Rating – Occupation – Data centre – White space – Appellant appealing against decision of valuation tribunal relating to alteration in the 2010 rating list in respect of respondent’s data centre – Whether white space in data hall, not yet adapted for use of customers, capable of beneficial occupation for purpose intended – Appeal allowed in part
The respondent owned two two-storey buildings at 630-631 Ajax Avenue in Slough. 630 was built in 2007-08 and 631 in 2012-13. They were linked by connecting corridors to form a data centre in which IT equipment was housed and operated, and included one or more data halls for that equipment as well as office space, plant rooms and other facilities. The respondent offered space to customers on a retail colocation basis whereby customers paid for space to accommodate their IT equipment in rows of racks, sharing power and cool air.
The entire data hall initially comprised white space before any customers were installed; the installation of the raised floor and ceiling ensured that work generating dust had been finished before customers’ IT equipment arrived. The air conditioning was in operation, as was the security system. When a customer left and its equipment was removed, the aisles that it occupied reverted to white space, ready for the next customer. White space would remain even when the data hall was full to capacity because the IT capacity depended on its power supply and cooling capacity and a customer’s use of both was not necessarily proportional to the space it occupied: 15% to 20% of the floorspace could be left unoccupied.
The respondent challenged the rateable values attributed to 630 in the 2010 rating list and to the combined figure for 630 and 631 as a single hereditament in March 2013. The Valuation Tribunal of England (VTE) reduced the figures. It agreed that they were too high because white space (by contrast with customised white space) was not capable of beneficial occupation for the intended purpose and so did not form part of the hereditament for rating purposes. As 631 remained in the hands of contractors in March 2013 it could not form part of the hereditament. The appellant appealed.
Held: The appeal was allowed in part.
(1) A building was only a hereditament for the purposes of schedule 6 to the Local Government and Finance Act 1988 if it was ready for occupation. That was to be assessed in light of the purpose for which it was designed to be occupied. If the building lacked features which would have to be provided before it could be occupied for that purpose, and when provided would form part of the occupied hereditament and form the basis of its valuation, it did not constitute a hereditament and so did not fall to be shown in the rating list. There was in consequence no scope for including in the list a building which was nearly ready for occupation unless the completion notice procedure had been followed: Porter (VO) v Trustees of Gladman SIPPS [2011] UKUT 204 (LC); [2011] PLSCS 179 applied.
However, in Post Office v Nottingham City Council [1976] 1 WLR 624, the Court of Appeal stated that the test was whether, as a matter of fact and degree, the building was, or would as a building, be ready for occupation, or capable of occupation, for the purpose for which it was intended. There was a vital distinction between the time when the building was ready for occupation as a building, and the subsequent installation in it of equipment and furniture which was necessary for its use for the purpose for which it was intended.
(2) In the present case, the tribunal had to decide whether white space was capable of beneficial occupation for the purpose for which the building was intended. The earlier authorities did not relate to data centres; they were about situations where there was only one type of occupier who could occupy the building for its intended purpose. Here, by contrast, the purpose for which the building was designed to be used involved the active presence both of the respondent (managing, controlling and working on the white space) and of its customers. It did not have to be capable of immediate use, provided that what was lacking was, in common sense terms, as a matter of fact and degree, furniture or equipment rather than part of the building itself.
The extent to which the white space was ready for customers was a red herring. The parties acknowledged that the respondent’s customers were not in rateable occupation and so it was the respondent’s own beneficial occupation of the white space that mattered. Whilst the building was designed for the installation of customers’ equipment, it was also designed for the occupation of the respondent which was in control of and actively operating the white space from the point when it was handed over by the builders.
In fact, at the earliest of the material dates, the first-floor data hall already had customers, as did the ground floor hall in September 2010. So, at no point was the tribunal looking at a data hall comprising entirely white space with no customers present. Even if it was, the tribunal would have regarded the white space as being capable of beneficial occupation by the respondent for the intended purpose of the building, namely a data centre actively managed and controlled by the respondent. So it was at the material dates in issue; the whole of the data halls, white space and customised white space, were capable of occupation by the respondent for that purpose and in fact so occupied.
(3) The appellant conceded that 631 did not form part of the hereditament on 13 March 2013. However, the appellant asked the tribunal to exercise its discretion to order the alteration of the list to reflect the addition of 631 to the hereditament as at 1 July 2013 under regulation 38(7) of the Valuation Tribunal for England (Council Tax and Rating Appeals) (Procedure) Regulations 2009.
However, even if the tribunal had jurisdiction to make the order sought, it would not exercise it. The case for an alteration of the list on 1 July 2013 was not pleaded by the appellant. There was no application to amend the statement of case, nor would such an application have been granted. Such a late change to the appellant’s case was not acceptable.
Tim Mould QC and Hugh Flanagan (instructed by HMRC Solicitors) appeared for the appellant; Daniel Kolinsky QC (instructed by Mills & Reeve LLP) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Ricketts (VO) v Cyxtera Technology UK Ltd
