The Valuation Office Agency (VOA) has published guidance following a Supreme Court decision last year that two separate floors in the same building are not a single hereditament for ratings purposes.
The judgment in Woolway (VO) v Mazars LLP [2015] UKSC 53; [2015] EGLR 56 clarified the law following earlier rulings to the contrary, and was anticipated to affect the outcome of hundreds of other cases raising the same question.
As a result, the VOA has issued guidance to the effect that it will treat different areas of the same building, which are accessed through communal areas as separate premises for business rates purposes. This is a change of direction by the VOA as the approach to date has been to value separate but adjoining areas occupied by one business as a single unit for rating purposes.
This will be of great concern to occupiers of multi-let properties which occupy two or more adjoining floors of the building. Whereas to date their premises would be one hereditament, going forward, there will likely be a separate hereditament for each floor occupied. The guidance applies horizontally as well as vertically. Two industrial units occupied by the same occupier that are separated by a communal yard will now be separately assessed.
The consequence of this is that there may be an adverse valuation impact as a result of the separate hereditament being created, and the VOA will backdate any liability to the most recent of 1 April 2015 in England (1 April 2010 in Wales) and the date of occupation.
Bryan Johnston, real estate litigation partner at Dentons said: “This is an alchemist’s dream. It is common for businesses to let adjoining floors within buildings. The creation of separate hereditaments out of the same space that is currently one hereditament will in many cases give rise to an increased rates liability. There is no change in the size or nature of the demise. All that is happening is a significant paper exercise that in essence is a revenue driver.
“While the Mazars decision is one that the VOA has to account for in maintaining an accurate ratings list, it is hard not to be left thinking that the VOA’s legal obligation is all rather convenient when considering the revenue that complying with its obligation will generate.
“The VOA is currently working towards the 2017 revaluation. How and when the separate assessment will be applied remains to be seen. The concern for property occupiers is that they will have to make provision for backdated and additional future rates liabilities where they otherwise would not have needed to do so.”