Hospitals and healthcare: 2023 practice notes
Source: gov.uk (2025-03-03)

The 2023 practice notes and appendicies for hospitals and healthcare.

Practice note 1: 2023 - NHS hospitals

1. Market Appraisal

The changes in the quality and specification of hospitals built since 2010 saw significant increases in costs. The limited evidence of wholly constructed hospitals demonstrates this level of quality and specification continues.

Health Care providers continue to seek efficiencies through strategic planning with specialist emergency care being provided centrally with patients remaining on site for a short period of time before moving to more local facilities. The provision of single en-suite bedrooms to reduce the risk of infection and improve the dignity of patients continues to be a feature.

The provisions of the Health and Social Care Act 2008 and subsequent associated regulations continue to see greater involvement of the private sector in NHS provision with some treatments and procedures now taking place in non-NHS facilities.

2. Changes from the 2017 List Practice Note

2.1 The contractor’s approach remains broadly the same as the 2017 Memorandum of Agreement with updated Stage 1 costs, Stage 2 allowances and Stage 3 land values. In addition the flat roof allowance has been modified.

2.2 The guidance on long stay within hospitals can be found under the ‘Valuation Considerations’ at 9.4 of the Rating Manual section 840 that precedes this practice note.

3. Ratepayer Discussions

No discussions have so far been held either with ratepayers or their representatives and none are anticipated.

4. Method of Valuation

4.1 Rentals Method

In the years preceding the AVD a number of small hospitals, normally forming part of comprehensive community hubs have been developed by 3rd party developers and leased to the Hospital Trust. Where such arrangements exist the lease and rent passing should be fully researched and where it can be demonstrated that the rent, adjusted as necessary, represents the value of the occupation to the occupier, the hospital should be assessed using the rentals method.

Other hospitals of similar age size and type in the locality may be assessed using the same method to the extent that comparability allows.

However it is expected that no rental evidence will exist to assist in the assessment of the majority of hospitals. With no profit motive in the majority of instances, the contractor’s basis should be applied in accordance with the following guidance.

4.2 The Contractor’s Basis

4.2.1 Stage 1

(i) Building Costs

The costs to be applied to the GIA of the accommodation blocks within the hospital will depend upon the type of facility under consideration and the standard of construction. The costs and associated guidance notes are contained in Appendix 1 to this practice note.

(ii) External Works

The cost of external works is to be added in accordance with Appendix 2.

(iii) Location Factors

Location factors should be applied in accordance with Appendix 3 replicated from the 2023 VOA Cost Guide.

(iv) Contract Size Adjustment

An adjustment for contract size is to be made to the building cost in accordance with Appendix 4, replicated from the 2023 VOA Cost Guide.

(v) Professional Fees

Professional fees and charges are to be added for in accordance with Appendix 5.

4.2.2 Stage 2

The age and obsolescence allowances to be applied to the individual building blocks after addition for external works and fees are dependent upon the building classification. The majority of hospital buildings should reference the scale within Table 1 of Appendix 6. Stand-alone Workshops & Stores should reference Table 2 and the scale for Temporary Buildings is found in Table 3. For the avoidance of doubt the age of the building is to be taken as the date the building was completed.

Adjustments to the main hospital buildings for age and obsolescence should be made in accordance with Table 1 and take into account the following salient points;

a) The revised age and obsolescence scale represents the combined age related physical depreciation along with functional obsolescence and technological redundancy exhibited by buildings of each age typical for their quality/specification and condition. It is anticipated that the stated allowances will be adopted in the majority of cases and only either moderated or increased in exceptional circumstances.

b) Extensions are to be given an allowance appropriate to their age unless of a lower specification than would be expected of a building of that age in which case the allowance should be increased to a level appropriate to reflect the specification of the building as a whole.

c) In respect of physical depreciation, the above scales are intended to reflect normal wear and tear and/or deterioration due to the age of the building. The scales assume an average degree of cyclical refurbishment work will have been undertaken, to include whole or partial renewal of building sub-components, most particularly relating to mechanical and electrical services and internal fit-out, but also including periodic renewal of roof coverings and windows.

d) It follows from the above that no adjustment away from the scales is required in the majority of cases where older buildings have been subject to modernisation and refurbishment works, as these are explicitly assumed to have occurred. An exception to this would be for a building taken back to shell and reconstructed with significant renewal of structural elements, where an abatement of age-related physical obsolescence may be required.

e) An example of a building requiring an abatement of the allowances provided by the scales (due to the mitigation of physical depreciation) would be where a major renovation has occurred utilising the original building foundations, frame (including upper floors) but with comprehensive replacement of the external envelope (walls, windows), a complete internal refit and wholescale replacement of mechanical and electrical services.

f) Conversely, the above scales will be insufficient to reflect physical obsolescence in cases where buildings are substantially un-modernised and in any case, the scales do not apply in instances where the hereditament is not repairable at reasonable cost and where it falls to be valued rebus sic stantibus.

g) To qualify as a substantially un-modernised building it is expected that the building will predominantly have the following:
- single glazed windows;
- original internal layout;
- original ceiling height, with no suspended ceilings;
- original external walls;
- pre 1980 internal finishes (flooring, ceiling and walls, internal doors and fixtures and fittings)
h) In respect of functional and technological obsolescence, for buildings that remain in operational use, the scales include adjustments to reflect functional and technological deficiencies observable in buildings typical of their original period of construction but taking account of the level of assumed cyclical refurbishment reflected in the physical depreciation element of the scales.

