Rating – Non-domestic rates – Hereditament – Respondent valuation officers altering rating list to create separate hereditaments in respect of sites of ATM machines in supermarkets and convenience stores – Whether ATM sites properly regarded as separate hereditaments – Whether in rateable occupation of store operator or ATM operator – Appeals allowed in part
The first, fourth and sixth appellants were well-known supermarket operators in whose premises ATM services were provided by banks within the same corporate structure, including the second and fifth appellants. The third appellant operated its own ATMs in convenience stores run by independent retailers and in other similar locations. In all cases, the ATMs were installed and operated pursuant to a licence agreement with the relevant store operator.
In 2014, the respondent valuation officers altered the 2010 rating list to create separate entries in respect of the sites of the ATM machines, encompassing the ground on which each ATM stood and the space that it occupied. Before the alteration, the ATMs had not been distinguished from the host stores for rating purposes. Thereafter, each ATM site was listed as a separate hereditament with its own rateable value.
The Valuation Tribunal for England (VTE) dismissed the appellants’ appeals against alteration, holding, in relation to 11 locations selected as lead case appeals, that the ATM sites were separate hereditaments in the rateable occupation of the bank or ATM provider rather than the proprietor of the host store.
The appellants appealed to the Upper Tribunal, which considered nine of the locations examined by the VTE; the appeals concerning the other two locations were regarded as not factually distinct and were stayed for the time being.
The appellants contended that: (i) land could not be identified as a separate hereditament only by reference to the presence on it of an item of machinery, such as an ATM, which was non-rateable under the statutory assumption in regulation 2(b) of the Valuation for Rating (Plant and Machinery) (England) Regulations 2000; (ii) an ATM site was not a self-contained unit capable of comprising a separate hereditament; and (iii) the banks which operated the ATMs were not in sole occupation of the ATM sites since the operator of the host store was also in occupation and its occupation was paramount and therefore rateable.
Held: The appeals were allowed in part.
(1) In principle, the presence of an item of non-rateable machinery, such as an ATM, did not fall to be ignored when determining whether a separate hereditament existed. The statutory assumption under regulation 2(b) of the 2000 Regulations was that the value of the non-rateable machinery had no effect on the rateable value of the hereditament on which it was sited. That statutory assumption applied only for the purpose of valuation and could not legitimately be applied in answering the logically prior question of whether there was a hereditament that needed to be valued.
(2) Unlike shops, offices or other readily identifiable structures, the sites of ATMs and other non-rateable machines might remain, to a greater or lesser degree, inchoate or indistinguishable until the moment of occupation. Once a machine had been installed, there should be no difficulty in defining the boundaries of a fixed ATM site with sufficient precision to satisfy the geographic test of self-containment which was a requirement of a separate hereditament. However, in cases involving more mobile equipment, it might additionally be necessary to consider the nature of the occupancy and whether the bank’s right was a right of occupation of a specific unit of property or simply a right of access to a machine wherever it happened to be located: Woolway (VO) v Mazars LLP [2015] UKSC 53; [2015] EGLR 56 considered.
Where the bank simply had a right of access to a more or less free-standing, moveable machine placed in a location chosen by the store, and from which the ATM could be readily moved when the operational requirements of the store so required, there nothing to identify a unit of property at all before the machine had been put in position, and little to indicate, once it was there, whether the current site was a distinct unit of property, without examination of the rights granted. In such a case, no separate hereditament could be said to have been created and no question arose of rateable occupation by the bank that supplied the machine.
By contrast, where premises had been designed or adapted to receive an ATM by the construction of a separate enclosed space to house the machine, or by the creation of an opening in an external wall (or both), the physical circumstances would make more realistic the identification of a unit of property with the potential to be recognised as a separate hereditament. The deliberate creation of a specific space in a fixed and apparently permanent location, visibly different from the generality of the host store and clearly intended for a particular use, and with enhanced security, visibility and permanence, all contributed to the separation and identification of the unit: Clydesdale distinguished. Although not relevant to any of the present appeals, a comparable degree of certainty over the extent of the hereditament would exist in cases where the site of the ATM was fixed by the agreement.
Further, the question of ownership and the basis of occupation might be important to the recognition of the hereditament as a separate unit of property. In the case of an ATM operated by the proprietor of a host store on its own behalf, there would be no question of the ATM site being a separate hereditament.
(3) In the case of external “hole in the wall” ATMs located outside the stores of the first, fourth and sixth appellants, there was no uncertainty over the boundaries of the hereditaments entered in the list by the valuation officers, nor any other reason not to recognise the sites as hereditaments capable of separate rateable occupation from the host stores. The precise boundaries of the site were defined by the footprint of the machine and were capable of being measured and depicted on a plan. The fact that customers made use of the machines while standing outside the boundaries of the putative hereditaments did not compromise their self-containment; nor did the fact that servicing required access from an area within a secure cash room inside the store which was not part of the hereditament. External interaction by customers did not distinguish the sites from kiosks, refreshment stands or ticket booths on station or shopping centre concourses or city centre pedestrian precincts. Essential external servicing was commonplace in property of all sorts, from window cleaning or refuse collection from a shop or office to bill posting on an advertising hoarding. Some functional relationship was to be expected between any unit of property and the property surrounding it. The need for such arrangements was not inconsistent with the necessary quality of self-containment.
