If we extend our business into the residential part of the building, will it impact our rates?

We have a small business in Galway in a mixed-use building. We want to extend the commercial side of the building using part of the residential area. Could you give me an indication if this is likely to impact our rates liability in the future, and if so how they work out how much extra? Is it based on size, turnover, etc?

Your annual rates bill is derived by the “net annual value” (NAV) assessed on your commercial property being multiplied by the “annual rate on valuation” (ARV), which is also referred to as “the multiplier”. The ARV is set every year, by each local authority. The NAV is defined under section 48 of the Valuation Act, 2001, as the notional rent for which “the property might, in its actual state, be reasonably expected to let from year to year”, on the assumption that the tenant is liable for all normal property outgoings.

The valuation method adopted to establish the NAV of a certain property type, applies to all such property types, irrespective of whether they are leased, or owner occupied. The Valuation Office utilises one of several established methods of valuation to assess the NAV of a property. The most common is the “comparable method” – a direct comparison with annual rental values of other similar properties in the area.

Other property classes, such as licensed premises, hotels and service stations, use the “profits method” whereby they are valued by reference to their trading data. Another method is the “contractors method”, whereby the NAV represents 5 per cent of the aggregate replacement cost, depreciated where appropriate.

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Depending on the relevant method of valuation, increasing the size of your premises in commercial use is likely to increase your annual rates bill. By the same measure, reducing your residential floor area should lower your local property tax (LPT). If your accommodation is being converted to retail use, the comparable method is likely to be adopted.

For retail space, the Valuation Office normally use the benchmark “area in terms of Zone A” abbreviated as ITZA, differentiating between the specific “value zones”, the further you move into the unit, or to different floor levels. The Valuation Office, by virtue of phased revaluations conducted nationwide, provide some useful data online in the form of geographical heat maps which indicate the values of “proposed” NAVs per square metre, for certain property classes. For retail, the online data references Zone A rents per square metre, as per the ITZA value zone classification.

While the Valuation Office rely on their records concerning the specifics of individual properties and strive for a consistency of approach in assessing NAVs for different property types, discrepancies can occur. You should therefore seek timely professional valuation advice, to determine if an appeal against any proposed NAV, is justified.

Eamonn Maguire is a RICS registered valuer and a fellow of the Society of Chartered Surveyors Ireland, scsi.ie