i) The type of functional and technological obsolescence factors already reflected in the scales include the following:
- poor energy efficiency and/or environmental sustainability;
- inappropriate layout inhibiting flexible and efficient space utilization;
- modern health & safety, fire or building regulations that preclude or limit the original purposes of the building;
- dated design practices that restrict modern usage (such as lack of/or minimal floor and ceiling voids);
- the absence of modern space heating or air conditioning systems within a building;
j) It follows that only where buildings display specific functional deficiencies or issues of technological redundancy, that are atypical for their age, consideration should be given to applying an additional allowance.

k) One indicator that additional functional obsolescence is present such that the allowance provided by the scales should be adjusted is the presence of new and/or replacement facilities making the existing building surplus. Such replacement or other material redundancy should be considered and may result in the total redundancy of the pre-existing building, i.e. 100% obsolescence.

l) Permanent system built structures should follow the same obsolescence scale as traditional buildings.

Flat roof allowance

Permanent buildings built prior to 2005 with a flat roof are to receive an additional allowance. The allowance is not to be applied to temporary buildings, stores, workshops or garages.
- £80m2 ARC of the footprint of the flat roof for buildings constructed up to and including 2004
- No allowance for flat roofs constructed from 2005 and onwards
Where a building has varying roof types a reasonable apportionment should be made to arrive at the allowance.

What is flat as opposed to a pitched roof will generally be self-evident. In instances where an allowance is sought for pitched roofing caseworkers should seek advice from the National Valuation Unit before proceeding.

Multi-Storey Building Allowances

This allowance is intended to reflect the operational difficulties of hospitals housed within multi-storey buildings. It reflects the advancement of modern lift provision and technology within a hospital setting and no allowance should be applied to buildings built in 2005 or thereafter.

On pre-2005 buildings the allowance should be applied to the footprint of multi-storey buildings only. Whilst it is recognised that operational difficulties may extend beyond the footprint areas on lower floors, equally upper floors put over to non-clinical/administrative purposes would not be unduly affected. This approach allows for a practical application over the current survey without recourse to use.

Table of allowances pre 2005 buildings:

4.2.3 Stage 3

The value of the developed land and undeveloped land, apportioned in respect of the hospital hereditaments non- domestic use, shall be added in accordance with Appendix 7.

4.2.4 Stage 4

The lower statutory de-capitalisation rate shall be applied to the total of the ARC of the buildings and the adjusted land value to give an annual equivalent value.

4.2.5 Stage 5

Appropriate adjustments may be made to the annual equivalent value to take account of any disabilities or attributes not reflected in the previous 4 stages of the valuation to arrive at the rateable value. Guidance on the application of stage 5 allowances is contained in** Appendix 8**.

5.0 Valuation Spreadsheet

Contractor’s based valuations of NHS Hospitals are to be completed exclusively on the dedicated valuation spreadsheet held on the VOA Non-Bulk Server. The spreadsheet incorporates considerable functionality to assist the valuation process.

Appendix 1

Stage 1 Build Costs

Guidance notes

1. Definition of Acute Hospital

There is no official definition within the NHS of an Acute Hospital. Typically a hospital coming within this description provides a wide range of specialist care and treatment for patients that may include routine, complex and life-saving surgery and specialist diagnostic procedures and treatment. Although some consultations and treatments may be undertaken on an outpatient basis, an Acute Hospital will usually have a significant inpatient resource for observation, treatment and recovery. Acute Hospitals may also be teaching or university hospitals reflecting the opportunities they afford to provide medical training in general and specialist areas.

The distinguishing features of these hospitals usually include:
- major operating theatres, full A&E, ICU & HDU facilities
- of significant importance within the Trust
- substantial general wards
In most instances the status of a hospital will have been established in the 2005 List and is unlikely to have changed. In cases of doubt caseworkers should in the first instance refer NVU for further guidance.

2) Minor operation rooms /suites within non-acute hospitals which do not vary significantly as regards quality/specification from the remainder of the hospital, should be cost at the standard rather than operating theatre level. Where an operating theatre is of a standard commensurate with that expected in an acute hospital, the operating theatre cost should be applied to the area of the entire theatre suite.

3) Minor Out-buildings such as meter houses, bottle stores, small (i.e. less than 26 sq. ms) sheds and stores etc. should not be cost, as they are included within the external works addition. All other buildings should be cost as main buildings

4) Day surgery and minor operations units are rarely “free standing” and normally form part of a larger hospital in which case they would be cost on the appropriate scale.

5) Link blocks and subways that contain no areas that are used for any purpose other than for passage between adjoining blocks should be left out of the costing exercise. This omission is justified because their presence is dictated by the absence of a uniform design and denotes an attempt to reduce the drawbacks of dispersal that would not have arisen if the hospital had been designed as an integral whole. Exceptionally the GIA of link blocks or subways should be included where they are original components of a unified design.

6) Where plant rooms are located within the main envelope of the hospital building and the GIA of the floor space used for that purpose exceeds 10% of the total GIA of the hospital building, consideration should be given to the exclusion of the excess GIA from the valuation. Such an approach will only be appropriate where it is clear that the excess floor space is surplus to the current requirements of the hospital.

7) Roof top plant rooms which were part of the original design should be valued at the appropriate Stage 1 cost as applied to the remainder of the building, irrespective of construction type. However basic metal plant buildings which have been added retrospectively should be valued at the workshop rate.

