Hotels
Source: gov.uk (2025-04-28)

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 provides guidance on the valuation of hotels for rating. There are separate Rating Manual sections covering the valuation of guest houses and bed and breakfast accommodation (Guest houses and bed and breakfast accommodation (https://www.gov.uk/guidance/rating-manual-section-6-part-3-valuation-of-all-property-classes/section-125-guest-houses-and-bed-breakfast-accommodation) and serviced apartments (https://www.gov.uk/guidance/rating-manual-section-6-part-3-valuation-of-all-property-classes/section-890-serviced-apartments)).

1.2 There are many different types of hotel, from fairly standard budget hotels to highly individual luxury and boutique properties sometimes located within buildings of high historic significance. They include hotels specialising in particular markets such as dedicated health spas. Operators vary from large multi-national hotel companies operating under one or more major hotel brands, to small independent hoteliers running a single property.

1.3 This section describes the valuation approach for both the larger branded and independent hotels, normally valued on a receipts-based approach, and smaller hotels where there is more likely to be reliable rental evidence and a receipts-based approach may not be appropriate.

2. List description and special category code

2.1 List description in all cases: hotel and premises.

2.2 Special category code 138 should be used for all AA 4 and 5 star hotels and equivalent, together with all branded / major chain operated and larger independent hotels. As a specialist class the appropriate suffix letter is S.

2.3 Special category code 137 should be used for smaller independent hotels 3 star and under. Responsibility for these lies with the generalists, and the appropriate suffix letter is G.

2.4 Country house hotels are a specialist class and should be given special category code 077 with an S suffix.

2.5 Health spas (health farms) are a specialist class and should be given special category code 125 with an S suffix.

3. Responsible teams

3.1 The 4 and 5 star, branded / major chain operated, and larger independent hotels are a Specialist Class subject to a national scheme. Responsibility for implementing the scheme as set out within the Practice Note lies with the National Valuation Unit (NVU).

3.2 Smaller hotels graded at 3 star and under which are not branded or operated by major chains are a Generalist class to be dealt with by the Rating Valuation Units (RVU).

3.3 Budget Hotels and Lodges - these will be split between NVU and RVU on the following basis: All lodges with public houses forming a single hereditament will be dealt with by RVUs under special category code 227, suffix G. All standalone lodges or budget hotels with either no bar or restaurant facilities or with integral bar/restaurant facilities will be dealt with by the NVU using special category code 138, Suffix S.

4. Coordination arrangements

4.1 The hotel Class Co-ordination Team (CCT) has overall responsibility for the co-ordination of this class. The team are responsible for the approach to and accuracy and consistency of valuations. The team will deliver practice notes describing the valuation basis for revaluation (http://voaintranet.voa.gpn.gov.uk/manuals-and-guides/rating-manual/section-5a/rating-manual-section-5a/sect510/section-510-rm) and provide advice as necessary during the life of the rating lists.

4.2 Caseworkers 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 co-ordination team
- seek advice from the co-ordination team before starting any new work.
5. Legal framework

5.1 Under the Town and Country Planning (Use Classes) 1987 Order (as amended) Class C1 applies - use as a hotel, boarding house or guest house, where no significant element of care is provided. Operators will need to adhere to the provisions of the Licensing Act 2003 as appropriate to the offer provided by their business model.

5.2 The Regulatory Reform (Fire Safety) Order 2005, SI2005/1541 introduced a new regime for fire safety replacing a raft of earlier regulation. Fire authorities no longer issue fire certificates and those previously in force have no legal status. The order applies to virtually all premises including all guest accommodation properties and hotels. Under the Order a responsible person who has control of the premises must carry out a fire-risk assessment of the premises which should identify fire hazards, identify people at risk, evaluate, remove or reduce and protect from risk, record findings and prepare an emergency plan, and regularly review.

Self-catering / self-contained accommodation

5.3 The statutory background to the rateability of self-catering accommodation applies equally to aparthotels with self-contained apartments and self-contained lodges and suites as part of a wider hereditament. The background on this is itemised in detail in the Rating Manual: Section 5a: Valuation of all property classes: Holiday accommodation (self-catering) Part 5 Legal Framework.

6. Survey requirements

6.1 Hotels should be measured to NIA in accordance with the VO Code of Measuring Practice for England and Wales. In addition, a note should be made of the following:
- numbers of bedrooms, type, facilities
- number of restaurant covers and type of trade
- additional facilities, for example bars, meeting and conference rooms, leisure facilities, shops, together with details of any agreements, franchises or sub-lettings
- AA, Visit Britain or Visit Wales star rating/classification
- Typical tariffs for different room types
- type and mix of trade, e.g. business, tourist, leisure, conference, function
- location
- site and building layout
- number of lifts and floors served
- car parking provision
- state of repair
- level of service provided
- details of any Premises Licence (available from the local Licensing Authority) including the permitted hours and any significant conditions imposed
- competition, existing and proposed
6.2 DBU’s, EDBU’s and ADBU’s

6.2.1 To assist in comparing valuations and analyses of receipts, reference is made to Double Bed Units (DBUs), Equivalent Double Bed Units (EDBUs) and Adjusted Double Bed Units (ADBUs). The standard adjustment factors to be applied to non-standard rooms and other areas of revenue-earning space (bars, restaurants etc) in order to derive these measures are detailed below. A calculation tool is incorporated in the Licensed Property Application (LPA) and will automatically populate the LPA with the relevant figures. Where the DBU/EDBU needs to be calculated for a hotel it should be carried out using this application.

6.2.2 The layout, and actual use should be determinative in room classification. The number of DBUs should be expressed in accordance with the standard factors set out below:

DBU factors

6.2.3 These factors apply to ground and first floors and also basement and upper floors where served by passenger lift(s). The above factors should be reduced by 15% for rooms on basement and second floors without a passenger lift, and by 25% for rooms on the third floor and above if not served by a lift. Where rooms do not have en-suite facilities these factors should be reduced by 0.25. (For example, a ground floor double room without a bath/shower or WC would have a factor of 0.75.) Any variations to this will be determined by local evidence.

6.2.4 In London, in particular, the areas of revenue-earning space are also sometimes expressed in terms of DBUs. The figure should be referred to as equivalent double bed units (EDBUs). If the number of DBUs and EDBUs is summed, the resultant figure is referred to as the number of adjusted double bed units (ADBUs).

6.2.5 The factors to be adopted in converting areas of revenue-earning space to EDBUs are as follows:

6.2.6 Bars, restaurants, lounges, function/conference rooms, public bars, night clubs - the NIA should be multiplied by 5% (i.e. at the rate of 20m2 = 1 EDBU). e.g. 1,000 m2 NIA equals 50 EDBUs. If these areas are at basement or lower ground floor level, with or without natural light, the NIA should be multiplied by 4% (i.e. at the rate of 25m2 = 1 EDBU). e.g. 1,000 m2 NIA at basement level equals 40 EDBUs.

6.2.7 Leisure complexes - the GIA should be multiplied by 1.5% (i.e. at the rate of 66.7m2 = 1 EDBU). e.g. 1,000 m2 GIA equals 15 EDBUs.

6.2.8 For aparthotels and serviced apartments the DBU factors to be adopted will be as set out below:

7. Survey capture

7.1 All relevant notes and checklists should be filed in the EDRM as appropriate. Photographs should be placed in RSA. The inspection checklist can be found in EDRM.

8. Valuation approach

Method of valuation

8.1 Rental approach

8.1.2 Rental evidence will normally form the basis of valuation for the smaller hotels valued by RVUs However, due to the paucity of reliable evidence for branded / chain-operated hotels it will usually be necessary to have regard to the Receipts and Expenditure method in order to derive a basis of valuation for these properties.

8.1.3 Although a not insignificant number of hotels are rented, a considerable number of these rents will be found to be unreliable. For many smaller hotels (see 8.6 below) the motive of occupation must be considered as the operation may be a matter of lifestyle choice rather than to run purely for profit. At the branded / large chain hotel end of the market many rents are financial deals, sale and leaseback transactions or parts of larger management arrangements. Rental agreements of long-standing may not be for the property in its present form, the tenant having carried out much improvement and extension work over the years. Where a rent is being considered valuers must ensure that the full details and background to the deal are obtained.

