1 Statutory Docks and Harbours

In the majority of instances a full measured survey will not be required.

6.1.1 Where a measured survey is required it should be to gross internal area (GIA) in accordance with the VOA Code of Measuring Practice.

6.1.2 Information should be recorded in the form of an inspection note and accompanying plan detailing:

a. The leading statutory enactments under which operate the undertaking

b. The geographical extent of the statutory undertaking

c. The extent of the undertakers statutory control in terms of conservancy and pilotage

d. Details of the main operations undertaken within the undertaking

e. Details of all third party occupiers and operators within the undertaking to assist in determining which should be separately assessed

f. The plan should identify:

i. The extent of the undertaking鈥檚 statutory control in respect of both land side and seaward areas

ii. The billing authority boundary

iii. Operational and non-operational areas

iv. Existing separate assessments

v. Areas/occupations requiring review

6.1.3 All information should be saved in EDRM where possible.

6.2 Non-statutory Docks and Harbours

6.2.1 Non-statutory undertakings should be measured, where required, to gross internal area (GIA) in accordance with the VOA Code of Measuring Practice.

6.2.2 Where the undertaking is valued by reference to accounts a full survey will not be required.

6.2.3 all instances information should be recorded in the form of an inspection note and accompanying plan detailing:

a. The geographical extent of the undertaking

b. Details of the main operations undertaken within the undertaking

c. Details of all third party occupiers and operators within the undertaking to assist in determining which should be separately assessed

d. The plan should identify:

i. The extent of the undertaking鈥檚 control in respect of both land side and seaward areas

ii. The billing authority boundary

iii. Operational and non-operational areas

iv. Existing separate assessments

v. Areas/occupations requiring review

6.2.4 All information should be saved in EDRM where possible

7.1. For statutory and non-statutory undertakings which are valued by reference to accounts the guidance set out at section 6 above should be adhered to.

7.2. For non-statutory undertakings valued by reference to rents survey information is to be saved in EDRM and input into RSA.

8.1. Statutory Docks and Harbours

8.1.1. Statutory docks and harbours were formerly valued as public utility undertakings on the profits basis although, even in the last century, the method presented problems. Decisions of the courts that certain types of income should be excluded from gross receipts, and the fact that profit was not always the prime motive of the undertakers, meant that the profits method could result in unrealistic or nil valuations and when this happened it was the practice to negotiate a 鈥渃ompromise鈥� assessment.

8.1.2. This state of affairs was challenged in 1961 in the Court of Appeal in the case of British Transport Commission v Hingley (VO) (1961 RVR 150). It was held that a statutory dock or harbour undertaking must be valued as a matter of law on the profits basis and that the fact that the basis produced a nil assessment was not a special circumstance justifying the use of a different mode of valuation. Even so, in the 1963 valuation lists there were some instances of 鈥渧oluntary鈥� assessments being agreed despite a nil answer being produced by a valuation on the profits basis.

8.1.3. Provisions were included in the Rating and Valuation Act 1961 and later re-enacted in s35 of the General Rate Act 1967 allowing the Minister, after consultation with parties concerned, to make an Order for determining the rateable value of statutory docks and harbours. No generally acceptable formula evolved until 1971.

8.1.4. Subject to transitional provisions to cushion the impact of an abrupt change, the Docks and Harbours (Valuation) Order 1971 (subsequently amended by the 1973 and 1976 Orders) provided for the determination, by reference to a fixed percentage of 鈥渞elevant receipts鈥�, of the rateable values of certain statutory dock or harbour undertakings which were on operational land and occupied by the persons authorised by statute to carry on the undertaking concerned.

8.1.5. Under para 3 of Schedule 6 LGFA 1988 the Secretary of State made orders prescribing the valuation by formula of qualifying statutory docks and harbours for the purposes of Rating Lists. No such order was made in respect of the 2005 Rating List and since then all statutory and non-statutory docks and harbours have been valued by conventional methods of valuation, although the extent of the hereditament to be valued and the Billing Authority it may be entered into remains prescribed.

8.1.6. Since 1 April 2005 statutory docks and harbours have been valued by reference to the Receipts and Expenditure (R&E) basis of valuation.

8.1.7. There are no known instances where the whole or even a substantial part of an undertaking is rented at arm鈥檚 length. Should such an instance arise and the rent was fixed close to the AVD then it may provide guidance.

8.1.8. The contractor鈥檚 basis brings with it practical difficulties in costing civil engineered features which vary widely between ports according to their exposure to weather and tidal issues.