8) Where an existing hospital built prior to 1/4/2010 is extended it is for the case worker to exercise judgement as to the appropriate cost to apply to that extension. Where for example the addition comprises a large new standalone facility then it would be appropriate to apply the higher post 1/4/2010 cost. However if a minor extension then it would be appropriate to apply the cost as applied to the existing facility.

9) Separate costs for permanent** modular **construction have been dispensed with and the appropriate cost from the table within Appendix 1 should be applied, dependent upon the hospital classification.

10) The cost code for temporary buildings is intended to be applied to non-medical use such as office and administration. Temporary or terrapin buildings that are fitted out for medical facilities (including the use as wards) should apply the appropriate permanent hospital building rate

11) It is recognised that some ‘system built’ construction methods have in the past delivered sub-standard buildings with an excessive repairing liability (i.e. Oxford method). On such buildings the appropriate Stage 1 cost should be reduced by 20%. Other types of system build should be considered on their merits but when it is evident that they are inferior to other buildings built typically within that period then the allowance should be considered. Note that ‘best-buy’ designed hospitals, which were built using traditional building methods and components, are not inferior construction and should not receive this allowance. However, where a ‘best-buy’ hospital suffers from the maintenance and safety problems associated with reinforced autoclaved aerated concrete (RAAC) panels to the roof and elevations for example, then the 20% deduction on the Stage 1 cost should be adopted. Areas of contention should be referred to NVU for advice.

12) Some community hospitals built post 1/4/2010 provide a significant number of facilities previously associated only with acute hospitals and are distinguished from acute hospitals only by scale. These hospitals should also be valued using the acute hospital costs.

13) Substantial multi-storey car parks should have a construction cost as per the above table. An additional cost code has been introduced to cover simple ‘meccano’ style car parks that consist of a single upper storey/deck. Consideration should be given to whether the cost should be applied to both the ground and upper deck. Where the single deck has been constructed over an existing concrete/tarmac car park with minimal alteration to the bottom storey then the cost should only be applied to the upper deck. In such circumstances the lower car park element will form part of the consideration to the external works addition.

Appendix 2

External Works

The following additions are to be made to the location adjusted building costs in respect of external works.

Guidance Notes

1. Building ratio for this purpose should be taken to be aggregate total GIA (including domestic property within a composite hereditament) expressed as a percentage of total developed land area (excluding any surplus, unnecessary or unwanted land). Some hospitals that suffer from a fragmented layout including a number of minor low-rise buildings may have relatively low site ratios. This may result in artificially high additions for external works. In such circumstances a specific additional allowance will be required at Stage 5 of the valuation in order to eliminate the cost of any external features not required in a modern rationally planned substitute.

2. Where car-parking provision is below the standard stipulated above as typical for the building plot ratio the above percentages may be abated but to no less than the next lowest figure. Where parking provision is improved, without altering the building plot ratio, the percentages may be increased but to no more than the next highest figure.

Appendix 3

Location Factors

N.B. The Regions referred to are administrative areas and are not significant boundaries.

Appendix 4

Contract Size Adjustment

The adjustment for contract size should be made having regard to the total ERC (after adjustment for location but before the addition for fees) in accordance with the following scales:

NB. Intermediate figures may be interpolated.

Appendix 5

Fees should be added at the percentages shown in the VOA published Cost Guide at Section 7. For convenience these are shown below inclusive of the 3% complexity addition. Note that minimum fees may apply to counter inversion.

Professional Fees and charges

Appendix 6

Age and Obsolescence Allowances

Table 1: Main Hospital Buildings Obsolescence Allowances

Table 2 – Workshops & Stores Obsolescence Allowances

Table 3 - Temporary Buildings Obsolescence Allowances

Appendix 7

Developed Land Values

The value of the developed land, apportioned where appropriate in respect of its non-domestic/exempt use shall be taken to be the following percentages of the aggregate of the ARC of all buildings and external works:

Guidance Note

The definition of the geographic areas referred to above can be found in the 2023 Practice Note: Land Values for Contractor’s Basis Valuations within the Rating Manual.

Undeveloped Land Value

Where present apply amenity land values as given in the 2023 Practice Note relating to land values.

Appendix 8

Stage 5 End Allowances

Problems associated with dispersal of blocks within a hereditament, piecemeal development and lack of integrated design should be addressed at this stage. The allowance to be made in respect of these features should not normally exceed 15%.

