Rating – Business rates – Identification of hereditament – Ratepayer occupying second and sixth floors in modern office building – Appellant valuation officer listing each floor as separate hereditament — Valuation tribunal merging two entries and listing as single hereditament — Whether each floor comprising separate hereditament – Appeal dismissed
The ratepayer, a large accountancy firm, occupied two floors in a modern, eight-storey office block. The block was built in a U-shape around three sides of a glass-covered atrium, with a central lift shaft containing six high-speed lifts. The ratepayer had separate leases of the second and sixth floors in the building, each for a 15-year term from 2007 at a rent of approximately £1m pa, with five-yearly rent reviews. The appellant valuation officer entered each of the ratepayer’s two floors in the rating list as a separate hereditament. He took the view that different floors in the same occupation could only be listed as a single hereditament if those floors were adjacent.
The valuation tribunal accepted the ratepayer’s proposal to merge the two entries with effect from November 2007. It determined that the two floors should be listed as a single hereditament. In reaching that conclusion, the tribunal found, applying Gilbert (VO) v S Hickinbottom & Sons Ltd [1956] 2 QB 40, that the two floors were within the same curtilage and that there was an essential functional link between them.
The Lands Chamber of the Upper Tribunal (UT) upheld that decision on appeal. It held that floors in a modern office building occupied by the same ratepayer should generally be treated as a single hereditament regardless of whether they were contiguous, since, in the usual arrangement where travel between all floors was through the common parts by a lift service, contiguity between floors had no practical significance: see [2012] UKUT 165 (LC); [2012] 3 EGLR 73; [2012] 37 EG 128.
The appellant appealed. He contended that two separate, non-contiguous floors within a building should each be treated as a separate “unit” of property, within the definition of a hereditament in section 115 of the General Rate Act 1967. The ratepayer did not participate in the proceedings; in light of the importance of the issue in the case, the Attorney-General appointed counsel to act as an advocate to the court.
Held: The appeal was dismissed.
The definition of a hereditament in section 115 of the General Rate Act 1967 had not changed the law from the previous position. The definition was circular in defining a hereditament by reference to its liability for rating and to the contents of the rating list. Its reference to a “unit of such property” was simply a reference to a separate item of rateable property shown in the list and did not assist in defining what the separate item was. The definition assumed and relied on an existing fund of knowledge of what was, and was not, capable of being shown as a separate item in the valuation list: Vtesse Networks Ltd v Bradford (VO) [2006] EWCA Civ 1339; [2006] 43 EG 179 (CS) applied.
The geographical or physical test laid down in Gilbert remained important in identifying the hereditament but the tribunal had an important fact-finding role. In the instant case, the UT had found that contiguity between different floors in the same office building had no practical significance. That approach involved no departure from established principles. The UT had adopted a physical test and, accepting that floors of office premises were in the same occupation for the purposes of the occupying firm, had not espoused the further functional connection between parts on which the valuation tribunal had earlier relied. It had instead applied a physical test to floors within a single building. The hereditament could be “ringed around on a map” within the geographical approach in Gilbert. Although that approach might not have been devised with the vertical plane in mind, to disaggregate premises held for a common purpose within a single “ring” in a single building would tend to defeat the geographical approach.
The UT had been entitled to make a common-sense assessment of the features in the case rather than seek to have recourse to some standard formula: Gilbert applied. On the facts of the case, which were likely to be similar to those in many other office blocks, two floors in the occupation of a single ratepayer could not legitimately be distinguished on practical grounds or in terms of the value of the occupation. In those circumstances, the contiguity test was not decisive. It was relevant that access between floors was possible only through the common parts by a swift lift service. Flexibility in applying a physical or geographical approach was acceptable and its application did not permit a distinction, on physical grounds, between contiguous and non-contiguous floors in the circumstances of the case. The two non-contiguous floors therefore constituted a single hereditament.
Timothy Morshead QC and Daniel Kolinsky (instructed by the legal department of HMRC) appeared for the appellant; David Forsdick (instructed by the Attorney-General) appeared for the respondent.