8.1.4 Where there is sufficient reliable rental evidence in relation to smaller hotels this should be analysed as a percentage of FMT and as an amount per DBU, and an appropriate £/DBU applied to hotels within the locality with similar characteristics.

8.2 Comparison on percentage of FMT (sometimes called the shortened R&E)

8.2.1 This method of valuation is widely adopted for branded, major chain and larger independent hotels. Accounts for a sample of different hotel types are analysed at each revaluation to derive a scheme of valuation. The schemes apply a single percentage to total Fair Maintainable Trade (FMT) to arrive at the RV.

8.3 Receipts and expenditure (R&E) method

8.3.1 In exceptional circumstances, where the hotel does not fit with those covered by the agreed scheme – in terms of physical characteristics, facilities, level of service and location – it may be necessary to value it individually using full accounts and the R&E method of valuation.

8.3.2 The starting points for the valuation are the receipts and expenditure of the actual occupier. It is, however, essential to value the hereditament and not the actual occupier’s business, and it may be necessary to adjust the accounts accordingly to represent what could be achieved by a reasonably efficient operator. Further advice on R&E valuation practice is contained at Rating Manual: Section 4 Part 2: The Receipts and Expenditure Method.

8.4 Approach for different types of hotel

8.4.1 When considering the valuation approach to adopt hotels can be very broadly divided between:

(A) chain operated / branded hotels and similar large independents

(B) smaller independent hotels.

8.4.2 Small independent hotels will normally have 20 or fewer bedrooms (50 in Central London) and be run either as an individual hotel or part of a small group. At the borderline with larger hotels, between 20 and 50 bedrooms outside Central London (or between 50 and 100 in Central London), the following characteristics will help deciding which approach to follow:

Hotels with under 50 bedrooms in Central London or 20 bedrooms outside Central London are to be valued on a DBU approach unless in the nature of a boutique / luxury hotel in which case they should be valued by reference to receipts.

Hotels in Central London with between 50 and 100 bedrooms or between 20 and 50 bedrooms outside Central London – If facilities such as bar, restaurant etc, to be valued by reference to receipts. If purely bedrooms and reception with limited other facilities, then to be valued by Inner London NVU or RVU as appropriate on the DBU basis.

Hotels in Central London with over 100 bedrooms, or 50 bedrooms outside Central London, should be valued by NVU by reference to receipts, unless there are limited facilities and not all bedrooms are ensuite.

(A) Chain operated / branded hotels and similar large independent hotels

8.5 Given the lack of sufficient reliable rental evidence for this type of hotel a scheme of valuation is developed for each rating list based on an analysis of accounts using the R&E method. A detailed review and analysis of a cross-section of trading accounts is undertaken with the co-operation of the professional representatives acting for the majority of the major hotel operators. This is supplemented by data from a significant number of independent hoteliers.

8.5.1 This analysis results in a scheme of valuation that is discussed and generally agreed with UK Hospitality and their rating advisors. The scheme applies a single percentage to the total Fair Maintainable Trade (FMT) to arrive at the RV.

8.5.2 The Practice Note for the relevant list year should be referred to in all instances for a detailed overview of the specific scheme.

(B) Small independent hotels (and guest houses and B&Bs)

(For Guest houses and bed and breakfast accommodation refer to Rating Manual: S5a: Guest and boarding houses (https://www.gov.uk/guidance/rating-manual-section-6-part-3-valuation-of-all-property-classes/section-125-guest-houses-and-bed-breakfast-accommodation).)

8.6 Small independent hotels should be valued on scales applying a £/DBU, the scales being derived from reliable rental evidence and/or analysis of receipts and/or accounts.

8.6.1 If there is sufficient reliable rental evidence, then this should be analysed in terms of a percentage of FMT and £/DBU.

8.6.2 Where there is a paucity of reliable rental evidence an analysis of accounts information is necessary to derive scales. This should be done by analysing receipts to establish typical RevPAR’s (Accommodation receipts/DBU) for the hotel type and area, apply percentage from the scale for 2/3 star larger hotels to derive an appropriate RV(£)/DBU.

8.6.3 The results of the analysis should then be converted to a RV/DBU scale because of the wider variation in motives for occupation of smaller hotels, and more variable capability of owners. By analysing a sample and using this to derive a scale we can better ensure comparability and that we are valuing the property and not the business.

8.6.4 This approach is most reliable when used to value hotels of a similar nature in relatively small geographic areas, e.g., as found in many seaside holiday towns and cities, and areas of major cities with significant numbers of independent hotels.

8.6.5 Small, independent hotels should not be valued directly on the branded / chain operated hotel scales as these have been derived from analysis of accounts of larger hotels, both branded and independent. They are not suitable for directly valuing small hotels/guest houses.

8.7 Valuation considerations

8.7.1 When analysing rental evidence, and comparing or preparing valuations, regard must be had to the income streams and profitability of the revenue sources in a hotel.

8.7.2 The Forms of Return (FORs) for hotels (VO 6015/VO 6016) ask for a division of receipts between
- Accommodation/Rooms
- Food - excluding wines and liqueurs
- Drinks (including intoxicating liquor)
- Other receipts including hire of function/conference rooms and leisure facilities.
8.7.3 Where accounts are available gross profit levels, which are likely to be different for each hotel department, can be measured against performance norms. However, the Forms of Return for hotels do not request information at the level of gross profit by department, and the tenant’s bid will usually be a single percentage applied to total FMT. By looking at the trade split, as evidenced by the proportion of income generated by each source, valuers will however be able to reflect more accurately the differing net profit margins when determining and comparing a single percentage.

8.7.4 Letting accommodation will normally show the highest net profit. The net profit on food will depend on the type of hotel and nature of the catering operation. Normally where it is run as a good class restaurant and many covers are “non-residential” it would be expected to fall between the rates for the wet trade and accommodation. Where the covers are limited to guests, or the restaurant does not have the potential for a wider appeal, the net profit from catering is likely to be the lowest.

8.7.5 As well as looking at the trade split each income stream can be compared. Accommodation receipts can be analysed per DBU to give a net income per room and catering receipts can be expressed in terms of covers/floor area/receipts per EDBU. There will always be an area of cross-subsidy (e.g., guests can use leisure facilities which non-residents subscribe to by way of membership fees and/or admission charges) and great care must be taken to reflect these when comparing one hotel with another.

8.7.6 Total receipts can also be analysed per DBU, or ADBU, to compare the turnover of similar types of hotels. The results must be treated with caution, as the analysed figure will reflect all the various facilities available. It will, however, give an indication of whether the hotel is trading significantly above or below the norm for that particular type, although it will not provide any indication of running costs or profitability.

8.8 Additional considerations

8.8.1 The value of a hotel depends on its potential profitability, and where accounts are available for well-run hotels these will provide the best evidence. In the absence of full accounts, when making a valuation judgement it will be necessary to consider all factors which could influence either the turnover or operating costs of the hotel in question, or of any comparables. The following list of points for consideration is not exhaustive:

8.8.2 Accommodation. It is not sufficient merely to take account of the total accommodation and the following matters should be considered:
- whether the number and type of single and double letting bedrooms and suites are in balance with the needs of the locality and the class of trade
- the size, quality and layout of the public rooms
- whether the kitchens are up to standard and convenient for economical working
- the adequacy and efficiency of the hot water, heating and air conditioning systems (if any)
- whether there are adequate lifts
- whether there is sufficient off-street parking
- whether any of the accommodation is surplus to, or doesn’t meet, present day needs
8.8.3 Location. Choice of location for an hotel operator is determined by the type of trade envisaged, or conversely, the location will determine the potential trade of the hotel. Location will normally be reflected in the actual trade achieved and the FMT adopted.

8.8.4 Class of trade. The nationally recognised “star rating” of the hotel together with any recognition award (e.g., red or silver stars). A note of any restaurant recognition should also be considered.

8.8.5 Licensing. Following the coming into effect of the Licensing Act 2003 on 24 November 2005 in order to sell alcohol the premises will need a “Premises Licence”. There will also need to be a “Designated Premises Supervisor” (DPS) who will be named on the premises licence and who will require a “Personal Licence” under the Act. In addition to the sale of alcohol the licence may cover any provision of regulated entertainment (which includes the playing of recorded music and live bands {except bands playing at weddings}) and provision of late night refreshment. In addition any establishment, licensed or not, may apply for up to 12 Temporary Events Notices during a calendar year – this will cover (if not already included in the Premises Licence) marquees for wedding receptions, or other functions, among other purposes. If it is intended for alcohol to be sold the application must be made by a personal licence holder.

