Further to the article "Who uses the stairs anyway?" in the Summer edition of QIA, the Supreme Court have now issued their judgement in relation to the Woolway v Mazars case.

In Woolway (VO) v Mazars LLP [2015] UKSC 53 the Supreme Court has reversed the decision of the Court of Appeal and ruled that two geographically separate floors of the same office building in the same occupation, must be treated as separate rateable hereditaments. This decision goes against the occupier, who had applied to merge the floors as one hereditament for the purposes of the rating list. The detrimental consequence of the Mazars decision for tenants is that two separate hereditaments are likely to produce a higher rates liability than one large hereditament.

Local authority rates are the oldest tax in continuous existence in England having originally been introduced in the reign of Queen Elizabeth I. The core principle underlying the assessment of these rates remains the same today in that they are a tax on property and not persons or businesses. Each property is individually identified in the rating list and assessed separately.

The Mazars case challenged the ordinary practices of valuers, which was where different parts of an office building are occupied by the same occupier, the property will be a single property on the rating list if the floors are contiguous, and separate properties if they are not. The Supreme Court's decision was that it was 'artificial' and 'unfair' to treat two self-contained floors in common occupation in the same building differently depending on whether or not they were on consecutive levels. If each floor is self-contained from the other, then the two floors should be treated as a single property for business rates.

The Court went on further to clarify that without a communicating internal staircase or lift passing between the two consecutive floors, the consecutive floors would be physically separated in much the same way as two non-consecutive floors of a building. Where the only access to premises occupied together but on two separate floors of a building is from a public part of the building, such as a lift located in the common parts, the decision in Mazars means that the premises are likely to be assessed separately for ratings purposes as they do not intercommunicate directly. Following the Mazars case the key factor in deciding whether separate floors or units are one property for the purposes of the ratings list is whether the premises are self-contained.

If there are large savings to be gained from an assessment that several floors or units are a single hereditament for business rates purposes, when taking or altering properties tenants may consider making changes so that they are interconnected. In the case of an office block this could be through the installation of staircases or lifts joining the different floors of the business for the exclusive use of the tenant.

Following the Mazars ruling in order to demonstrate that premises are geographically interconnected tenants may also choose to take a demise of certain staircases if the layout of the building lends itself to this. In the Mazars case the Court identified that whether the units could be let separately was an important consideration. For example, if the premises are linked other than through the common parts this should also justify assessment as a single hereditament. The installation of plant, equipment and fixtures which serve all of the tenant's floors or units in the building is also likely to be helpful evidence in support of any argument that the premises are self-contained. In the future it may be argued that services such as broadband cabling create a direct interconnection between different floors or units however, until the Valuation Office provides guidance or the matter is tested by the Courts this will be open to challenge.

Business rates are an important point to consider when renting multiple floors of an office building as they are a significant overhead. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.