The treatment for rating purposes of discontiguous premises occupied by the same occupier in multi-occupied buildings has been an issue for many years. Ratings officers have sought to create separate entries in respect of such floors whilst occupiers have argued for a single "hereditament" (as units of rateable property are known) so minimising their rates liability. In Woolway (valuation officer) v Mazars LLP [2015] UKSC 53, the Supreme Court clarifies the position.
Occupiers have relied on the decision in Gilbert v Hickinbottom to minimise their liability. That case concerned a bakery on both sides of a public road, which was held to comprise a single hereditament by reason of a functional connection between the two parts. This was an example of buildings which, though not physically together (and therefore being capable of being separately let), are interdependent to such a degree that they should be treated as one. The Supreme Court has considered this functional test and whether it is the appropriate test.
Facts
The ratepayer occupied the second and sixth floors of an office building under separate leases which were listed in the rating list as two separate hereditaments. The occupier had proposed that the two floors be assessed as one and the Valuation Tribunal found in its favour after the valuation officer had refused to change the rating list. The Upper Tribunal and the Court of Appeal dismissed the valuation office's appeals.
The Upper Tribunal found that the common parts of a multi-let building provide equivalent access to all other floors, irrespective of whether they are contiguous. Therefore, by application of the functional test (namely the occupation by one tenant for its business) it would be unfair to treat differently a tenant occupying non-contiguous floors from one occupying contiguous floors so that in all such cases the separate floors should be assessed as one.
Held
The Supreme Court was critical of the Upper Tribunal's reasoning and allowed on appeal that the premises be entered in the ratings list as separate hereditaments.
The Court set out the principles which are to be applied when different storeys under common occupation in the same block are to be entered in the rating list. The primary test is geographical (i.e. whether or not the parts directly "intercommunicate" one with another), but where the premises are not contiguous, a functional test may still enable them to be treated as a single hereditament—subject to the use of one part being necessary to the effectual enjoyment of the other. This is not dependent on the business needs of the occupier but rather on the objectively ascertainable nature of the subjects.
The Court stated that the reasoning in Gilbert v Hickinbottom cannot be regarded as good authority. It emphasised the primacy of the geographical test and the subordinate character of the functional test, to be applied based on the facts. Thus Gilbert, regarded as the leading case for around 59 years, has been rendered obsolete.
The Court also questioned whether contiguous floors should properly be treated as one hereditament especially where the only access from one floor to another is through the common parts—unless there is a communicating internal staircase, for example. But this comment was not the reason for the decision and can only be regarded as persuasive.
Comment
The Supreme Court's decision brings clarity to the treatment for rating purposes of discontiguous premises in multi-occupied buildings, which has been an issue for many years. It can also constitute authority for the separate assessment of horizontally separated premises occupied by the same entity, where the premises are separated by common parts alone.
Rating practitioners will be critical of this decision, even though it does not disturb the principle that where functional interdependence is objectively established (ignoring the needs of the actual occupier) discontiguous premises should be assessed as one. There will also be considerable resistance to attempts by the valuation officer to assess separately contiguous premises. The Valuation Office Agency (VOA) is expected to issue guidance in due course.
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.