Frozen food supermarket chain Iceland has triumphed in a Supreme Court challenge over the valuation of a Liverpool store – in a case that could have a widespread impact on rates calculations for similar retail premises across the country.
The appeal centred on the impact of air-handling systems (AHS) on business rates valuations and, while the figures at stake are relatively small in this test case, the overall sums involved nationwide could be huge.
Today, the Supreme Court unanimously agreed, Lord Carnwath ruling that the AHS, treated fairly, falls within the kind of “tools of the trade” excluded from the valuation process.
The issue was whether the AHS used by Iceland in the store at 4 Penketh Drive, Liverpool is plant or machinery “used or intended to be used in connection with services mainly or exclusively as part of manufacturing operations or trade processes” within the meaning of the Valuation for Rating (Plant and Machinery) (England) Regulations 2000.
Iceland claimed that the system does fall within that proviso, found in paragraph 2 of Class 2 of the 2000 Regulations, meaning it should be ignored in calculating the rateable value of the premises.
Lord Carnwath said that the proviso Iceland relied on constitutes an “exception to an exception” that brings certain items of plant back into the scope of the general rule that they should not affect the valuation of property where their main or exclusive function is to provide a service to the activities of the trader within a building, rather than the building itself.
Or, as he put it, items “more fairly considered for rating purposes as ‘tools of the trade’… within the general rule of nonrateability”.
He said that the trade process involved in the case of Iceland is “the continuous freezing or refrigeration of goods to preserve them in an artificial condition”, adding: “Since the services provided by the relevant plant have been held to be used ‘mainly or exclusively’ as part of that trade process, they should be left out of account for rating purposes.”
The result is final victory for Iceland following a see-saw battle through the courts.
Valuation Tribunal for England (VTE) initially decided in Iceland’s favour in October 2012, but the Upper Tribunal (Lands Chamber) (“the UT”) reversed that decision in January 2015.
The Court of Appeal agreed with the UT.
The valuation officer (VO) had maintained all along that the system does not meet the requirements of the regulations and that a value should be attributed to the air-handling system, thereby increasing the rateable value of the premises.
The VO had set a rateable value of £108,000 from 1 April 2010, which was reduced by the VTE to £98,000. The Upper Tribunal, allowing the VO’s appeal, raised it to £104,000.
Lord Carnwath ruled that the VTE’s decision should be restored.
Blake Penfold, consultant in business rates at GL Hearn said that, while the decision is based firmly on the facts of the particular property and the plant concerned, it is “one that all rating valuers will want to study carefully” for two reasons.
He said: “Firstly, it restates clearly the fundamental principle that plant and machinery (as opposed to land and buildings) is not generally rateable unless it falls within one of the defined classes of rateable items contained within the Plant and Machinery Order. The general rule is, as the Supreme Court has reminded us, one of non-rateability to which there are exceptions, rather than the reverse.
“The second reason to look carefully at the judgment is that it make clear that the phrase ‘trade processes’, which allows an exemption from rateability, must be looked at separately from the phrase ‘manufacturing operations’, and not as part of a composite test of the activity concerned. Valuers dealing with retail and distribution properties, as well and industrial premises, will want to look carefully at items of plant and machinery that are alleged to be rateable – an obvious example might be security systems – and to consider whether they should properly be excluded.”
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