End allowances will always be a subjective judgement to be made by the caseworker dealing with a particular case. Only they will have inspected the hospital and be familiar with any disadvantages it may suffer. When making these judgements, caseworkers may wish to bear in mind the following factors which are considered to be amongst the most relevant:
- the total number of buildings on site
- the percentage of total floor area contained within any reasonably well designed central core building
- superfluity may need to be reflected where it can be identified
- general layout of the site from an operational viewpoint
- quality and convenience of links between buildings
- general arrangement and degree of dispersal of the buildings
- the site slopes noticeably
- disadvantages associated with a shared site and/or access.
- there is a wide mix of ages of buildings (this can make maintenance and servicing more difficult)
- a particular cost arises solely due to fragmentation and dispersal e.g. the cost of operating an in-site bus service due to the fragmented and/or steeply sloping nature of the site
- location may be relevant but only in fairly rare cases e.g. where access is particularly poor or where security problems or other specific nuisances arise due to the particular locality in which the hospital is located and where those nuisances might not be expected to arise elsewhere within the catchment area that the hospital serves
- duplicated reception areas, and ancillaries, caused by dispersal (but bearing in mind that centralised reception areas are not a feature of larger hospitals, and that separate receptions for individual departments may be operationally required)
It should be noted that:
- It is not necessarily considered to be a disadvantage to have distinct single separate blocks for mental health units, EMI, paediatric care, maternity, workshops/boiler house/storage provided that where appropriate, these have good quality links with relevant blocks e.g. paediatric wards with operating theatres
- The presence of a number of dispersed small, low value ancillary buildings (e.g. Nissen huts) should have little impact on the overall percentage end allowance
- University Teaching Hospital sites will inevitably be split into various units of assessment to reflect shared and exclusive occupations by the respective hospital trust and University. Their co-location is of mutual benefit and should not result in end allowances for matters relating to shared use or fragmentation
It is considered that the following factors, when considered in isolation, will not usually warrant any end allowance:
- a hospital that is constructed on a gently sloping site
- where a hospital is “as designed”, where all buildings are linked and are of a similar age
- for large acute hospitals, piecemeal development up to 10 separate buildings (more extensive piecemeal development would however be likely to warrant an end allowance)
It should be emphasised that the above factors would only fail to attract an end allowance where they are present in isolation. A combination of any of the above factors may well warrant an end allowance.

Practice note 2: 2023 - private hospitals

1. Market Appraisal

Reports indicate that since 2010 the income earned from NHS referrals increased from 10% to 25% of total income in this sector. Since 2016 however there has been a decline of circa 4% following revisions within the NHS. It is also reported that the numbers of private healthcare provided by businesses to employers has reduced. The increase in new private hospital builds experienced since 2010 has slowed and there is little evidence of new builds since 2015.

Specialist Care Private Hospitals

These range from purpose built hospitals to small converted dwellings dealing with specialist care centres providing behavioural and mental health services to various sectors of the population. Over the last few years there have been a consolidation in this sector with a number of mergers and acquisitions such that the leading providers now occupy multiple hospitals and specialist care homes.

2. Changes from the 2017 List Practice Note,

2.1 The contractor’s approach remains broadly the same as the 2017 Memorandum of Agreement with updated Stage 1 costs, Stage 2 allowances and Stage 3 land values. In addition the flat roof allowance has been modified

2.2 The guidance on long stay within hospitals can be found under the ‘Valuation Considerations’ at 9.4 of the Rating Manual section 840 that precedes this practice note.

3. Ratepayer Discussions

No discussions have so far been held either with ratepayers or their representatives and none are anticipated.

4. Method of Valuation

4.1 Rentals Method

In the years preceding the antecedent valuation date a number of smaller specialised facilities have been built to treat both private patients and referred NHS patients sometimes within the confines of NHS hospitals. Some of these facilities have been developed by 3rd party developers and leased to the provider. Where such arrangements exist the lease and rent passing should be fully researched and where it can be demonstrated that the rent, adjusted as necessary, represents the value of the occupation to the occupier, the hospital should be assessed using the rentals method. Other hospitals of similar age size and type in the locality may be assessed using the same method to the extent that comparability allows.

Eye hospitals and clinics should be assessed in accordance with the dedicated section of the Rating Manual.

Rental evidence of a broader nature including that relating to larger private hospitals may exist in central London and should be fully investigated and applied where appropriate. However, it is expected that no rental evidence will exist to assist in the assessment of the majority of hospitals where the Contractor’s basis should be applied in accordance with the following guidance.

4.2 The Contractor’s Basis

4.2,1 Stage 1

(i) Building Costs

The costs to be applied to the GIA of the accommodation blocks within the hospital will depend upon the type of facility under consideration and the standard of construction. The costs and associated guidance notes are contained in Appendix 1 to this practice note.

(ii) External Works

The cost of external works is to be added in accordance with Appendix 2.

(iii) Location Factors

Location factors should be applied in accordance with Appendix 3 replicated from the 2023 VOA Cost Guide.

(iv) Contract Size Adjustment

An adjustment for contract size is to be made to the building cost in accordance with Appendix 4, replicated from the 2023 VOA Cost Guide.

(v) Professional Fees

Professional fees and charges are to be added for in accordance with Appendix 5

4.2.2 Stage 2

The age and obsolescence allowances to be applied to the individual building blocks after addition for external works and fees are dependent upon the building classification. The majority of hospital buildings should reference the scale within Table 1 of Appendix 6. Stand-alone Workshops & Stores should reference Table 2 and the scale for Temporary Buildings is found in Table 3. For the avoidance of doubt the age of the building is to be taken as the date the building was completed.

Adjustments to the main hospital buildings for age and obsolescence should be made in accordance with Table 1 and take into account the following salient points;

a) The revised age and obsolescence scale represents the combined age related physical depreciation along with functional obsolescence and technological redundancy exhibited by buildings of each age typical for their quality/specification and condition. It is anticipated that the stated allowances will be adopted in the majority of cases and only either moderated or increased in exceptional circumstances.

b) Extensions are to be given an allowance appropriate to their age unless of a lower specification than would be expected of a building of that age in which case the allowance should be increased to a level appropriate to reflect the specification of the building as a whole.

c) In respect of physical depreciation, the above scales are intended to reflect normal wear and tear and/or deterioration due to the age of the building. The scales assume an average degree of cyclical refurbishment work will have been undertaken, to include whole or partial renewal of building sub-components, most particularly relating to mechanical and electrical services and internal fit-out, but also including periodic renewal of roof coverings and windows.