8.8.6 Catering and Functions. Facilities for catering and restaurant business for non-residents. Where a hotel restaurant is physically accessible from the main street similarly to separately assessed restaurants in the locality it may be appropriate to value this element having regard to the local restaurant valuation scales.

8.8.7 Conference facilities. The size, quality and adaptability of rooms to accommodate business meetings and events, which can be an important adjunct to many larger hotels.

8.8.8 Leisure facilities. Many hotels have leisure facilities such as a swimming pool, spa, health club, gym, squash court and/or golf course. They may be exclusive to residents or open to non-residents, often via a club or membership scheme.

8.8.9 Operating costs. These will depend greatly on the age, layout and services for each individual hotel. An old, sprawling hotel on different levels is likely to be more expensive to light, heat, clean and service than a modern purpose-built hotel with a modular layout. Additionally, the operating costs will depend on the level of hospitality and personal service provided; country house hotels will, for example, tend to provide high service levels at correspondingly high cost. The type of hotel will also affect the amount of tenant’s capital which would be envisaged to be tied up in the property, and whether it is likely to be occupied by a hotel group which would have to additionally cover a proportion of head office expenses.

8.8.10 Composite hereditaments. Any dwelling house within the curtilage of the hereditament as well as staff flats or rooms within the hotel will be domestic property and the hereditament will be a composite.

8.9 Toning of receipts

Where receipts information for the three financial years ending closest to the AVD is unavailable, for example in the case of a recently completed property, or if there has been a change of occupier, or following a MCC, it may be necessary to adjust later (or earlier) receipts to the relevant valuation date. Evidence to support the level of adjustment should be drawn from investigation of receipts for similar classes of hotels within the local or regional area.

8.10 Hotel grading

Hotels are graded having regard to nationally recognised quality standards. The details of the standards required can be viewed on relevant internet sites. However, the application of the traditional star rating system struggles to cope with the diverse range of new hotel concepts that have evolved. With many bookings now dictated by the reading of previous reviews/experiences of others, the power of feedback is so strong that the star rating of a hotel is now less relevant although it does give a good indication of the service level of the hotel.

9. Valuation support

9.1 All hotels should be valued either on RSA or the LP application and nowhere else. For clarification the properties to be valued on RSA and the Licensed Property Application are set out below:

9.2 To be valued on RSA
- guest houses and bed and breakfast accommodation (Scat 122)
- ungraded, 1 star and smaller 2 star hotels (Scat 122, or Scat 137) without significant other facilities. These hotels will usually be less than 20 bedrooms except in holiday resorts and London where this may vary depending on local circumstances.
9.3 To be valued on licensed property application
- all 5, 4 and 3 star hotels and equivalent, both branded / chain operated and independent (Scat 138)
- 1 and 2 star hotels and equivalent (Scat 137) (except those with limited facilities that will generally be less than 20 bedrooms, although this may vary in larger holiday resort areas and London).
- country house hotels (Scat 077) – often not graded with a small number of bedrooms
- health spas (also known as health farms) (Scat 125)
Appendix 1: Interface between public houses / inns and hotels / restaurants / guest houses

1. Valuation

1.1 Public houses/inns. These are to be valued in accordance with Rating Manual: section 6 part 3 - section 825 and the relevant practice note. Accommodation receipts derived from letting six or less bedspaces will be added to the dry trade; for more than six bedspaces a separate percentage will be applied to accommodation receipts.

1.2 Four & Five Star and Branded / Major Chain Operated and Larger Independent Hotels. These are to be valued in accordance with the relevant Practice Note to this section. The valuation scheme for each hotel type uses specific indicators as a guide to likely profitability. Thus, in very broad terms, the higher the accommodation receipts (the most profitable of the income streams), expressed both as a proportion of total receipts and per double bed unit, the higher the percentage to rateable value adopted.

Conversely, the greater the proportion of liquor, food and other turnover, the lower the overall profitability of the business is likely to be and therefore a lower percentage will be applicable.

1.3 Smaller independent hotels. These are to be valued having regard to local evidence, in accordance with the relevant practice note to this section.

1.4 Purpose built lodges. Purpose built lodges adjoining or attached to public houses, should be valued using the scale for lodges and the liquor, food and other income streams for the public house valued in accordance with Rating Manual: section 6 part 3 - section 825 (https://www.gov.uk/guidance/rating-manual-section-6-part-3-valuation-of-all-property-classes/section-825-public-houses-licensed-restaurants-and-wine-bars) and the relevant practice note.

1.5 Restaurants. These should be valued in accordance with Rating Manual: section 6 part 3 - section 875 (https://www.gov.uk/guidance/rating-manual-section-6-part-3-valuation-of-all-property-classes/section-875-restaurants) and the relevant practice note.

2. Effect of valuation bases

2.1 When applying the public house and hotel scales to the same level of fair maintainable trade, different values may arise, particularly for older properties, or those with a relatively low proportion of accommodation receipts. Publicans/innkeepers and hoteliers however serve different markets, they have different expectations, incur different costs and achieve different levels of profitability. Thus any differences arising when applying the two valuation bases to fair maintainable trade are to be expected and reflect the nature of the business and the different rental markets. This should not cause problems provided the hereditament is correctly identified as either a public house or hotel and valued accordingly.

3. Distinction between public houses/inns/restaurants and hotels/guest houses/bed and breakfast hereditaments

3.1 In most cases there will be no problem in identifying public houses/inns/restaurants and hotels. Where, however, the distinction is blurred it is important to identify the exact nature and type of property that is being valued, and the likely occupier. If the property provides public rooms, service and other facilities in addition to bedrooms, though it may have a significant licensed and restaurant trade (possibly at a relatively low profitability), it is likely to be a hotel. It is likely, on the other hand, to be a public house/inn if, whilst having letting rooms it does not have the usual facilities or provide the services normally associated with a hotel.

3.2 The physical characteristics of the property, the nature of business being carried on and the most likely occupiers of the property if vacant must be identified. The following factors, whilst not exhaustive, should be considered and may give some guidance:
- the class of the use classes order under which the property has planning permission
- the legal requirements such as Licensing Act 2003 and Hotel Proprietors Act 1956
- amount and relativity between the income streams for liquor trade, catering, accommodation and other
- physical factors such as separate entrance, reception, sitting rooms, dining room etc. provided for residential guests and segregated from bar areas and licensee’s/proprietor’s or manager’s living accommodation
- arrangement of letting bedrooms, type and standard of accommodation
- whether bedrooms have en-suite facilities or bathrooms/WCs are shared, and if so with other guests or staff
- level and type of services provided for residential guests
- the type of staff employed, for example receptionist/telephonist, housekeeper, chambermaid, cook, waiters/waitresses, bar staff, night porter etc.
- the history of occupation of the property and whether the occupier (or potential occupier) is likely to be a publican/innkeeper/restaurateur who sees the opportunity to increase profit by utilising spare accommodation for letting purposes, or a hotelier who sees the opportunity to increase profit by attracting non-residential restaurant and bar trade
- whether the property is run by a proprietor or managed on behalf of a company running a number of public houses/inns or hotels
4. Valuation at the interface

4.1 Very exceptionally where, following consideration of the essential nature of the hereditament, the current mode of operation and the likely operation of the hypothetical tenant, it is still not possible to determine whether the property should be regarded primarily as a public house/inn/restaurant or an hotel, it may be necessary to adjust the percentage adopted to reflect the actual circumstances. In these circumstances, the following guidance may assist in the determination of the appropriate valuation method to be adopted:

4.1.1 Where the percentage of accommodation receipts is greater than 40% the hotel basis is most likely to be appropriate. The rental percentage adopted should generally be increased if a substantial part of the other income streams arises from a profitable bar. The resultant valuation should not exceed the valuation based on the public house scale,

4.1.2 Where the accommodation receipts are below 30% the public house basis is most likely to be appropriate,

4.1.3 Between 30% and 40% the property should be valued on both the public house basis and the hotel basis. If the hotel basis is increased (by say 1%) to reflect the profitability of the wet trade, or if a lower band/point within a band is adopted on the public house scale and the catering/accommodation are valued to reflect any extra services and lower profitability, any differences between the two bases should be minimised. This will also reflect the additional tenant’s capital required, and the increased complexity of the business, compared to a typical public house.