Sally Dobson, barrister
Rating – Business rates – Identification of hereditament – Ratepayer occupying second and sixth floors in modern office building – Appellant valuation officer listing each floor as separate hereditament — Valuation tribunal merging two entries and listing as single hereditament — Whether each floor comprising separate hereditament – Appeal dismissed The ratepayer, a large accountancy firm, occupied two floors in a modern, eight-storey office block. The block was built in a U-shape around three sides of a glass-covered atrium, with a central lift shaft containing six high-speed lifts. The ratepayer had separate leases of the second and sixth floors in the building, each for a 15-year term from 2007 at a rent of approximately £1m pa, with five-yearly rent reviews. The appellant valuation officer entered each of the ratepayer’s two floors in the rating list as a separate hereditament. He took the view that different floors in the same occupation could only be listed as a single hereditament if those floors were adjacent.The valuation tribunal accepted the ratepayer’s proposal to merge the two entries with effect from November 2007. It determined that the two floors should be listed as a single hereditament. In reaching that conclusion, the tribunal found, applying Gilbert (VO) v S Hickinbottom & Sons Ltd [1956] 2 QB 40, that the two floors were within the same curtilage and that there was an essential functional link between them.The Lands Chamber of the Upper Tribunal (UT) upheld that decision on appeal. It held that floors in a modern office building occupied by the same ratepayer should generally be treated as a single hereditament regardless of whether they were contiguous, since, in the usual arrangement where travel between all floors was through the common parts by a lift service, contiguity between floors had no practical significance: see [2012] UKUT 165 (LC); [2012] 3 EGLR 73; [2012] 37 EG 128.The appellant appealed. He contended that two separate, non-contiguous floors within a building should each be treated as a separate “unit” of property, within the definition of a hereditament in section 115 of the General Rate Act 1967. The ratepayer did not participate in the proceedings; in light of the importance of the issue in the case, the Attorney-General appointed counsel to act as an advocate to the court.Held: The appeal was dismissed. The definition of a hereditament in section 115 of the General Rate Act 1967 had not changed the law from the previous position. The definition was circular in defining a hereditament by reference to its liability for rating and to the contents of the rating list. Its reference to a “unit of such property” was simply a reference to a separate item of rateable property shown in the list and did not assist in defining what the separate item was. The definition assumed and relied on an existing fund of knowledge of what was, and was not, capable of being shown as a separate item in the valuation list: Vtesse Networks Ltd v Bradford (VO) [2006] EWCA Civ 1339; [2006] 43 EG 179 (CS) applied.The geographical or physical test laid down in Gilbert remained important in identifying the hereditament but the tribunal had an important fact-finding role. In the instant case, the UT had found that contiguity between different floors in the same office building had no practical significance. That approach involved no departure from established principles. The UT had adopted a physical test and, accepting that floors of office premises were in the same occupation for the purposes of the occupying firm, had not espoused the further functional connection between parts on which the valuation tribunal had earlier relied. It had instead applied a physical test to floors within a single building. The hereditament could be “ringed around on a map” within the geographical approach in Gilbert. Although that approach might not have been devised with the vertical plane in mind, to disaggregate premises held for a common purpose within a single “ring” in a single building would tend to defeat the geographical approach.The UT had been entitled to make a common-sense assessment of the features in the case rather than seek to have recourse to some standard formula: Gilbert applied. On the facts of the case, which were likely to be similar to those in many other office blocks, two floors in the occupation of a single ratepayer could not legitimately be distinguished on practical grounds or in terms of the value of the occupation. In those circumstances, the contiguity test was not decisive. It was relevant that access between floors was possible only through the common parts by a swift lift service. Flexibility in applying a physical or geographical approach was acceptable and its application did not permit a distinction, on physical grounds, between contiguous and non-contiguous floors in the circumstances of the case. The two non-contiguous floors therefore constituted a single hereditament.Timothy Morshead QC and Daniel Kolinsky (instructed by the legal department of HMRC) appeared for the appellant; David Forsdick (instructed by the Attorney-General) appeared for the respondent.Sally Dobson, barrister