d) It follows from the above that no adjustment away from the scales is required in the majority of cases where older buildings have been subject to modernisation and refurbishment works, as these are explicitly assumed to have occurred. An exception to this would be for a building taken back to shell and reconstructed with significant renewal of structural elements, where an abatement of age-related physical obsolescence may be required.

e) An example of a building requiring an abatement of the allowances provided by the scales (due to the mitigation of physical depreciation) would be where a major renovation has occurred utilising the original building foundations, frame (including upper floors) but with comprehensive replacement of the external envelope (walls, windows), a complete internal refit and wholescale replacement of mechanical and electrical services.

f) Conversely, the above scales will be insufficient to reflect physical obsolescence in cases where buildings are substantially un-modernised and in any case, the scales do not apply in instances where the hereditament is not repairable at reasonable cost and where it falls to be valued rebus sic stantibus.

g) To qualify as a substantially un-modernised building it is expected that the building will predominantly have the following:
- single glazed windows
- original internal layout
- original ceiling height, with no suspended ceilings
- original external walls
- pre 1980 internal finishes (flooring, ceiling and walls, internal doors and fixtures and fittings)
h) In respect of functional and technological obsolescence, for buildings that remain in operational use, the scales include adjustments to reflect functional and technological deficiencies observable in buildings typical of their original period of construction but taking account of the level of assumed cyclical refurbishment reflected in the physical depreciation element of the scales.

i) The type of functional and technological obsolescence factors already reflected in the scales include the following:
- poor energy efficiency and/or environmental sustainability
- inappropriate layout inhibiting flexible and efficient space utilization
- modern health & safety, fire or building regulations that preclude or limit the original purposes of the building
- dated design practices that restrict modern usage (such as lack of/or minimal floor and ceiling voids)
- the absence of modern space heating or air conditioning systems within a building
j) It follows that only where buildings display specific functional deficiencies or issues of technological redundancy, that are atypical for their age, consideration should be given to applying an additional allowance.

k) One indicator that additional functional obsolescence is present such that the allowance provided by the scales should be adjusted is the presence of new and/or replacement facilities making the existing building surplus. Such replacement or other material redundancy should be considered and may result in the total redundancy of the pre-existing building, i.e. 100% obsolescence.

l) Permanent system built structures should follow the same obsolescence scale as traditional buildings.

Flat roof allowance

Permanent buildings built prior to 2005 with a flat roof are to receive an additional allowance. The allowance is not to be applied to temporary buildings, stores, workshops or garages.
- £80m2 ARC of the footprint of the flat roof for buildings constructed up to and including 2004
- No allowance for flat roofs constructed from 2005 and onwards
Where a building has varying roof types a reasonable apportionment should be made to arrive at the allowance.

What is flat as opposed to a pitched roof will generally be self-evident. In instances where an allowance is sought for pitched roofing caseworkers should seek advice from the National Valuation Unit before proceeding.

Multi-Storey Building Allowances

This allowance is intended to reflect the operational difficulties of hospitals housed within multi-storey buildings. It reflects the advancement of modern lift provision and technology within a hospital setting and no allowance should be applied to buildings built in 2005 or thereafter.

On pre-2005 buildings the allowance should be applied to the footprint of multi-storey buildings only. Whilst it is recognised that operational difficulties may extend beyond the footprint areas on lower floors, equally upper floors put over to non-clinical/administrative purposes would not be unduly affected. This approach allows for a practical application over the current survey without recourse to use.

Table of allowances pre 2005 buildings:

4.2.3 Stage 3

The value of the developed land and undeveloped land, apportioned in respect of the hospital hereditaments non- domestic use, shall be added in accordance with Appendix 7.

4.2.4 Stage 4

The lower statutory de-capitalisation rate shall be applied to the total of the ARC of the buildings and the adjusted land value to give an annual equivalent value.

4.2.5 Stage 5

Appropriate adjustments may be made to the annual equivalent value to take account of any disabilities or attributes not reflected in the previous 4 stages of the valuation to arrive at the rateable value. Guidance on the application of stage 5 allowances is contained in Appendix 8.

5.0 Valuation Spreadsheet

Contractor’s based valuations of NHS Hospitals are to be completed exclusively on the dedicated valuation spreadsheet held on the VOA Non-Bulk Server. The spreadsheet incorporates considerable functionality to assist the valuation process.

Appendix 1

Stage 1 Build Costs

Guidance Notes

1)** Definition of Acute Hospital**

Typically a hospital coming within this description provides a wide range of specialist care and treatment for patients that may include routine, complex and life saving surgery and specialist diagnostic procedures and treatment. Although some consultations and treatments may be undertaken on an outpatient basis, an Acute Hospital will usually have a significant inpatient resource for observation, treatment and recovery.

The distinguishing features of these hospitals usually include major operating theatres together with a range of medical, surgical and diagnostic services.

In most instances the status of a hospital will have been established in the 2005 List and is unlikely to have changed. In cases of doubt caseworkers should in the first instance refer NVU for further guidance.

2) Minor Out-buildings such as meter houses, bottle stores, small (i.e. less than 26 sq. ms) sheds and stores etc. should not be cost, as they are included within the external works addition. All other buildings should be cost as main buildings

3) Day surgery and minor operations units are rarely “free standing” and normally form part of a larger hospital in which case they would be cost on the appropriate scale.