4.1.4 The above points must also be viewed in terms of the total receipts. For example, 40% of total FMT of £100,000 may still indicate that the property should be regarded as a public house/inn. On the other hand, 40% of total FMT of £1,000,000 is more likely to lead to the conclusion that the property is a hotel,

4.1.5 In cases where it is still not possible to determine the nature of the property, where the actual operator is an individual entrepreneur it is more likely that the property is being run primarily as a public house/inn. Where the property is being managed on behalf of a company running a number of public houses and hotels then, with the exception of the large, branded public house/restaurant chains, it is more likely that it will fall to be treated as an hotel.

5. Overview

5.1 In the vast majority of cases consideration of the factors set out in paragraph 3 above should enable the valuer to determine whether the hereditament should be regarded primarily as a public house/inn or a hotel. In those exceptional cases where the valuer is still uncertain as to the primary use of the property regard to the further considerations at paragraph 4 above should provide assistance and enable a conclusion to be drawn.

5.2 The lines of distinction between the hotel industry, guest houses/ bed and breakfast and to some extent public houses and restaurants are blurring.

5.3 A bed & breakfast is usually smaller than a guest house and is part of a private family house. Historically B&Bs originate from family homes that were rented to visitors to supplement the family income.

5.4 A guest house is usually larger than a bed and breakfast establishment, with more than 5 bedrooms. The majority will be owner occupied with limited staff (if any).

5.5 A hotel is legally defined by ‘The Hotel Proprietors act 1956’. In this Act, the expression “hotel” means an establishment held out by the proprietor as offering food, drink and, if so required, sleeping accommodation, without special contract, to any traveler presenting himself who appears able and willing to pay a reasonable sum for the services and facilities provided and who is in a fit state to be received. It is sufficient to define a hotel as an establishment having 5 or more bedrooms. Hotels usually have full-time dedicated staff. Many hotels are part of a chain with strong branding, whilst others are independent.

5.6 Restaurants with rooms. Some restaurants offer rooms for overnight stays for diners. Sometimes a licensed restaurant/ restaurant with rooms (particularly a destination type property) may share physical features and characteristics with small boutique hotels / public houses / pub restaurants with rooms or even a guest house / B&B establishment. In such cases consultation may be needed with the CCT. Although usually restaurants will be valued on a price per m2, properties similar in character to a public house or a hotel should also be valued by applying a rental percentage to the Fair Maintainable Trade (FMT) in accordance with the relevant valuation scheme. The different valuation approaches should be adjusted as outlined in paragraphs 3 and 4 above to fully reflect the characteristics of the subject property. In exceptional circumstances it may be necessary to undertake a full receipts end expenditure valuation.

5.7 The changing landscape has meant that public houses are now offering a greater range of food than ever before and are often competing directly with restaurants. The physical characteristics and features of the property will also assist in determining the correct valuation methodology to be adopted.

5.8 As with all valuations it will be necessary to stand back and look at the resultant rateable value and consider how this compares with the assessments of other public houses/inns, restaurants and hotels in the locality.

Appendix 2 - Inspection checklist

Hotels inspection checklist (https://assets.publishing.service.gov.uk/media/67bc990eb3a80ad63e782cee/Inspection_Check_List_-_Hotels_Appendix_2.xlt)

Practice note: 2023 - hotels

1. Market appraisal

1.1 The demand for hotel accommodation 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, was dominated by the COVID19 pandemic. However, this market appraisal reflects the whole period since April 2015.

A. 2015 to 2019

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 in particular, 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 In 2019 media comment indicated concerns that the global economy was slowing and that other macro-economic and political factors, coupled with an increase in hotel supply, would lead to a slow-down in growth for hotels, especially outside London. It was also suggested that at this time higher costs were starting to impact on profit.

1.6 Throughout this period there was an increase in supply as new hotels opened, predominantly in London and the major cities. The majority of new hotels opened and planned were either in the budget or 4-star sectors.

B. Impact of the COVID19 pandemic

1.7 The COVID19 pandemic had a major impact on hotels 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 were still only allowed to open 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, 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); and
- 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.

Hotel performance in 2020

1.12 As hotels were subject to restricted trading conditions 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.

C. Future prospects at AVD

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 the earliest dates for which each stage of the lifting of restrictions would occur. 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;
- airport hotel performance would be linked to the return of inbound visitors;
- self-contained accommodation would continue to do relatively well compared to forms of accommodation with lots of shared facilities; and
- some costs might increase
2. Changes from the last practice note

2.1 Market appraisal has been updated in line with economic and general market conditions. The valuation scheme has been refined to reflect the hotel market at AVD.

3. Ratepayer discussions

3.1 Discussions have been held with Gerald Eve, acting for UK Hospitality. These discussions have resulted in the valuation approach and scheme being agreed, with the exception of the treatment of airport hotels.

4. Valuation scheme

4.1 The agreed scheme applies a single percentage to total Fair Maintainable Trade (FMT) to arrive at the rateable value (RV). The percentage applied varies depending upon expected profitability, having regard to the type of hotel and its trading performance, as suggested by a number of indicators.

4.2 The scale percentages have been adjusted to reflect risk and uncertainty prevailing at the AVD and the expected reduced profitability in the initial year(s) following the AVD, as hotel trade was expected to recover gradually from the effects of the COVID-19 pandemic.

4.3 The agreed scheme of valuation is set out at Appendix 1 for properties in provincial England and Wales, including those in Outer London, at Appendix 2 for properties in Central London and Appendix 3 for lodges and aparthotels.

4.4 Prior to the 2017 Rating Lists non-chain/independent hotels were typically valued with an uplift factor of up to 1.1 over the equivalent percentage for a chain hotel. The increased use and popularity of Online Travel Agencies (OTAs) has facilitated a greater customer reach and marketing ability for smaller independent hotels. At the same time there are associated costs. For the 2017 revaluation it was decided that the closer parallels with chain operations meant the need to apply an uplift for independent operators was only likely to be warranted in exceptional cases. This approach should also be followed for 2023 Rating Lists.

Fair Maintainable Trade (FMT)

4.5 When considering the proposed FMT, the effects of the COVID-19 outbreak need to be taken into account as they would have been anticipated by the parties at the AVD. Trade evidence that includes long periods of lockdowns is unlikely to provide good evidence of the FMT. Valuers are advised to take as their starting point the closest reliable trade prior to AVD. The averaging of trade to arrive at an FMT should be avoided.

4.6 Having established the likely pre-COVID-19 FMT, the valuer should then consider any further adjustments needed to reflect the receipts envisaged at 1 April 2021. The reasonable efficient operator (REO) will take a view not only on the trade immediately achievable at AVD, but the trade over a period of time ahead, as they are assumed to be taking a tenancy with a reasonable prospect of continuance.

4.7 Hotels in different market and geographical sectors have been impacted differently by the pandemic, and some sectors were forecast to recover more quickly than others. The following adjustments should be applied to the pre-COVID-19 FMT to arrive at the adopted FMT for R2023:

4.8 Categories 1 and 2 in the table above apply only to Central London hotels, where the Central London Scales apply (see Appendix 2). Hotels in Outer London valued on the Provincial Scales (Appendix 1) will fall within Category 5 in the above table.

4.9 Where trade details have not been disclosed FMT should be estimated having regard to any earlier information held on file and comparing with the pattern of trade of other comparable hotels in the locality.

Specialist Meeting and Conference Hotels

4.10 An additional 2.5% FMT adjustment should be made for those hotels reliant on significant meeting and conference business pre-pandemic. This business was expected to be relatively slow to recover, and such hotels could fall within several categories in the above table. Hotels where this adjustment should be made will have a significant number of different sized meeting rooms including at least one good-sized function room. They will also have a dedicated break-out area which is capable of doubling as the conference reception area, and access to a private bar/catering facility which might be a mobile rather than permanent structure.

