Non-domestic rates – Hereditament – Split site – Respondent operating cheese wholesaling, processing and distribution business from two buildings separated by public highway – Buildings listed together in rating list as single hereditament by reason of essential functional connection between the two – Whether buildings properly to be listed as two hereditaments by reference to their geographical separation – Appeal dismissed
The respondent company was a wholesaler, processor and distributor of cheese, operating from two buildings in London SW8 that were located on either side of a highway. The larger of the two buildings housed the respondent’s main offices, a refrigerated warehouse, the packing room in which orders were assembled, the main production room and the loading bays for goods in and goods out. The smaller building, containing a further production room, was later in date and had been built to suit the purposes of the respondent’s business. All goods were received through the goods-in bay at the larger building, which was the only bay capable of handling articulated lorries. Customer orders generally included items located in both buildings, so that staff moved between the two on foot or in forklift trucks for the purpose of assembling the orders, which would then be dispatched from the larger building. Had the two buildings not been so close together, the respondent would have had to transfer goods between the two using chilled vans, which would have delayed orders and increased costs.
The appellant valuation officer entered the two buildings in the 2005 non-domestic rating list as two separate hereditaments, comprising a “factory office and premises” with a rateable value of £248,000 and a “warehouse and premises” with a rateable value of £132,000, with effect from April 2005. The Valuation Tribunal for England (VTE) allowed the appellant’s appeal against that listing and held that the two entries should be merged to create a single composite hereditament comprising a factory and premises with a rateable value of £290,000
The appellant appealed. She contended that the two buildings should be treated as two hereditaments, under the general rule that applied where premises were physically separate and not within the same curtilage, and that there was no essential functional connection between the two so as, exceptionally, to justify treating them as a single hereditament.
Held: The appeal was dismissed.
Whether premises formed one hereditament was a question of fact and degree. The two buildings did not form a single hereditament by reference to any exclusively geographical or locational test, since they were separated from each other by the public highway and, while the distance between them was short, the separation was emphasised by the heavy congestion and presence of parked vehicles on both sides of the highway, which made it difficult to manoeuvre goods vehicles. Moreover, the yards to the rear of the two buildings were separated by a greater distance, such that forklift trucks making the journey between the two had to traverse the public highway for some way. The geographical separation of the two buildings was not ameliorated by their appearance, since they were of different age and design and were not united by any architectural features, such that no observer of the two buildings from the road would assume that they were in the same occupation unless some of the limited signage was visible from his vantage point. It followed that the two buildings failed any exclusively geographical test.
However, the buildings could properly be regarded as a single hereditament on the ground that, functionally, they were essential in use to each other. It was relevant that the smaller building had been designed with the needs of the occupier of the larger building specifically in mind. Although the smaller building was essentially a warehouse, it lacked facilities that one would expect to find in a warehouse, such as a yard that was capable of accommodating articulated delivery vehicles and any proper facility for loading and unloading smaller vehicles. It could fairly be said to be essential to the efficient use of the smaller building that that goods to be stored or processed there were received elsewhere in close proximity so that they could be transported from the larger building by forklift truck or hand. It was also essential to the use of the larger building that the additional production capacity which it required should be located in such proximity that individual bespoke orders could be assembled within a very short space of time. The respondent’s business could be described as “time critical” because of the variety of orders that had to be assembled from two different production sources to meet very tight ordering and delivery deadlines. It would not be possible for the respondent’s business to operate successfully from the larger building if its additional processing facilities were at a greater distance, because it was unsuited to handling a large number of small deliveries employing a fleet of chilled vans. The additional record-keeping and quality assurance procedures that would have to be implemented in conjunction with the receipt of deliveries from a distant site, and the practical impossibility of accommodating the necessary vehicles, rendered the use of the two buildings as a single unit indispensable to the conduct of the respondent’s business.
Moreover, the two buildings had been designed and adapted with a view to their complementary use. Their essential functional relationship was not solely attributable to the way in which the respondent chose to operate its particular business; instead, their functional interdependence was the result of the limitations of the buildings themselves. In those exceptional circumstances, the geographical separation of the two buildings was not fatal to their treatment as a single hereditament. Their functional relationship was sufficient to require that they be entered in the rating list as a single hereditament: Gilbert (VO) v S Hickinbottom & Sons Ltd [1956] 2 QB 40 applied; Re Woolway (VO)’s appeal [2012] UKUT 165 (LC); [2012] 3 EGLR 73; [2012] 37 EG 128 considered.
The merged hereditament should be described as a food processing centre and listed with a rateable value of £282,500 with effect from April 2005.
Sarabjit Singh (instructed by the legal department of HM Revenue and Customs) appeared for the appellant; Richard Glover QC (instructed by Jones Granville, chartered surveyors) appeared for the respondent.
Sally Dobson, barrister