4) Link blocks and subways that contain no areas that are used for any purpose other than for passage between adjoining blocks should be left out of the costing exercise. This omission is justified because their presence is dictated by the absence of a uniform design and denotes an attempt to reduce the drawbacks of dispersal that would not have arisen if the hospital had been designed as an integral whole. Exceptionally the GIA of link blocks or subways should be included where they are original components of a unified design.

5) Where plant rooms are located within the main envelope of the hospital building and the GIA of the floor space used for that purpose exceeds 10% of the total GIA of the hospital building, consideration should be given to the exclusion of the excess GIA from the valuation. Such an approach will only be appropriate where it is clear that the excess floor space is surplus to the current requirements of the hospital.

6) Roof top plant rooms which were part of the original design should be valued at the appropriate Stage 1 cost as applied to the remainder of the building, irrespective of construction type. However basic metal plant buildings which have been added retrospectively should be valued at the workshop rate.

7) Where an existing hospital built prior to 1/4/2010 is extended it is for the case worker to exercise judgement as to the appropriate cost to apply to that extension. Where for example the addition comprises a large new standalone facility then it would be appropriate to apply the higher post 1/4/2010 cost. However if a minor extension then it would be appropriate to apply the cost as applied to the existing facility.

8) Separate costs for permanent modular construction have been dispensed with and the appropriate cost from the table within Appendix 1 should be applied, dependent upon the hospital classification.

9) The cost code for temporary buildings is intended to be applied to non-medical use such as office and administration. Temporary or terrapin buildings that are fitted out for medical facilities (including the use as wards) should apply the appropriate permanent hospital building rate

Appendix 2

External Works

The following additions are to be made to the location adjusted building costs in respect of external works.

Guidance Notes

1. Building ratio for this purpose should be taken to be aggregate total GIA (including domestic property within a composite hereditament) expressed as a percentage of total developed land area (excluding any surplus, unnecessary or unwanted land). Some hospitals that suffer from a fragmented layout including a number of minor low-rise buildings may have relatively low site ratios. This may result in artificially high additions for external works. In such circumstances a specific additional allowance will be required at Stage 5 of the valuation in order to eliminate the cost of any external features not required in a modern rationally planned substitute.

2. Where car-parking provision is below the standard stipulated above as typical for the building plot ratio the above percentages may be abated but to no less than the next lowest figure. Where parking provision is improved, without altering the building plot ratio, the percentages may be increased but to no more than the next highest figure.

Appendix 3

Location Factors

N.B. The Regions referred to are administrative areas and are not significant boundaries.

Appendix 4

Contract Size Adjustment

The adjustment for contract size should be made having regard to the total ERC (after adjustment for location but before the addition for fees) in accordance with the following scales:

NB.Intermediate figures may be interpolated.

Appendix 5

Fees should be added at the percentages shown in the VOA published Cost Guide at Section 7. For convenience these are shown below inclusive of the 3% complexity addition. Note that minimum fees may apply to counter inversion.

Professional Fees and charges

Appendix 6 - Age and Obsolescence Allowances

Table 1: Main Hospital Buildings Obsolescence Allowances

Table 2 – Workshops & Stores Obsolescence Allowances

Table 3 - Temporary Buildings Obsolescence Allowances

Appendix 7

Developed Land Values

The value of the developed land, apportioned where appropriate in respect of its non-domestic/exempt use shall be taken to be the following percentages of the aggregate of the ARC of all buildings and external works:

Guidance Note

The definition of the geographic areas referred to above can be found in the 2023 Practice Note: Land Values for Contractor’s Basis Valuations within the Rating Manual.

Undeveloped Land Value

Where present apply amenity land values as given in the 2023 Practice Note relating to land values.

Appendix 8

Stage 5 End Allowances

Where a hospital is particularly poorly located, either by way of access or the general environment in which it is sited it may be appropriate to incorporate a stage 5 allowance within the valuation. Examples would be hospitals with access through an industrial estate or poor housing development or those located on the sites of NHS Hospitals where the NHS facility is itself located in an area where a private facility would not normally be sited. Similarly an allowance maybe appropriate where it can be demonstrated that a hospital is so remote from the main road network or areas of population that it has a bearing on the ability of the hospital to attract patients.

Likewise problems associated with dispersal of blocks within ahereditament, piecemeal development and lack of integrated design should be addressed at this stage. The allowance to be made in respect of these features should not normally exceed 10%. Allowances conceded during negotiations on the 2017 List should normally be maintained into the 2023 List where the circumstances justifying the concession can clearly still be seen to apply, subject to the comments below.

Over the past two decades there has been a considerable rise in the use of day care surgery and the average length of stay in hospital following many other procedures has fallen. These factors impact in two ways on the valuation of private hospitals.

Firstly previous measures used for measuring the performance of private hospitals occupancy of bed spaces at midnight may no longer be an accurate yardstick of performance, since a bed may be used by more than one patient during the day, yet generating no overnight stays.

Secondly these two factors have impacted on the likely design of new hospitals, in that it is likely that a lower proportion of ward space required in new hospitals, than in existing hospitals built during the rapid expansion of the sector in the 1980s or earlier. This point is accepted and is therefore reflected in the higher age and obsolescence rates for buildings constructed prior to 1995. It follows that hospitals constructed in 1995 or later are likely to be of a design reflecting modern requirements.

Both these points should be taken into account when considering end allowances.

Overall the performance of a particular hospital will need to be judged over at least a 12-month period so as to eliminate the disproportionate effect of holiday periods where the private sector is normally quiet.

