Woolway vrs Mazars ruling – major implications for business rates

The Supreme Court gave its judgment in a landmark ruling this week that could have a major effect on business rates across England and Wales, with far-reaching implications on how properties are identified in the Rating List.

The decision itself concerned the second and sixth floors of an eight storey modern office block in London occupied by the accountancy firm, Mazars. The panel of five Lords examined whether the building should be entered in the Rating List as separate hereditaments (as the Valuation Officer had contended) rather than as a single hereditament, as the Upper Tribunal (Lands Chamber) and Court of Appeal had previously ruled.

For those who do not immerse themselves in business rates on a daily basis, it might not seem that important but don’t be mistaken, this is a landmark ruling that will affect many ratepayers.

The case goes back to 2010 and has worked its way slowly through the legal system over the past 5 years. Mazars’ position was supported by the Valuation Tribunal for England, the Upper Tribunal (Lands Chamber) and the Court of Appeal during that time but this week’s Supreme Court ruling – unanimously – reversed those previous decisions and found in favour of the appellant Valuation Officer.

The Supreme Court described the leading English case Gilbert v Hickinbottom [1956] 2 QB 40 which sets out rules on identification of the hereditament, as an ‘unsatisfactory decision which had impeded the proper development of the law’ in England and Wales. The Supreme Court preferred the approach set on in a number of Scottish cases which it said had taken a more coherent and principled approach.

The steps to be taken by those practising in rating are set out in paragraph 12 of Lord Sumption’s judgment as follows:

“First, the primary test is, as I have said, geographical. It is based on visual or cartographic unity. Contiguous spaces will normally possess this characteristic, but unity is not simply a question of contiguity… if adjoining houses in a terrace or vertically contiguous units in an office block do not intercommunicate and can be accessed only via other property (such as a public street or the common parts of the building) of which the common occupier is not in exclusive possession, this will be a strong indication that they are separate hereditaments… Secondly, where in accordance with this principle two spaces are geographically distinct, a functional test may nevertheless enable them to be treated as a single hereditament, but only where the use of the one is necessary to the effectual enjoyment of the other… Third, the question whether the use of one section is necessary to the effectual enjoyment of the other depends not on the business needs of the ratepayer but on the objectively ascertainable character of the subjects”.

Whilst rating is a tax founded on the occupation of property, the use of that property by a single occupier is not the determining factor if parts of the occupation are for a different purpose (see North Eastern Railway Co v Guardians of York Union 1900 1 QB 733) but if occupation is for the same purpose the tests set out above will apply.

Importantly where more than one property is occupied, the occupation by a single business and the functional dependence between hereditaments by that business falls away in determining the extent of the hereditament. It is now the physical connection and inter-dependence of the hereditaments themselves that is the relevant determinative factor. This includes considering connection by the rateable plant and machinery referred to by Lord Neuberger at paragraph 55 of the decision and see also Edwards (VO) v BP Refinery (Llandarcy) Ltd 1974 and London County Council v Wilkins (VO) 1957.

For those interested in the verbatim and technical argument of the ruling you can read it in full here: https://www.supremecourt.uk/cases/uksc-2013-0117.html