Application of the Valuation Schemes

4.11 The schemes for 2023 are similar to those for 2017. The agreed scheme for Provincial hotels in England and Wales (including outer London) is set out at Appendix 1, that for Central London at Appendix 2 and the lodge / aparthotel scale is set out at Appendix 3.

4.12 The class of hotel as evidenced by the level of service provision, the rooms yield (accommodation receipts per DBU) and the proportion of total trade flowing from rooms (the most profitable hotel income stream) are the primary factors that will influence profitability. Hence the valuation bands are expressed firstly by class of hotel and then within each band by reference to the rooms yield and the rooms income proportion (percentage that accommodation receipts represent of total income).

4.13 Appendices 1, 2 and 3 present the scheme as a range of percentage to RV at any particular level of accommodation receipts per DBU. The range of percentage is provided at set intervals and valuers should interpolate between these figures. A computation spreadsheet has been provided to Specialist valuers to assist in this. When deciding on the appropriate percentage to adopt, the following approach should be taken:

4.14 Firstly, establish the level of service provision of the hotel to be valued. Consideration may be given to the star rating, if present, to assist in this, but it is not the ultimate determinant and its importance within the industry is declining. Where the choice of scale is influenced by the level of accommodation receipts per DBU (e.g. between Central London Scales B and C) the choice should be considered in relation to the pre-COVID FMT and level of trade. Secondly, refer to the relevant table of percentages. Calculate the proportion of total income attributable to accommodation receipts – based on the pre-COVID trade split - and at the same time the accommodation receipts per DBU. A decision then has to be made as to where in the range the subject property should sit.

4.15 All factors relevant to the valuation should be considered when deciding the position in the range. In particular, the following should be taken into account:
- a. The construction and layout of the hotel: These will have an effect on running costs, including staff costs and maintenance.
- b. The size of the hotel: Where the hotel is significantly larger than the norm for its type, and still attracts a good level of accommodation receipts in terms of £/DBU this will indicate high profitability due to economies of scale and the hotel should be valued towards the top of the relevant range.
- c. The presence of ancillary facilities: Where a hotel achieves a consistently high level of other income, a higher point within the percentage range should normally be adopted as the income stream may potentially be very profitable. Such income streams include conferencing, extensive leisure or golf facilities and weddings/functions etc. These provide a significant contribution to the hotel’s overall annual turnover and will naturally suppress the percentage of income derived from accommodation, which in turn would produce an unrealistically pessimistic and inaccurate view of a hotel’s true profitability. If the total of all ‘other receipts’ is clearly in excess of 10% of the total income generated, then this will need to be separately identified and the proportion attributable to rooms recalculated once it has been deducted from the total. This will produce an uplift to the accommodation percentage used in the valuation, and will result in an increased rateable value if justified by the source of these other receipts. No adjustment is required when all other receipts are 10% or less. If further advice is needed, guidance should be sought from the Hotel CCT.
- d. The level of service. Where the scale covers a range of service provision, for example Provincial Scale B, the level of service provided by the hotel operator should be reflected.
4.16 Once the appropriate percentage has been decided upon, this is applied to the FMT in order to derive the rateable value.

Lodges and Aparthotels

4.17 The scheme for lodges and aparthotels for 2023 is similar to 2017 and to the wider provincial basis. The agreed valuation scheme is set out at Appendix 3 and all aparthotels should be valued on this scale whether in London or provincial locations. Where the lodge or aparthotel positions itself slightly differently by offering more services, such as a bar and restaurant, it may be appropriate to apply the scale for lower service provision hotels.

Leisure Clubs attached to Hotels

4.18 Leisure clubs will normally form part of the hotel hereditament, although each case must be looked at on its own facts.

4.19 Income disclosed in respect of leisure clubs should be checked to ensure the basis of the figures is understood. In some cases the leisure club may be run by a separate company within the same Group or by a totally independent company. In these cases receipts disclosed may be in the form of “rent” received, or a net “contribution”. The latter may be the net profit from the leisure club, or a proportion of that net profit.

4.20 Where gross receipts for the leisure club are given these should be included within the FMT and valued with the rest of the hotel at the appropriate overall percentage – see 4.15 c) above. Where a “net” figure or concession/franchise fee is disclosed on the Form of Return completed in respect of the subject property, the FMT for this income stream alone (i.e. the concession/franchise income) should be estimated and then valued at a rate of between 25% and 50% depending on expected profitability, taking into account the services and facilities provided by the hotel operator to the holder of the concession/franchise.

4.21 Joining fees should be included only to the extent that these would be anticipated from new members on an ongoing basis – e.g. following resignation of existing members.

Hotels with Major Leisure Facilities

4.22 These are hotels with good quality golf/outdoor facilities in addition to an indoor leisure club and can vary significantly in terms of both age, size, construction, location and facilities offered. These should be valued at the appropriate rate taken from the relevant scale and having regard to section 4.15 c) above. The type of hotel accommodation (e.g. 3 star standard service or 5 star higher service provision) should be used as the starting point to determine which scale is appropriate for the hybrid golf/hotel hereditament. Once determined, an adjustment may be required to reflect ‘‘other income’ in excess of 10%. A stand back and look approach, including comparison to other similar hotel and golf properties should be undertaken. Valuer judgement is required on this hybrid class of property, and in exceptional circumstances a cross check on the golf element should be made with the scheme of valuation for golf courses (see Rating Manual: Section 5a: golf courses (https://www.gov.uk/guidance/rating-manual-section-6-part-3-valuation-of-all-property-classes/section-450-golf-courses)).

Health Spas

4.23 Health Spas (or Health Farms) are a growing area within luxury hotels. Most health spas are part of a larger hotel and should be valued on the appropriate scale with adjustment made to reflect ‘other income’ in excess of 10% if appropriate.

4.24 There are also a small number of large, dedicated health spas and normally these would be valued on a full receipts and expenditure approach with a cross check against the relevant hotel scale. For 2023 however full accounts for the period immediately prior to the AVD will be significantly affected by the pandemic and so a reliable receipts and expenditure valuation is not possible. Instead, regard should be had to analysis of full accounts for periods prior to the pandemic, where available, and a shortened percentage of receipts approach adopted. The FMT and percentage adopted should have regard to the same principles as outlined above in respect of hotels.

Coach Touring Hotels

4.25 In the case of hotels owned by coach tour operators the accommodation receipts information provided is often unreliable as it will be an apportionment of the total package price according to the accounting policy of the occupier. It is necessary therefore also to compare on a DBU / ADBU basis with other hotels in the locality.

4.26 As regards other hotels that accept significant coach tour business, in the absence of full accounts these should be valued as other independent hotels, but the final RVs should again be checked on a DBU / ADBU basis with comparables in the locality.

Interface with Smaller Hotels and Guest Houses

4.27 Guest houses and smaller hotels are valued on the basis of a price per Double Bed Unit (DBU), derived locally from an analysis of rents and accounts/receipts. (See Rating Manual: Section 5a guest houses and bed and breakfast accommodation (https://www.gov.uk/guidance/rating-manual-section-6-part-3-valuation-of-all-property-classes/section-125-guest-houses-and-bed-breakfast-accommodation)).

Hotel/Pub/Restaurant Interface

4.28 Where a hotel is being run more in the nature of a public house/inn or public house / restaurant, reference should be made to the appropriate public house scale but taking into account any additional expenditure incurred due to the nature of the property or style of occupation. Where this results in a higher RV than if valued on the hotel scale, the higher value should be adopted.

4.29 Coaching and other inns - the nature of these properties is such that receipts from accommodation may form a relatively low proportion of total receipts - often less than 35%. Rooms are often budget standard or below and the property will generate a significant proportion of total income from non-residential food and liquor sales, so that in many respects the property is similar to a pub-restaurant with rooms. Where the property cannot clearly be distinguished as a public house/inn or hotel by reference to its physical features, both the hotel scale and public house scales should be applied, adjusting both to reflect the nature of the property. This should minimise the differences between the public house and hotel scales and result in a percentage between that which would be derived from a straight application of the two different scales. This percentage will reflect the more complex management required, and the increased tenant’s capital, compared to a pub-restaurant.

4.30 Modern pub-restaurants with lodges - these should be valued on the public house basis with an addition for the lodge on the lodge scale.

4.31 Further guidance on valuing properties at the interface between pubs, hotels and restaurants is provided at Appendix 1 to the Rating Manual Section.