Practice note 3: 2023 - primary health care (health centres) and doctors surgeries - Memorandum of agreement

1. Market Appraisal

The move away from small single General Practice (GP) surgeries in converted dwelling houses to the construction of large purpose-built GP surgeries or health centres continues.

The merger of practices and sharing of accommodation has reduced the number of GP surgeries year on year. Merged practices may include one or more GP practice, dentistry, midwifery, psychiatric services, treatment areas for minor surgical procedures, administration offices and a pharmacy.

It is widely predicted that this trend of shared accommodation will continue.

2. Changes from the 2017 Practice Note

This practice note follows the same principles as the agreed 2017 Memorandum of Agreement. Stage 1 costs, Stage 2 obsolescence and land values have been updated. The allowance for flat roofs has been revised.

Caseworkers should note the updated guidance on multi-occupied GP surgeries and Health Centres at 4.3 below.

3. Ratepayer Discussions

This Practice Note has been discussed and agreed with GL Hearn (who represent NHS Property Services, NHS England and Community Health Partnerships, who operate the majority of primary care premises in England) and Avison Young (who represent all 7 Welsh Health Boards who operate all of the primary care estate in Wales) as part of the Group Pre Challenge Review (GPCR) 39779609. Where the contractor’s basis is deemed the appropriate method of valuation (see below), those discussions reflect in depth cost analysis and consideration of all aspects of the contractor’s basis and its application to Primary Care.

4. Valuation Scheme

4.1 The method of valuation employed will be determined by the reliability of the rental evidence available in respect of the type of Primary Care Centre or Drs Surgery under consideration.

4.2 Rentals Basis

4.2.1 GP surgeries and primary care centres converted from buildings previously used for other purposes (e.g. residential/office) should generally be assessed on a rentals basis subject to their being sufficient rental evidence by way of lettings within a similar mode or category of use in the locality (e.g. dentists, chiropractors, vets, private medical practitioners etc.) to formulate an opinion of value. Where in a particular locality there is a dearth of evidence relating to this use but evidence from other nearby localities suggests a relationship with office levels of value then that same relationship can be applied in the locality in question to derive a basis of valuation.

4.2.2 Following the Upper Tribunal decision in Gallagher (VO) v Dr M Read & Partners & Dr J Poyser & Partners (RA/31/2012), rents derived from the Doctors’ Rent and Rates Scheme ‘Current Market Rent’, whether on converted or purpose built GP Surgeries, are unreliable for rating valuation purposes as they do not accord with the rating hypothesis. This includes lease rents on GP Surgeries, lease rents on Primary Care Health Centres and lease rents on other healthcare uses in shared premises where it is evident that they too are affected by the DRRS.

4.2.3 Rents relating to LIFT building are of no assistance.

4.2.4 There is evidence of an increasing involvement within the primary care sector of the NHS of private sector providers. Such providers may occupy premises akin to purpose-built NHS surgeries and clinics and where leased the providers may pay a market rent. Full details of the rent and lease are to be obtained by way of FOR and notified to the appropriate valuer in the national valuation unit (NVU). In these circumstances consideration should be given to applying the rental method of valuation.

4.3 The Contractors Basis

The costs shown in this section are for ease of reference. In all cases where a cost guide code is shown it is this that which must be input into the NBS template, not the costs shown here. Where the cost guide code shows options, the costs shown in this practice note should be used to aid selection. Should the cost guide show different costs to those shown in a current version of this practice note, please refer to the class co-ordination team and NVU lead.

Attention is drawn to the additional Guidance Note that assists with identification of the hereditament and valuation of purpose built multi-occupied Health Centres. In such cases, rather than the individual practice size, it is the GIA of the entire multi-practice building that is used to determine the Stage 1 cost, with an apportionment made later in the valuation template to derive the individual hereditament RV. The detailed guidance note and worked example can be found at: L drive/ National Valuation Unit/ VPs & CCTs/ R2023/ VP4 Civics/ Apportionment Advice for Multi-Occupied Health Centres.

4.3.1 Stage 1 - Estimated Replacement Cost

(i) Building Costs

With the exception multi-occupied buildings (see above) it is the actual GIA of the surgery/health centre that should be used to calculate the Estimated Replacement Cost (Stage 1) of the hereditament in accordance with Appendix A.

(ii) External Works

The cost of external works is to be added in accordance with Appendix B.

(iii) Location factors

Where appropriate costs should be adjusted for location by reference to the Location Factors set down in the 2023 Rating Cost Guide and included at Appendix C.

(iv) Contract size Adjustment

An adjustment for contract size is to be made to the building cost in accordance with the 2023 VOA Cost Guide and replicated in Appendix D below.

(v) Professional Fees and Charges

Fees should be added at the percentages shown in the VOA published Cost Guide at Section 7. For convenience these are shown below in Appendix E.

4.3.2 Stage 2 – Age and Obsolescence

The age and obsolescence allowances to be applied to the ERC of permanent buildings are set out in Rating Manual: Section 4: Part 3. The main civic scale is applicable to Primary Care and is replicated in Appendix F. Should temporary or industrial type buildings be encountered then caseworkers should refer to the separate scales within RM Section 4 Part 3.