8.1.9. Further guidance on the application of the R&E basis can be found in the Rating Manual. Specific regard should also be had to the RICS guidance contained in The Receipts and Expenditure Method of Valuation for Non-Domestic Rating.

8.1.10. Particular care should be exercised when seeking to adjust accounts to accord with the rating hypothesis. Issues to be considered include:

a. Income from statutory functions such as Conservancy

b. Income from separately assessed occupations

8.1.11. Conservancy. This is a term commonly used in respect of docks and harbours and simply refers to the processes required to preserve and maintain a harbour for use by vessels. This may include dredging, lighting, and marking the channel and harbour entrance, dredging of docks and locks and repair of harbour walls, sea defences, locks, lock gates, docks, berths and so on. In rating terms conservancy is often simply repair.

8.1.12. Some statutory harbour authorities have statutory duties to undertake conservancy functions inside and outside the hereditament. In other cases there is no duty or statutory authority and there may be a separate conservancy authority with responsibility outside the statutory area of the port.

8.1.13. In the case of Commissioners of Improving the Harbour of New Shoreham v The Overseers of the Parish of Lancing (1869-70) L.R. 5 Q.B. 489 it was held that the Commissioners were not liable to pay rates on the dues collected. Blackburn J. observed that the law was clear that 鈥渢olls are not per se the subject of a rate鈥� (p496). It was equally clear that 鈥渢olls, though not rateable, may be considered as enhancing the value of the occupation of the land, whenever it appears that the occupation of the land is so connected with them that it can be said that the tolls and rates are levied on account of the occupation of the land; or perhaps, though not levied on account of the occupation of the land, where they could not be received without an occupation of the land.鈥�

8.1.14. It is important to have regard to both the specific enabling statutes underlying the port鈥檚 occupation and functions when determining the receipts and expenditure that are relevant in a R&E valuation of a port.

8.1.15. As a result conservancy income and expense will be included in the R&E valuations of some statutory ports where this is inextricably linked to the occupation, even if the expenditure is on items outside the hereditament. In other cases where conservancy is not inextricably linked it will be excluded.

8.1.16. The impact of including conservancy income and expenses may be to enhance the value of the hereditament or where costs are onerous relative to income may reduce the value.

8.1.17. Income from separately assessed occupations. In its most basic form this may simply be income in the form of rent for a warehouse, storage land or office. In such instances it is reasonable to strip out 100% of the income derived from the lease arrangement as all of the income relates to the letting. It is common for third party occupations to be secured under the terms of several agreements which may include a lease and commercial agreement or alternatively a composite agreement which extends not only to cover the occupation of a defined property but also addresses commercial arrangements linked to the import/export of cargo through the port. Such agreements are very difficult to adjust because of the non-rent payments which are often linked to guaranteed throughputs and/or capital investment undertaken by either the port operator or the actual occupier.

8.1.18. Some ports will operate at a loss. Others will operate at a loss once their accounts have been adjusted to accord with both the rating hypothesis and the rateable hereditament. In both instances such ports still merit a substantive rateable value due to the wider socio-economic benefits which the hypothetical tenant would pay a rent to secure. The rateable value of such ports should be defended on a comparative or contractor鈥檚 basis but, as a shortened method, 5% of turnover may provide a rateable value.

8.1.19. For smaller undertakings within statutory docks and harbours there may be rental evidence available which will enable valuation by reference to rental evidence.

8.1.20. For all valuations undertaken by reference to the R&E basis it will be necessary to secure accounts information for the last full three years immediately prior to the AVD.

8.1.21. Form of Return VO 6037 should be used for all statutory ports where the R&E basis is to be adopted.

8.2. Non-statutory Docks and Harbours

8.2.1. As with the statutory docks and harbours at 8.1 above there are likely to be grounds for adopting the R&E basis of valuation. Where this is the case the guidance set out at points 8.1.9 to 8.1.10 should be followed.

8.2.2. For smaller undertakings within either statutory or non-statutory docks, and harbours there may be rental evidence available which will enable valuation by reference to rental evidence.

8.2.3. For all valuations undertaken by reference to the R&E basis it will be necessary to secure accounts information for the last full three years immediately prior to the AVD.

8.2.4. Form of Return VO 6037 should be used for the majority of the statutory and non-statutory ports where the R&E basis is to be adopted.

