Non-domestic rates are a tax on individual units of property, known as hereditaments. The issue that arose in an important test case between Sainsbury’s Supermarkets Ltd & others v Sykes (VO) [2017] UKUT 138 (LC); [2017] PLSCS 90 was whether sites in supermarkets, convenience stores and petrol filling stations, in which cash machines had been placed pursuant to licences, were capable of constituting separate hereditaments for rating purposes. And, if so, who was in rateable occupation?
Sainsbury’s, Tesco and the Co-op hosted cash machines provided by banks within the same corporate structure. Another rate payer, Cardtronics, provided more than 16,000 of its own cash machines in convenience stores run by independent retailers. Before 2014, rating lists had not distinguished between cash machine sites and host stores. But, following alterations to the lists, the cash machine sites were listed as separate hereditaments in their own right, with their own rateable values. In most of the locations under consideration, there was no corresponding reduction in the rateable value of the stores.
The taxpayers argued that rates are a tax on property, and not on non-rateable machinery. But the Upper Tribunal decided that the taxpayers were in rateable occupation of the cash machine sites by virtue of the presence of the machines there (even though the machines themselves were non-rateable, thanks to regulation 2(b) of the Valuation for Rating (Plant and Machinery) (England) Regulations 2000).
Was it possible to say that the cash machine sites were not separate hereditaments because they were not self-contained? In Woolway (VO) v Mazars LLP [2015] UKSC 53; [2015] PLSCS 240, Lord Neuberger referred to a hereditament as “a self-contained piece of property (ie property all parts of which are physically accessible from all other parts, without having to go onto other property)”. The retailers argued that the cash machine sites did not satisfy this description because it was impossible to fill and maintain the machines without making extensive use of adjoining areas forming part of the stores. Furthermore, in the case of internally sited machines, members of the public needed to use the host stores to obtain access to them.
The Upper Tribunal ruled that some functional relationship is to be expected between any unit of property and the land that surrounds it, and that the need for easements for access did not prevent an otherwise self-contained unit from being recognised as a separate hereditament. The cash machine sites were no different, in this respect, from shop units that need access through the common parts of a shopping centre. The fact that customers made use of the machines while standing outside the boundaries of the hereditaments did not compromise their self-containment. Nor did the fact that the machines needed to be serviced from secure areas that were not part of the hereditaments.
Except in the case of one free standing machine, which could be moved anywhere, the sites of the cash machines had been specially designed, or adapted, to accommodate them. They were permanent and substantial, and were capable of constituting separate hereditaments. Furthermore, the banks were in rateable occupation of the sites of the external cash machines, because the machines served the public at large. But the sites of internal machines, aimed primarily at shoppers, were occupied by the stores.
Allyson Colby is a property law consultant