Adjustments for age and obsolescence should be made in accordance with the scales contained in **Appendix F **which take into account the following salient points;
- The revised age and obsolescence scale has been agreed to represent the combined age related physical depreciation along with functional obsolescence and technological redundancy exhibited by buildings of each age typical for their quality/specification and condition. It is anticipated that the stated allowances will be adopted in the majority of cases and only either moderated or increased in exceptional circumstances.
- Extensions are to be given an allowance appropriate to their age unless of a lower specification than would be expected of a building of that age. Where a lower specification is used the allowance should be increased to a level appropriate to reflect the specification of the building as a whole.
- In respect of physical depreciation, the above scales are intended to reflect normal wear and tear and/or deterioration due to the age of the building. The scales assume an average degree of cyclical refurbishment work will have been undertaken, to include whole or partial renewal of building sub-components, most particularly relating to mechanical and electrical services and internal fit-out, but also including periodic renewal of roof coverings and windows.
- It follows from the above that no adjustment away from the scales is required in the majority of cases where older buildings have been subject to modernisation and refurbishment works, as these are explicitly assumed to have occurred. An exception to this would be for a building taken back to shell and reconstructed with significant renewal of structural elements, where an abatement of age-related physical obsolescence may be required.
- An example of a building requiring an abatement of the allowances provided by the scales (due to the mitigation of physical depreciation) would be where a major renovation has occurred utilising the original building foundations, frame (including upper floors) but with comprehensive replacement of the external envelope (walls, windows), a complete internal refit and wholescale replacement of mechanical and electrical services.
- Conversely, the above scales will be insufficient to reflect physical obsolescence in cases where buildings are substantially un-modernised and in any case, the scales do not apply in instances where the hereditament is not repairable at reasonable cost and where it falls to be valued rebus sic stantibus.
- To qualify as a substantially un-modernised building it is expected that the building will predominantly have the following:
- single glazed windows;
- original internal layout;
- original ceiling height, with no suspended ceilings;
- original external walls;
- pre 1980 internal finishes (flooring, ceiling and walls, internal doors and fixtures and fittings).
- In respect of functional and technological obsolescence, for buildings that remain in operational use, the scales include adjustments to reflect functional and technological deficiencies observable in buildings typical of their original period of construction but taking account of the level of assumed cyclical refurbishment reflected in the physical depreciation element of the scales.
- The type of functional and technological obsolescence factors already reflected in the scales include the following:
- poor energy efficiency and/or environmental sustainability;
- inappropriate layout inhibiting flexible and efficient space utilization;
- modern health & safety, fire or building regulations that preclude or limit the original purposes of the building;
- dated design practices that restrict modern usage (such as lack of/or minimal floor and ceiling voids);
- the absence of modern space heating or air conditioning systems within a building;
- It follows that only where buildings display specific functional deficiencies or issues of technological redundancy, that are atypical for their age, consideration should be given to applying an additional allowance.
- One indicator that additional functional obsolescence is present such that the allowance provided by the scales should be adjusted is the presence of new and/or replacement facilities making the existing building surplus. Such replacement or other material redundancy should be considered and may result in the total redundancy of the pre-existing building, i.e. 100% obsolescence.
4.3.3 Flat roof allowance

Permanent buildings built prior to 2005 with a flat roof are to receive an additional allowance. The allowance is not to be applied to temporary buildings, stores, workshops or garages.
- £80m2 ARC of the footprint of the flat roof for buildings constructed up to and including 2004.
- No allowance for flat roofs constructed from 2005 and onwards.
Where a building has varying roof types a reasonable apportionment should be made to arrive at the allowance.

What is flat as opposed to a pitched roof will generally be self-evident. In instances where an allowance is sought for pitched roofing caseworkers should seek advice from the National Valuation Unit before proceeding.

4.3.4 Stage 3-Land Value

The value of the developed land should be added in accordance with** Appendix G**.

4.3.5 Stage 4-Decapitalisation rate

Generally, the lower statutory decapitalisation rate should be applied when valuing GP surgeries and health centres. Any concerns regarding the qualification as a ‘healthcare hereditament’ as defined in The Non-Domestic Rating (Miscellaneous Provisions) (No. 2) (Amendment) Regulations 1994 should be referred to NVU.

4.3.6 Stage 5- End Adjustments

Any advantage or disadvantage which might affect the value of the occupation of the hereditament as a whole should be reflected at this last stage. An adjustment under this head should not duplicate adjustments made elsewhere. Most buildings will not warrant further allowances at this stage and where allowances are appropriate, it is expected that they should not normally exceed 15%.

4.3.7 Heating Allowance

Oil, LP Gas or Electric Central Heating

Where the property has oil, LPG fired central heating or electrical heating, an end allowance of 5% shall be applied to the valuation.

Appendix A

Building Costs

Appendix B

Additions for External Works

The following additions are to be made to the location adjusted building costs in respect of external works

Appendix C

Location adjustment

N.B. The Regions referred to are administrative areas and are not significant boundaries.

Appendix D

Contract Size Adjustment

The adjustment for contract size should be made having regard to the total ERC (after adjustment for location but before the addition for fees) in accordance with the following scales:

NB. Intermediate figures may be interpolated.

Appendix E

Fees should be added at the percentages shown in the VOA published Cost Guide at Section 7. For convenience these are shown below inclusive of the 2% complexity addition. Note that minimum fees may apply to counter inversion.

Professional Fees and charges

Appendix F

Age and obsolescence scales

Table 1: Civic Buildings Obsolescence Allowances

Appendix G

Land Value Additions – Developed Land

The locations referred to below are defined within R2023 Land Values for Contractors Basis Valuations in the Rating Manual.