It made no difference that, in the case of one external hole in the wall ATM operated by the sixth appellant at a convenience store, the only adaptation made to the store to accommodate the ATM was the creation of a separate panel on the front of the building through which the display and keypad could be accessed and where, presumably, there had previously been a window he machine is immediately adjacent to the customer entrance and is an external, hole in the wall ATM. Despite the very modest footprint of the machine, and the absence of any other enclosure, the physical adaptation of the premises to create a specific space for an ATM not only conferred a degree of permanence on the arrangement but justified recognising it as a distinct site, capable of being a separate hereditament.
(4) The position was similar with an internal hole in the wall ATMs at one of the fourth appellant’s stores, which faced onto the shop floor, was accessible only from within the retail area and was serviced from a secure room. The site of that ATM was permanent and substantial and was recognisable as a hereditament in its own right, capable of separate occupation. Also recognisable as a separate hereditament was the site of two other internal ATMs at another of the fourth appellant’s stores, which were not serviced from a secure room but which occupied a recess or alcove and fitted flush with the internal wall of the store. Although those machines were housed in metal cupboards which could be pulled out for the purpose of servicing, they were not freestanding. By their location within a distinct space, by the visual impression created by their associated housings, fitting closely into that space, and by the signage that spanned the alcove, those ATMs had an appearance of permanence and solidity which justified regarding their site as a hereditament in its own right.
(5) The position was different with a further internal ATM, also housed in a metal cupboard in one of the fourth appellant’s stores. Its installation had not necessitated any adaptation to the store. The ATM could be unbolted from the floor and moved without difficulty to a different location. Its essential qualities were impermanence and mobility and the space that it occupied from time to time could not be characterised as a unit of property separate from the remainder of the store so as to amount to a separate hereditament.
(6) Where a distinct space had been created to receive a machine, and there were rival candidates for rateable occupation of that space, it was necessary to determine whose position in relation to occupation was paramount and whose was subordinate by reference to the rights of the parties in respect of the premises and the purpose of their occupation: Clydesdale Bank plc v Assessor for Lanarkshire Valuation Joint Board [2005] RA 1 and Assessor for Central Scotland Joint Valuation Board v Bank of Ireland [2011] RA 195 considered. What mattered was the position and rights of the parties in respect of the premises in question, namely the ATM sites, rather than the wider store in which those sites were located: Westminster Council v Southern Railway Co Ltd [1936] AC 511 applied. The relevant purpose could not depend on the motives and subjective intentions of the occupiers of the site but had to be objectively ascertainable: Wimborne District Council v Brayne Construction Co Ltd [1985] RA 234; [1985] 2 EGLR 175 applied.
(7) In the case of ATM sites, the most helpful way of determining whose occupation was paramount was to consider the purpose of the occupation of the site in the light of the decisions that the parties made about the manner in which the space dedicated to ATMs would be used. It was significant that, by design, the target market of an external ATM was much broader than the retail customers of the store. It purpose was to reach as wide a market for ATM services as possible, rather than to restrict usage to those who had entered the store to make use of its facilities. The users of an external ATM were properly characterised as customers of the bank using a service that happened to be available at their local supermarket or convenience store, rather than as customers of the store making use of an in-store facility. An external ATM was a facility available to all, whether or not they were customers of the store. Having regard to the broad customer base at which the service of an external ATM was targeted, the distinct character and branding of the space and the security arrangements associated with its use, the practical impossibility of the store making any different use of the same space while it was occupied by the bank’s ATM, and the inconvenience and impracticality of the machine being removed to a different location, the bank should be regarded as being in paramount occupation. Even where physical segregation of an ATM site could not be achieved, such as in very small convenience stores, the case for regarding the bank as being in paramount occupation of a fixed ATM site was just as strong. The sites of externally-accessed ATMs should therefore be entered as separate hereditaments in the occupation of the bank.
(8) By contrast, internal-facing ATMs, which faced onto the shop floor and were accessible only by those who had entered the store, were in the paramount occupation of the store and not the bank. The service was primarily offered to shoppers in the store and was not aimed at attracting passing trade. The purpose of the bank’s occupation of the site was to provide a service to the store’s customers, which was also the purpose of the store’s occupation of the whole of the premises including the site. By its control of the opening hours of the premises, the store limited the use that could be made of the ATM by the bank. Further, an internal site, even one that had been designed or adapted to house an ATM, could more easily be relocated elsewhere in the store than an external hole in the wall site. The space vacated by an internal ATM might also be more readily usable for an alternative purpose, such as accommodating vending machines, display cabinets or recycling bins.
(7) The appeals were therefore allowed in respect of the site of the moveable ATM in one of the fourth appellant’s stores where there was no separate hereditament in the suggested location, and in respect of two of the fourth appellant’s other stores where the sites were for internal ATMs. The rest of the appeals were dismissed.
Richard Drabble QC and Christopher Lewsley (instructed by Dentons) appeared for the first and second appellants; Daniel Kolinsky QC and Luke Wilcox (instructed by Gerald Eve LLP) appeared for the third appellant; Timothy Mould QC and Guy Williams (instructed by BLP) appeared for the fourth and fifth appellants; Timothy Mould QC and Christopher Lewsley (instructed by Dentons) appeared for the sixth appellant; Timothy Morshead QC and Galina Ward (instructed by HMRC Solicitors) appeared for the respondents.
Sally Dobson, barrister
Click here to read transcript: Sainsbury’s Supermarkets Ltd and others v Sykes (VO) and others