Airport Hotels

4.32 The FMT adjustment for airport hotels, set out in the table at 4.7 above, has not yet been agreed. This is the only part of the 2023 scheme which has not been agreed.

4.33 For previous lists hotels at Heathrow were valued on their own scale. Analysis of accounts for 2018 and 2019 shows that there is no longer justification for continuing this approach for the 2023 rating lists. Therefore, Heathrow and other airport hotels outside London should normally be valued in accordance with the scales set out at Appendix 1.

Appendix 1: Agreed Provincial hotel scales

The following scales give a percentage range for any figure of accommodation receipts per DBU relative to the proportion of total turnover attributable to accommodation receipts. The range should be interpolated between the points shown.

(These scales should be read together with section 4 of the Practice Note.)

PROVINCIAL HOTELS (England & Wales) - AGREED 2023 VALUATION SCHEME**

(Including Outer London Locations)

A) HOTELS - Lower Service Provision budget/lodge (with bar/restaurant facilities) or equivalent quality.

Intermediate points should be interpolated pro rata.

B) HOTELS - Standard Service Provision at 3 and 4 star or equivalent quality.

Intermediate points should be interpolated pro rata.

C) HOTELS - Higher Service Provision at top 4 star/5 star or equivalent quality.

Intermediate points should be interpolated pro rata.

Appendix 2: Agreed Central London hotel scales

Agreed Central London Hotel Scales

The following scales give a percentage range for any figure of accommodation receipts per DBU relative to the proportion of total turnover attributable to accommodation receipts. The range should be interpolated between the points shown.

(These scales should be read together with section 4 of the Practice Note).

A. Central London 2/3/4 Star Hotels or equivalent with accommodation receipts up to £60,000 per DBU

Intermediate points should be interpolated pro rata.

B. Central London 4/5 Star Hotels or equivalent with accommodation receipts up to £100,000 per DBU

Intermediate points should be interpolated pro rata.

C. Central London 5 Star Plus Hotels or equivalent with accommodation receipts in excess of £80,000 per DBU

Intermediate points should be interpolated pro rata.

Appendix 3: Agreed Lodge / Aparthotel scale

This scale applies where the hereditament consists of a basic lodge only – i.e. bedrooms, reception and storage cupboards only, but no breakfast restaurant/bar within the lodge; it also applies to similar purpose built lodge accommodation adjoining a public house, public house restaurant/licensed restaurant or roadside restaurant. Aparthotels with a similar limited service provision will also be valued using this scale in London and provincial locations.

The rental percentage will be determined according to the amount of fair maintainable receipts per bedroom, irrespective of whether it is let for single, double or family occupancy. A standard lodge bedroom will be treated as one

Double Bed Unit (DBU). For Aparthotels the factors to be adopted are set out in Rating Manual Section 510: Hotels, paragraph 6.2.9 (https://www.gov.uk/guidance/rating-manual-section-6-part-3-valuation-of-all-property-classes/section-510-hotels).

The rateable value of the accommodation should be determined in accordance with the table below, which applies throughout England and Wales, including London. The range should be interpolated between the points shown.

(These scales should be read together with section 4 of the Practice Note).

LODGES/APARTHOTELS - where rooms only and no other service provision

(covers all provincial and London locations)

Intermediate points should be interpolated pro rata.

Excludes super-budget hotels. Equivalent position on Lodge scale plus up to 2.5% will apply in these cases.

For a modern purpose-built lodge/aparthotel, or good quality modern conversion, the top of the range should be adopted. A lower figure in the range may be adopted for lodges with less than 70 DBUs or where due to design constraints the operational running or maintenance costs are excessive.

Minimal other trade such as sales from vending machines should not be valued separately and should be included with the accommodation trade. The total should be used to determine the scale point.

On the few occasions where there is a substantial income from meeting room facilities this income should be valued as other trade at 1% below the accommodation percentage adopted from the lodge scale.

Practice note: 2017 - hotels

1. Market Appraisal

1.1 Overview

Since the last Antecedent Valuation Date (01 April 2008), the UK economy has experienced a rollercoaster in terms of economic performance, and the hotel sector has followed suit, with the low point being identified as the 1st quarter of 2009. For a considerable amount of time since the 3rd quarter of 2008, the sector has suffered a real decline in terms of trading performance, with 2009 and 2010 showing significant and often dramatic declines in turnovers.

Not even the gloomiest forecaster would have predicted the depth of the recession, and although high profile sales, administrations (i.e. Von Essen, Travelodge, De Vere etc.) occurred, sales and purchases were quick and the market didn’t appear to stagnate.

As expected the level of decline and subsequent rate of recovery varies depending on the historic trading strength of the hotel, the location, the type of hotel (Chain vs Independent) and the sub-sector the hotel operates in.

There was a clear divide in how hotels performed during this difficult time between London and ‘the rest’, with the capital recovering earlier and at a faster rate, post-recession. This is perfectly illustrated as currently the London hotel market is viewed as the strongest in Europe and possibly the world.

Regardless of this, across the board, both 2009 and 2010 were clearly identified as tough years for the hotel industry, showing decline in nearly all industry barometers (Profits, Revpar, Occupancy etc.). Some major cities (i.e. Birmingham, Manchester and Leeds) suffered a ‘double whammy’ in several difficult years, with an increase in supply coupled with a suppressed market, due in part to the lag time on major hotel developments.

During 2011 and 2012, the sector was relatively flat, still suffering from the recessionary impact but turnover figures began to slowly start increasing and performances started to head once again in a positive direction. However, they were still some way off from the sectors former high of 2007/2008.

2013 will be remembered as the year the UK economy finally recovered from its latest cyclical low point, and was further consolidated in 2014. This perceived recovery was illustrated not only in hotel trading figures of that year, but also in sale prices, with these up 5.7%, following a decline in average price in 4 of the previous 5 years.

There wasn’t the expected drop back from the Olympic year of 2012, but there was a level of post-Olympic correction in 2013.

The continued improvement in 2014 was to be expected as inbound tourism was on the increase, being 15% higher than 2013 at £21.6bn in terms of overseas spending, and visitor numbers up 6%. Both tourism and business custom continue to recover with year on year increases. In that year, provincial hotel occupancy figures were at circa 71%, the highest they have been since 2000 and best Average Daily Rate (ADR) growth since 2008. Real growth in the regions was witnessed, and illustrated in trading results, showing like for like Revpar growth of 9.5% for the first 6 months compared to the previous year, driven by strong occupancy growth and an impressive acceleration in ADR. As expected there are

As for the outlook for 2015, it is expected that there will be an increased supply of hotels, not only a growth in transactions but also increases in occupancy rates, room rates and consequently Revpar. In fact the economic backdrop in which the hotel sector operates at the 2015 valuation date, may very well be favourable when compared to the valuation date back in 2008. Suggesting a full recovery from a lengthy period of economic depression suffered post 2008. This positive outlook will be supported by business travel, as business confidence has been bolstered and looks set to continue to rise as the UK economy continues to improve.

Note of caution: although by 2014 revenues had recovered to 2008 levels, profitability hasn’t followed suit, due to continued increases in the base/fixed costs associated with running a hotel (e.g. utilities, staff and insurance premiums).

It should be remembered that in any given provincial (city) market, there are unique dynamics of demand and supply that need considering. It should also be noted that the scheduled Rugby World Cup will potentially positively impact the hotels trading performance in September-October 2015, impacting 13 venues in 10 cities throughout England and Wales. An expected 500,000 overseas fans will be in attendance in addition to domestic based fans.

As mentioned the actual recessionary impact, and subsequent recovery has varied greatly depending on the type of hotel. For example the budget sector’s growth and popularity continues unabated, with a key reason for such popularity being that the economic downturn proved a gain for the budget sector and a loss for the full service sectors due to cash-strapped customers.

1.2 The Hotel Stock

In 2014 UK hotel stock increased by approximately 10,000 rooms, with this trend set to continue in 2015. Of these 10,000 new hotel rooms, 67% were for budget hotels concentrating in major cities, whilst London still dominated new supply overall.

Major brands account for the lion’s share of new supply, especially in budget and 4 star sectors. Recently hotel closures far exceed hotel openings, a ratio of 3 closures to every 2 openings, but the net increase in number of rooms is due to many of the closures being smaller, independent 2 star/3 star properties. Closures were reported as being high in London, Blackpool and the West Country.

