On 29 July 2015, the Supreme Court handed down a decision on a rating appeal that has moved all of the goalposts for deciding which properties are, or are not, capable of being included in the same rating assessment (hereditament). Colin Hunter, Director Business Rates at Lambert Smith Hampton (LSH) explains.
In the case of Woolway (Valuation Officer) v Mazars LLP, Mazars occupied two suites on the second and sixth floors in an eight-storey office building. The floors, which were accessed through the landlord's common areas, had previously been valued as a single assessment in the Rating List. However, the Valuation Officer disagreed.
Prior to this case, if two buildings or two adjacent floors in the same building were occupied by one ratepayer, they could and should be treated as one property for rating purposes. If the properties were not adjacent but were close to one another, e.g. separated by a roadway, and the uses to which the buildings were put were functionally essential to each other, the properties could be treated as one for rating purposes.
In the lower court decisions, the two floors were held to be a single property for rating purposes. However, the Supreme Court overturned the earlier ruling and determined that, not only should these two floors be separately assessed, all of the other floors should be as well.
What implications will this have for businesses?
The Supreme Court's decision has both a practical and financial impact for thousands of ratepayers. Not only will it increase the number of rating assessments for many tenants and landlords, it will increase the amount of rates payable in many cases. The judgement of the Supreme Court has overturned a decision given by Lord Denning in 1956 which has formed the basis of numerous other decisions and formulated general guidance for rating surveyors for 59 years.
The test is now:
- Are the properties all immediately surrounding each other and interconnected? If so, there should be a single assessment. If not, there should be two or more assessments.
- If the properties fail the first test but are functionally dependent on each other, then they may fall to be one assessment. However, the functional test is an objective test relating to the physical nature of the properties. Therefore, an 18 hole golf course bisected by a road will still be one assessment, but two warehouses on opposite sides of a road will not, even if the occupier’s use of the buildings are essential to each other.
In the Supreme Court decision, specific regard was given to the question of two contiguous floors in a building in multiple occupation. Before this ruling, those floors would have been treated as one. Now they will only be one if there is a direct connection between floors, not through common areas of the building.
The financial implication is that, where allowances have been given for quantum, or poor access, these will be lost if the properties are separately assessed. This will mostly affect office buildings in multiple occupation, warehouses and factories on industrial estates but will have much wider-reaching effects.
Download our briefing note for a practical illustration of how the ruling will affect two tenants occupying the same amount of space in the same building.
If you think you might be affected, please contact one of our Business Rates experts or email Rating@lsh.co.uk for further advice.