Business rates are assessed on a ‘hereditament’. The Supreme Court has held that the occupation by Mazars of 2nd and 6th floors Tower Bridge House, London (pictured) could not be a single hereditament. It has re-calibrated the meaning of hereditament which will have implications for owners and occupiers of properties that are practically connected but physically apart.
The Upper Tribunal and Court of Appeal decided that the two floors should be treated as one hereditament. The Valuation Officer appealed. The Supreme Court, reversing the unanimous decision of the Court of Appeal, agreed with the Valuation Officer. It is decided that three broad principles are relevant when deciding whether distinct spaces under common occupation form a single hereditament:
• First, the primary test is geographical, based on visual or cartographic unity and whether the premises said to be a single hereditament constituted a single unit on a plan. Contiguous space would normally possess that characteristic, although unity was not simply a matter of contiguity. If vertically or horizontally contiguous units did not intercommunicate and could be accessed only via other property, such as a public street or common parts of the building, of which the common occupier was not in exclusive possession, then that would be a strong indication that they were separate hereditaments.
• Second, where two sections were geographically distinct according to that test, they might nevertheless be treated as a single hereditament by applying a functional test, if the use of one was necessary to the effectual enjoyment of the other. That question could often be tested by asking whether the two sections could reasonably be let separately.
• Third, the question of whether the use of one section was necessary to the effectual enjoyment of the other did not depend on the business needs of the ratepayer, and the uses to which, for its own purposes, it chose to make of the property but instead depend on the objectively ascertainable character of the property.
Geographically separate premises could not be valued as one hereditament simply because the ratepayer chose to link its use of one with its use of the other. The application of these tests requires a large measure of professional common sense.
• A majority of the Supreme Court agreed with the comment that in applying the test above,
“the concept of fairness …. has no place” and
• Two out of the five judges acknowledged that there will be cases
“where the guidance given in this appeal will be difficult to apply with any confidence”.
WHAT DO THESE TESTS MEAN IN PRACTICE?
The merger of space into one hereditament or the separation of space into two or more rateable units can affect the rateable value of the space and therefore the rates payable.
Howard Elliott of BDT’s Rating department believes that “this decision will encourage results which are removed from the realities of business occupation. It will not make the task of ratepayers or Valuation Officers any easier as they seek pragmatic solutions in a world in which common sense is required ….. but where fairness apparently has no place!”
The subject premises, Tower Bridge House
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Contact for further information:
Baker Davidson Thomas
Telephone: 01256 840 777
3rd August 2015