1.3 Other Developments

One major development since the last Revaluation for the industry as a whole, has been the increased popularity of online travel agencies (OTAs). The use of OTAs is now hugely popular and is viewed as an essential marketing tool, especially when used in conjunction with the hotel’s traditional direct marketing approach. OTAs are particularly beneficial to non-chain hotels, and have proved especially popular with the growing boutique hotel market.

OTAs allow independents to compete with their big brand counterparts, and allow a similar customer/marketing reach at a price (commission) worth paying, especially for new or newly acquired independent hotels. The extra cost to a hotel operator commonly results in the worthwhile increase in new business, which can then be added to the hotels existing database and direct communication with the client can ensue. OTAs are used for last minute deals on vacant rooms to overcome quiet trading periods, and are popular for leisure and weekend business.

In 2012, AirBNB became the largest peer-to-peer accommodations website in the United Kingdom, and its rapid growth, both in the UK and globally, is there for all to see. Currently, hoteliers do not view AirBNB and other similar ‘sharing economy’ business models as a significant threat to the hotel market, and still consider Online Travel Agency to be their biggest threat. However, it has been noted that with this increase in popularity set to continue, an adverse impact will be felt by the sector in the upcoming years. A recent study in the United States undertaken by Boston University, suggested that in the budget hotel sector takings would be down 10% by as soon as 2016 as a result of AirBNB and others.

(Primary reference source for Section 1 : “The Caterer and Hotelkeeper” - Hotel Insight Reports).

2. Changes From the Last Practice Note

There have been no changes to the main principles of the 2010 valuation scheme, the valuation approach and valuation scales have purely been updated to reflect the current market dynamics of the sector.

3. Ratepayer Discussions

For star-rated/chain operated hotels a detailed review and analysis of a cross-section of trading accounts has been undertaken with the co-operation of the professional representatives acting for the majority of the major hotel chains. This has been supplemented by data received direct by a significant number of independent hoteliers. A programme of joint discussions between the VOA and the rating adviser to the British Hospitality Association (Gerald Eve) over the 6 months to the end of October 2015, has resulted in an agreed scheme of valuation for the 2017 Rating Lists. The details are set out in the remainder of this Practice Note.

4. Valuation Scheme

4.1 Star Rated/Chain Operated

The scheme applies a single percentage to the total Fair Maintainable Trade (FMT) to arrive at the RV. The percentage applied varies depending upon expected profitability, having regard to the type of hotel and its trading performance, as suggested by a number of indicators.

The scheme of valuation is set out at Appendix 1 for properties in provincial England and Wales including those in Outer London and at Appendix 2 for properties in Central London and at Heathrow Airport.

4.2 Non-Chain/Independent

In the 2010 Rating Lists non-chain/independent hotels were typically valued on the same scale with the application of an uplift factor of up to 1.1 on the percentage to RV. Historically this was warranted on the basis that at the interface, whilst the chain would have significant central overheads to achieve an enhanced level of receipts, the independent would not - but as a consequence it would be likely to secure a lower level of turnover. The net effect would be a closer correlation of values between what would be considered quite comparable properties. Hence, the percentage uplift for an independent hotel to ensure that similar hotels, be it chain or otherwise, were valued at similar levels in terms of RV per double bed unit (DBU).

However, the increased use and popularity of Online Travel Agencies (OTAs) and Third Party Booking sites, has facilitated a greater customer reach and marketing ability for smaller independent hotels. At the same time there are associated considerable costs. The parallels with chain operations are now far closer and as a consequence the need to apply such an uplift for independent operators is only likely to be warranted in exceptional cases.

4.3 Fair Maintainable Trade (FMT)

The adopted FMT should be that which would have been agreed between the parties as at 1 April 2015, looking forward and taking into account perceived trends, risks and uncertainties at that date. As outlined above, the years immediately leading up to the AVD were a relatively positive time for the hotel industry in general, following a period of economic recession and a series of tough trading years (2009-2011). This should be borne in mind when considering trends and estimating FMT. The averaging of trade to arrive at an FMT should be avoided.

Where trade details have not been disclosed FMT should be estimated having regard to any earlier information held on file, and comparing with the pattern of trade of other comparable hotels in the locality.

4.4 Application of the Agreed Valuation Schemes

4.4.1 Provincial England and Wales (including outer London)

The agreed scheme for 2017 is similar to the 2010 Rating Lists scheme.

The class of hotel as evidenced by the level of service provision and the rooms yield (accommodation receipts per DBU) and the proportion of total trade flowing from rooms (the most profitable hotel income stream) are the primary factors that will influence profitability. Hence, the valuation bands are expressed firstly by class of hotel and then within each band by reference to the rooms yield and the rooms income proportion (percentage that accommodation receipts represent of total income).

Appendix 1 presents the scheme as a range of percentage to RV at any particular level of accommodation receipts per DBU. The range of percentage is provided at set intervals for accommodation receipts per DBU; valuers should interpolate between these figures – a computation spreadsheet has been provided to Valuers to assist in this.

When deciding on the appropriate percentage to adopt, the following approach should be taken:

Firstly, having established the level of service provision of the hotel to be valued (consideration may be given to the AA star rating, if present, to assist in this, but it is not the ultimate determinant and its importance within the industry is declining) refer to the relevant table of percentages. Calculate the proportion of total income attributable to accommodation receipts and at the same time the accommodation receipts per DBU. A decision then has to be made as to where in the range the subject property should sit.

All factors relevant to the valuation should be considered when deciding the position in the range. In particular, the following should be taken into account:

a. The construction and layout of the hotel

These will have an effect on running costs, including staff costs and maintenance

b. The size of the hotel

Where the hotel is significantly larger than the norm for its type, and still attracts a good level of accommodation receipts in terms of £/DBU this will indicate high profitability due to economies of scale and the hotel should be valued towards the top of the relevant range.

c. The presence of ancillary facilities

Where a hotel achieves a consistently high level of other income, a higher point within the percentage range should normally be adopted, as the income stream may potentially be very profitable. Such income streams include, conferencing, extensive leisure or golf facilities and weddings/functions etc. These provide a significant contribution to the hotel’s overall annual turnover and will naturally suppress the percentage of income derived from accommodation, which in turn will produce an unrealistically pessimistic and inaccurate view of a hotel’s true profitability.

If the total of all ‘other receipts’ is clearly in excess of 10% of the total income generated, then this will need to be separately identified and the proportion attributable to rooms recalculated once it has been deducted from the total. This will produce an uplift to the accommodation percentage used in the valuation, and will result in an increased rateable value if justified by the source of these other receipts. No adjustment is required when all other receipts are 10% or less. If further advice is needed, guidance should be sought from the Hotel CCT.

Once the appropriate percentage has been decided upon, this is applied to the FMT in order to derive the rateable value.

4.4.2 Central London and Heathrow Hotels

The agreed scheme for 2017 alters the previous approach to achieve alignment with that applicable to the rest of the country. The level of accommodation receipts per DBU now factors directly in the determination of the appropriate percentage to RV to be applied.

Appendix 2 shows the detail of the scheme in exactly the same format as Appendix 1.

The principles involved in its application are much the same as detailed above in respect of the provincial scheme.

All factors relevant to the valuation should be considered when deciding the position in the range, including those detailed above under section 4.4.1.

Once the appropriate percentage has been decided upon, this is applied to the FMT in order to derive the rateable value.

4.4.3 Lodge and Aparthotels

The scheme for lodges and aparthotels has also been adjusted to align more closely with the wider provincial basis. The percentage to be applied is still determined by the level of accommodation receipts per DBU, but instead of a set percentage covering a range of receipt levels, intermediate levels will now be interpolated between the specified points on the scheme.

Expansion of the rooms only sector has seen the emergence of the ‘Super Budget’ hotel in recent years and the scheme caters for these by an addition to the percentages expressed therein. The 2017 list agreed valuation scheme for lodges and aparthotels has the same coverage as the provincial scheme and is set out at Appendix 3.

The major operators in the lodge market are Travelodge and Premier Inn. There are however also a number of other operators who now have established competing brands in this market.

