Rating – Business premises – Identification of hereditament – Ratepayer occupying second and sixth floors in modern office building – Appellant valuation officer listing each floor as separate hereditament – Valuation tribunal merging two entries and listing as single hereditament with end allowance to reflect inconvenience of separation within building – Whether separate floors in same occupation properly to be listed as single hereditament – Whether evidence justifying end allowance – Appeal allowed in part
The ratepayer, a large accountancy firm, occupied two floors in a modern, eight-storey city office block. The block was built in a U-shape around three sides, with the open space between the three sides taken up by a glass-covered atrium and a central lift shaft containing six high-speed lifts. The ratepayer had separate leases of the second and sixth floors in the building, each for a 15-year term from 2007, at a rent of a little over £1,000 pa with five-yearly rent reviews. The appellant valuation officer entered each of those two floors in the rating list as a separate hereditament. By contrast, the floors in between, which were all in the occupation of another business, were listed together as a single hereditament. The appellant took the view that different floors in the same occupation could only be listed as a single hereditament if those floors were adjacent.
The ratepayer made a proposal to merge the two entries with effect from November 2007. The valuation tribunal accepted that proposal and determined that the two floors should be listed as a single hereditament, with an end allowance of 5% to reflect the disadvantage of their separation within the building. In reaching that conclusion, the tribunal applied the guidance in Gilbert (VO) v S Hickinbottom & Sons Ltd [1956] 2 QB 40 and found that the two floors were within the same curtilage and that there was an essential functional link between them, since the functions carried out between the two floors were sufficiently integrated that they were essential to the effective business as a whole. The appellant appealed.
Held: The appeal was allowed in part.
(1) Rating was intended to achieve the payment of rates on a basis that fairly reflected the value of the ratepayer’s occupation, or such value as the property would have if it were occupied, and the relative worth of all rateable property. The identification of the hereditament, as the unit of assessment, was part of the process by which that objective was achieved. The aim was to identify what, on the facts, could fairly be said to constitute the physical unit that the ratepayer occupied. Although the identification of the hereditament had to precede the task of valuation, a failure to identify the hereditament in a way that reasonably and fairly represented the occupier’s unit of occupation could lead to unfairness at the valuation stage.
In determining, as a matter of fact, whether premises in one occupation constituted separate hereditaments or a single hereditament, regard could be had to both the physical and the functional relationship between the parts under consideration: Gilbert applied. However, Gilbert did not establish an incontrovertible formula for the identification of the hereditament. Its references to curtilage or to a single geographical unit were directed towards buildings and other land as they were on the ground and had no useful part to play in identifying hereditaments within a modern office building. Likewise, the test of an essential functional link had been devised for premises that were not within the same curtilage, but were separated by a highway, and it should not be applied in the case of separate floors in an office building. It was inappropriate to explore the degree of functional interaction between two floors in common occupation. Any such process would tend to be detailed and time-consuming and always liable to reassessment as the occupier made changes in the way that the space was utilised.
The instant case had features that were common to most modern office blocks, namely that: (i) the ratepayer occupied floors within a single building; (ii) communication between all floors was through the common parts of the building; (iii) there was no significant practical difference, in travel time in the lift, between floors that were contiguous and those that were separated; and (iv) although each floor was normally the subject of a separate lease, lettings of two or more floors in the same building to the same occupier were normally negotiated on an overall basis. It would be inappropriate to take an approach that treated as single hereditaments only adjoining floors in the same occupation, even though they communicated only through the common parts, while insisting that floors that were separated even by a single floor had to treated as separate hereditaments. Such an approach would not properly reflect the realities of occupation in a modern office block. Where communication between floors was only through the common parts of the building, contiguity between floors had no practical significance. The proper approach in such a case was therefore to treat the floors occupied within the building by the same occupier as a single hereditament. Since the occupier would be occupying the floors as offices for the purposes of its business, it was not necessary to investigate the functional interrelationship between the floors at any particular time. It followed that tribunal had properly entered the second and sixth floors as a single hereditament.
(2) The tribunal had none the less erred in making an end allowance of 5% for inconvenience suffered as a result of the floors being separated. An end allowance of that kind should generally be supported by rental evidence. There was no evidence that the rents payable under the leases were reduced to reflect the separation between the floors. In any event, given that the lift service was fast enough to negate the problem of not having adjoining floors, there was no case for an end allowance.
Daniel Kolinsky (instructed by the legal department of HMRC) appeared for the appellant; the ratepayer did not respond to the appeal.
Sally Dobson, barrister