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The UK Supreme Court is not often called upon to determine matters relating to business rates so its decisions, when they do arrive, are eagerly awaited and keenly scrutinised, particularly when they concern something so fundamental as what should be the unit of assessment for property tax purposes. On 29 July 2015 the Supreme Court handed down its judgment in the matter of Woolway (VO) v Mazars LLP (2015) UKSC53 a case which concerned how to determine whether non-domestic premises constitute one or more than one hereditament for the purposes of the rating list.
The facts of the case were that Mazars, an accountancy firm, occupied the second and sixth floors of Tower Bridge House, an eight-storey office building in central London. The Valuation Officer had assessed the two floors separately for the purposes of business rates and Mazars challenged this, seeking to merge the two assessments to form a single hereditament, as units of rateable property are known. The Valuation Tribunal for England agreed that the two assessments should be merged because the two floors were occupied by the same business and were functionally inter-dependent.
The Valuation Officer appealed against that determination to the Upper Tribunal (Lands Chamber) which determined that the two floors should be a single hereditament, but for different reasons to those given by the Valuation Tribunal for England. The Upper Tribunal decided that the test should not be whether the use was inter-dependent, but rather whether it was possible to move between the two floors without leaving the building or going onto the highway. The Valuation Officer appealed further against this decision to the Court of Appeal, but the Court of Appeal unanimously supported the decision of the Upper Tribunal (Lands Chamber) and, essentially, supported the reasons given by the Upper Tribunal.
The Valuation Officer was granted permission to appeal to the Supreme Court which has now handed down its judgment and has, unanimously, allowed the Valuation Officer’s appeal and determined that the two floors must form separately rateable hereditaments. The Supreme Court judgment suggests that the principal test of whether units of property should form a single hereditament for rating purposes is a geographical one, and that test should be one of whether or not the parts “directly intercommunicate” one with another. In the past this geographical test has been taken to be one of whether or not the units were contiguous, but the Supreme Court seems to suggest that mere contiguity may not be sufficient. The Supreme Court decision makes clear that units of property which are occupied together but do not directly intercommunicate can, on occasion, form a single hereditament but, for them to do so the use of one part must be necessary for the effectual enjoyment of the other part and that question depends not upon the use of a particular occupier but on the objectively ascertainable character of the property. In effect the Court is saying that if two properties are occupied together but do not directly intercommunicate they should not be assessed together unless one part could not effectively be let without the other.
The Supreme Court disapproved of the reasoning given in the case of Gilbert v S Hickinbottom & Sons Limited (1956), which has for many years been regarded as the leading authority on whether property should be treated as one hereditament, or more than one, and has leaned more towards the reasoning used in a series of Scottish cases which relied upon a strong geographical test expressed principally through direct intercommunication.
The Supreme Court judgment will dash the hopes of a number of ratepayers occupying more than one building, or more than one floor in a single building, that they might be able to merge their rating assessments into one. But it will also present a conundrum for the Valuation Office Agency which has traditionally assessed adjacent floors together as a single assessment. This practice was not specifically before the Supreme Court, as the floors here were not adjacent, but the judgments of Lord Gill and Lord Neuberger suggest that such a practice is wrong, but that of Lord Carnwath described it as “unobjectionable”. It is extraordinary that a tax with four hundred years of history behind it still seems to find significant unanswered questions on its very basis.