Where a lodge brand positions itself slightly differently by offering more services, it will be appropriate to apply the scale for lower service provision hotels (e.g. those Premier Inns and Travelodges where bars and restaurants are present are to be valued on the lower service provision scale)

4.4.4 “Major Chain”

Consortia members should normally be included within this definition (e.g. Best Western, Accor Group). Chains with less than 10 hotels should not usually be regarded as a major chain. However, hotels in small chains of less than 10, particularly those situated in a tight geographical location (e.g. same regional resort) should be valued using these scales where trading levels are comparable to those of one of the national operators.

4.4.5 Leisure Clubs attached to Hotels

Leisure clubs will normally form part of the hotel hereditament, although each case must be looked at on its own facts.

Income disclosed in respect of leisure clubs must be checked to ensure the basis of the figures is understood. In some cases the leisure club will be run by a separate company within the same Group or by a totally independent company. In these cases receipts disclosed may be in the form of “rent” received, or a net “contribution”. The latter may be the net profit from the leisure club, or a proportion of that net profit.

Where gross receipts for the leisure club are given these should be included within the FMT and valued with the rest of the hotel at the appropriate overall percentage – see 4.4.1 c) above. Where a “net” figure or concession/franchise fee is disclosed on the Form of Return completed in respect of the subject property, the FMT for this income stream alone (i.e. the concession/franchise income) should be estimated and then valued at a rate of between 25% and 50% depending on expected profitability, taking into account the services and facilities provided by the hotel operator to the holder of the concession/franchise.

Joining fees should be included only to the extent that these would be anticipated from new members on an ongoing basis – e.g. following resignation of existing members.

4.4.6 Hotels with Major Leisure Facilities

These are hotels with good quality golf/outdoor facilities in addition to an indoor leisure club and can vary significantly in terms of both age, size, construction, location and facilities offered. These should be valued at the appropriate rate taken from the relevant scale and having regard to section 4.4.1 c) above. The type of hotel accommodation (e.g. 3 star standard service or 5 star higher service provision) should be used as the starting point to determine which scale is appropriate for the hybrid golf/hotel hereditament. Once determined, an adjustment may be required to reflect ‘‘other income’ in excess of 10%. A stand back and look approach, including comparison to other similar hotel and golf properties should be undertaken. Valuer judgement is required on this hybrid class of property, and in exceptional circumstances a cross check on the golf element should be made with the scheme of valuation for golf courses (see RM: V6: Part 3: S450)

4.4.7 Coach Touring Hotels

In the case of hotels owned by coach tour operators, more often than not, the accommodation receipts information provided is unreliable as it will be an apportionment of the total package price according to the accounting policy of the occupier. It is necessary therefore to compare on a DBU / ADBU basis with other hotels in the locality.

As regards other hotels that accept coach tour business, in the absence of full accounts, these should be valued as other independent hotels, but the final RVs should again be checked on a DBU / ADBU basis with comparables in the locality.

4.5 Hotel/Pub Interface

Where a hotel is being run more in the nature of a public house/inn or public house / restaurant, reference should be made to the appropriate public house scale but taking into account any additional expenditure incurred due to the nature of the property or style of occupation. Where this results in a higher RV than if valued on the hotel scale, the higher value should be adopted.

Coaching and other inns - the nature of these properties is such that receipts from accommodation may form a relatively low proportion of total receipts - often less than 35%. These are often budget standard or below and will generate a significant proportion of total income from non-residential food and liquor sales, so that in many respects the property is similar to a pub-restaurant with rooms. Where the property cannot clearly be distinguished as a public house/inn or hotel by reference to its physical features, both the hotel scale and public house scales should be applied, adjusting both to reflect the nature of the property. This should minimise the differences between the public house and hotel scales and result in a percentage between that which would be derived from a straight application of the two different scales. This percentage will reflect the more complex management required, and the increased tenant’s capital, compared to a pub-restaurant. Further guidance is given in Appendix 1 to the main Rating Manual Section.

Modern pub-restaurants with lodges - these should be valued on the public house basis with an addition for the lodge on the lodge scale.

4.6 Airport Hotels

London Airport hotels - these are characterised by high occupancy rates, high levels of accommodation receipts per DBU and high percentages of accommodation receipts compared to most provincial hotels. There is a separate scale in respect of Heathrow hotels, but elsewhere it is anticipated that the main scales at Appendix 1 adequately cater for any variations.

Provincial Airport hotels - these should normally be valued in accordance with the scales set out at Appendix 1.

Practice note : 2017 - Appendix 1: agreed provincial hotel scales

The following scales give a percentage range for any figure of accommodation receipts per DBU relative to the proportion of total turnover attributable to accommodation receipts. The range should be interpolated between the points shown.

(These scales should be read together with section 4 of the Practice Note).

PROVINCIAL HOTELS (England & Wales) - 2017 AGREED VALUATION SCHEME

(Including Outer London Locations, apart from Heathrow and equivalent)

see Rating Manual: section 6 part 3, Section 510 : Hotels : Practice Note : 2017 for guidance on application of scales.

A) HOTELS - Lower Service Provision budget/lodge (with bar/restaurant facilities) or equivalent quality.

Intermediate points should be interpolated pro rata.

B) HOTELS - Standard Service Provision at 3 & 4 star or equivalent quality.

Intermediate points should be interpolated pro rata.

C) HOTELS - Higher Service Provision at top 4 star/5 star or equivalent quality.

Intermediate points should be interpolated pro rata.

Practice note : 2017 - Appendix 2: agreed central london and heathrow hotel scales

Agreed Central London and Heathrow Hotel Scales

The following scales give a percentage range for any figure of accommodation receipts per DBU relative to the proportion of total turnover attributable to accommodation receipts. The range should be interpolated between the points shown.

(These scales should be read together with section 4 of the Practice Note).

CENTRAL LONDON and HEATHROW HOTELS - 2017 AGREED VALUATION SCHEME see Rating Manual: section 6 part 3, Section 510, Hotels: Practice Note: 2017 for guidance on application of scales.

A) Central London 2/3/4 Star Hotels or equivalent with accommodation receipts up to £55,000 per DBU

Intermediate points should be interpolated pro rata.

B) Central London 4/5 Star Hotels or equivalent with accommodation receipts up to £90,000 per DBU

Intermediate points should be interpolated pro rata.

C) Central London 5 Star Plus Hotels or equivalent with accommodation receipts in excess of £80,000 per DBU

Intermediate points should be interpolated pro rata.

D) Heathrow all Star Rated or equivalent hotels

Intermediate points should be interpolated pro rata.

Practice note: 2017 - Appendix 3 - agreed lodge / aparthotel scale

This scale applies where the hereditament consists of a basic lodge only – i.e. bedrooms, reception and storage cupboards only, but no breakfast restaurant/bar within the lodge; it also applies to similar purpose built lodge accommodation adjoining a public house, public house restaurant/licensed restaurant or roadside restaurant. Aparthotels with a similar limited service provision will also be valued using this scale.

The rental percentage will be determined according to the amount of fair maintainable receipts per bedroom, irrespective of whether it is let for single, double or family occupancy. A standard lodge bedroom will be treated as one Double Bed Unit (DBU). For Aparthotels the usual factors to be adopted will be for a one bedroom flat with lounge/kitchen – 1.5 DBU, and 2 DBU for a two bedroom flat.

The rateable value of the accommodation should be determined in accordance with the table below, which applies throughout England and Wales, including outer London. The range should be interpolated between the points shown.

(These scales should be read together with section 4 of the Practice Note).

LODGES/APARTHOTELS - where rooms only and no other service provision

(covers all provincial and outer London locations)

Intermediate points should be interpolated pro rata.

Excludes super-budget hotels, e.g. Formule 1, Yotel and Easy Hotel. Equivalent position on Lodge scale plus up to 2.5% will apply in these cases.

For a modern purpose built, or good quality conversion, lodge/aparthotel the top of the range should be adopted. A lower figure in the range may be adopted where due to design constraints the operational running or maintenance costs are excessive.

Minimal other trade such as sales from vending machines should not be valued separately and should be included with the accommodation trade. The total should be used to determine the scale point.

On the few occasions where there is a substantial income from meeting room facilities (e.g. Premier Inn’s Touchbase) this income should be valued as other trade at 1% below the accommodation percentage adopted from the lodge scale.