8.2.5. Form of Return VO 6056 should be used in respect of all ferry terminal assessments.

9.1. All R&E valuations are to be held on valuation spreadsheets provided by the CCT and are to be saved in EDRM.

9.2. All rentals based valuations are to be held in RSA.

1. Market Appraisal

1.1 Commercial demand for docks and harbours has remained fairly strong through the recessionary years.

1.2 A notable exception to this general observation relates to the those ports handling coal imports where volumes have fallen significantly as coal fired power stations have been decommissioned. Some ports have been able to take advantage in the growth of biomass fired power stations but this has required significant investment in infrastructure capable of storing and transferring biomass. Such investment has been difficult to secure due to uncertainties around government policy.

1.3 Other areas of growth include the development of operation and maintenance bases necessary to support the increasing number of offshore windfarms.

1.4 The latest statistics published by the Department for Transport for the year ending 31 December 2014 show that volumes (by tonnage) were down from 455,600,000 tonnes for the year ending 31 December 2007 to 406,716,000 tonnes for the year ending 31 December 2014, a reduction of 10.7% over the period.

2. Changes from the last Practice Note

2.1 Whilst there are only minor changes to the scheme of valuation adopted for Reval 2017 it should be noted that there are substantial changes to the Practice Note.

3. Ratepayer Discussions

3.1 Central discussions have taken place with both the British Ports Association and the UK Major Ports Group. Both industry bodies were professionally represented.

3.2 The VOA and the industry bodies were in broad agreement that the approach adopted for 2010 had worked and that only minor adjustments may be required for 2017.

3.3 The guidance below reflects this broad agreement. Whist at this stage it cannot be taken as a formal memorandum of agreement it is not anticipated that this approach will be subject to challenge.

4. Valuation Scheme

Statutory Docks and Harbours

4.1 As advocated in the Rating Manual guidance it is considered appropriate to value statutory docks and harbours by reference to the Receipts and Expenditure (R&E) basis of valuation.

4.2 The valuation approach is based on the EBITDA (Earnings Before Interest, Tax and Depreciation Adjustments) of the actual undertaking.

4.3 This approach requires adjustments to be made to both the income and expenditure of the undertaking.

4.4 Income adjustments include:

i. Necessary adjustments to reflect the extent of the rateable hereditament relative to the statutory extent of the undertaking which may be larger or smaller.

ii. Income derived from separately assessed occupations within the undertaking.

iii. Income from statutory operations such as conservancy and pilotage in instances where this is NOT directly linked to occupation of land

iv. Income derived from swinging moorings 鈥� Local Government Finance Act 1988 - Sch. 5 para 18

v. Income in the form of interest

4.5 Expenditure adjustments include:

i. Exclusion of costs in the form of taxation and depreciation

ii. Costs not derived from the occupation of the hereditament i.e. those incurred outside the hereditament which are not directly linked to the occupation of land

iii. Costs associated with the management of separately assessed occupations i.e. estate management costs

4.6 The actual EBITDA of the undertaking is calculated by taking the adjusted income and deducting the adjusted expenditure. The EBITDA is then capable of being expressed as a percentage of the adjusted income thereby enabling comparison with other ports.

4.7 The EBITDA percentage can be either negative or positive depending on whether the rateable port undertaking is loss making or profitable.

4.8 A rising percentage is then applied to the adopted turnover having regard to the level of EBITDA as follows:

i. Negative EBITDA % - 5% of adjusted turnover ii. EBITDA 0% to 20% - 5% of adjusted turnover iii. EBITDA 20%+ to 50% - 5% to 12% of adjusted turnover (interpolated) iv. EBITDA greater than 50% - 12% of adjusted turnover

4.9 In the event of any appeals being received the VOA has made it clear to the industry that any valuations necessary will be on the basis of a full R&E valuation. This will require the provision of more detailed accounts information along additional information in the form of asset registers which will be required to establish the correct depreciation charge and to assist in calculating the tenants share.

Non-statutory Docks and Harbours

4.10 Where considered appropriate to do so the rental method of valuation should be adopted. All valuations should be saved in RSA.

4.11 There will be instances where there is no rental evidence available. Where it is considered that there is no reliable rental evidence then an R&E based approach should be adopted where reliable accounts information is available in line with that set out in paras 4.2 to 4.9 above.

4.12 It is recognised that in certain instances there will be neither rental evidence nor full accounts information available. In such instances a contractor鈥檚 basis valuation should be adopted. This is likely to be the case for ferry terminals where crossings are to the continent and Ireland. All valuations should be saved in the NBS.