Business rates are a tax on non-domestic property, with each property unit or “hereditament” being subject to a rateable value on which the tax is calculated.
Where different parts of an office building are occupied by the same business, those parts have usually been treated as a single hereditament if they were contiguous (sharing a common border), but as separate hereditaments if not. The Supreme Court has now considered how to treat non-contiguous floors of a multi–let building occupied by a single tenant.
The ratepayer occupied the second and sixth floors in a modern eight-storey office, held under separate leases. The Court unanimously held that the floors comprised two separate hereditaments which meant that business rates would be assessed accordingly.
The Court set out three broad principles:
- The geographical test: based on visual or cartographic unity, would the two storeys constitute a single unit on a plan? If there is no direct access between them other than via the common parts of the property, this is strong indication that they are separate hereditaments for rating purposes.
- The functional test: is the use of one necessary to the effectual enjoyment of the other?
- The objective necessity test: are the separate parts objectively interdependent? This is an extension of the “functional test”, clarifying that it does not depend on the use the ratepayer chooses to make of the property, but on its objectively ascertainable character.
Lord Neuberger described a hereditament as being a self-contained piece of property, all parts of which are physically accessible from all other parts without having to go onto other property.
As it was necessary to pass over common parts to move from the second to sixth floor and the separate floors could not be drawn around together on a plan, the floors were two distinct properties just as if they had been on opposite sides of the street.
Although the case concerned non-contiguous floors, the Court made it clear that contiguity is not the decisive criterion and the test for whether or not there is a single hereditament applies in all cases.
Whilst the broad principles have clarified the law, there could be further scope for argument as applying them will call for factual judgement. Those arguments may well be forthcoming in future cases, as tenants of non-contiguous floors contend with the higher business rates liabilities that are likely to result from this decision
Case: Woolway (VO) v Mazars LLP  UKSC 53  PLSCS 240