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Hot Topic Highlight - Business Rates - Woolway (VO) v. Mazars [2015]



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What is today's blog about?


This week we are going to look at the business rating case, Woolway (VO) v. Mazars [2015]. Essential reading for AssocRICS and RICS APC candidates.


You can also listen to our CPD podcast on Anchor for more free AssocRICS and RICS APC training and support.


Why is this important?

Woolway (VO) v. Mazars [2015] and the Staircase Tax have been a rating hot topic over the last 5 years. 


They are also likely to be one of the main areas of questioning for the Local Taxation and Assessment RICS APC competency. We will look at this hot topic over three blog posts.


What have we already looked at?


In our first business rates hot topic highlight article, we looked at the concept of the hereditament, functional essentiality and key case law. 


What is functional essentiality again?


‘In such cases the two properties on either side of the road are so essentially one whole – by which I mean, so essential in one use the one to another – that they should be regarded as one single hereditament’.


Why would you try to get multiple properties assessed as one hereditament?


Good question! 


The answer is that, as a rule of thumb, the larger and more complicated a property is, the lower its Rateable Value will be. This is due to a number of factors, including quantum and end allowances for fragmentation. 


This means that there is often a significant decrease in combined Rateable Value when two properties are assessed as one hereditament, rather than the other way around. 


Vertical or horizontal functional essentiality?


In cases from the 1950s onwards, functional essentiality had only ever been considered in the horizontal plane. This meant that they had only dealt with two elements that were separated by a road or another building, for example. 


The rule had never been considered in the context of a property where the gap between the two elements was a vertical gap and not a horizontal one, for example a multi-let office. However, this changed in the case of Woolway (VO) v. Mazars [2015].


What was the context in Woolway (VO) v. Mazars [2015]?


Mazars LLP, a firm of accountants, occupied Floors 2 & 6 of Tower Bridge House, a modern office block situated opposite to the Tower of London. As would be expected, the floors had various teams spread across them and there was a continual flow of staff between the floors via multiple high-speed lifts.


How was Mazars’ accommodation originally assessed?


Originally, Mazars’ accommodation had been assessed as two hereditaments. However, the other major occupier, Reynolds Porter Chamberlain, who occupied floors 3, 4 and 5, had their offices assessed as one. 


Why did Mazars appeal to the Valuation Tribunal?


Mazars appealed their Rateable Value and the matter was referred to the Valuation Tribunal (VT). The VT were asked whether the functional essentiality rule could apply vertically to Floors 2 & of Tower Bridge House. 


What did the VT decide?


The VT decided that Mazars’ floors were functionally essential to one another and, as such, they should be assessed as one. The VT also determined that the hereditament should be assessed with an end allowance for fragmentation. 


Why did the Valuation Office Agency appeal to the Upper Tribunal (Lands Chamber)?


After the VT decision, the Valuation Office Agency (VOA) appealed to the Upper Tribunal (Lands Chamber). The ratepayer, however, decided that the potential legal costs outweighed the potential benefit and that they did not wish to pursue the matter. This meant that they were unrepresented through subsequent hearings. 


What did the Lands Tribunal decide?


The Lands Tribunal agreed with the VT, although they decided to remove the fragmentation allowance. The VOA were not happy with this decision and appealed to the Court of Appeal, who had previously determined Gilbert v. Hickinbottom [1957].


What did the Court of Appeal decide?


Again, the ratepayer was not represented, however, this time the Attorney General decided to appoint an Amicus Curiae. This means a ’friend of the court’, a QC who is appointed  to argue the case of the lower court/tribunal, whose decision is being appealed.


The Court of Appeal determined, again, that the two floors should be assessed as one hereditament. However, they removed the end allowance altogether. 


Subsequently, the VOA appealed the matter to the Supreme Court. 


Who was the Supreme Court case heard by?


The case was heard with five judges, three QCs (Timothy Morshead QC and Daniel Kolinsky QC for the VO and David Forsdick QC acting as Amicus Curiae), together with HMRC solicitors and interested rating surveyors.


How do the different Courts operate in terms of precedent?


As in all forms of civil law, a court has the power to overrule decisions on lower courts. However, they must abide by precedents set by higher or courts that are equal to it. 


Gilbert v. Hickinbottom had been determined by the Court of Appeal. Therefore, other than the Supreme Court, all of the other courts/tribunals had been working within Lord Denning’s rules in Gilbert. The Supreme Court, however, was not constrained by these rules. 


What approach was taken in the Supreme Court?


The VOA’s QC took a different approach during the Supreme Court hearing, choosing to rely heavily on Scottish rating law and less so on English rating law, which are substantially different in relation to contiguity.


How do the English and Scottish Courts differ in relation to contiguity?


The test in Scotland was far more dependent on the geographic arrangement of the elements than it was on the way in which the occupier used them. Burns Stewart Distilleries v. Assessor for Lanarkshire [2001] stated ‘a clear geographical separation of subjects ought to receive effect unless there were physical characteristics which would allow an observer to say that, as a matter of impression, the subjects were part of a larger identifiable unit’


What did the parties argue as a result?


The VOA’s QC argued that floors 3, 4 and 5 (occupied by Reynolds Procter Chamberlain) should be treated as if they were contiguous to one another, even though the landlord’s floor slab and service void rendered the floors not to be contiguous to one another. Effectively, the gap was ‘no more than necessary’ and a ‘marginal case’


The Amicus, on the other hand, argued that ‘HMRC cannot have it both ways’ and, as such, that either all of the floors within a multi-let building are contiguous with one another or none of them are. The Amicus also argued that none of the floors were strictly contiguous with one another and that in reality it was the principle of functional essentiality that was being applied to each situation. 


What did the Supreme Court decide?


The Supreme Court determined that none of the floors within the building were contiguous with one another. 


The judges, in particular, Lord Sumption, effectively reversed Lord Denning’s decision in Gilbert v. Hickinbottom, stating that ‘it is plainly an unsatisfactory decision’


This was due to the tests being dependent on the way that the ratepayer occupies the property rather than the way that the property would be considered if it were vacant. 


What did the Supreme Court say about functional essentiality?


The Supreme Court determined that functional essentiality still exists, but only in the context of two elements could not reasonably be let separately. 


Lord Neuberger, the then president of the Supreme Court, concluded his judgement by stating ‘I do not doubt that there will be cases where the guidance given on this appeal will be difficult to apply with any confidence. However, it is hard to believe that we will be leaving the law of England and Wales on this topic in a less satisfactory state than it was as a result of Gilbert’


Crucially, and interestingly, the Supreme Court’s judgement went far further than any party at any proceeding had argued for. It effectively tore up the rule book.


What were the implications of the decision?


The Supreme Court’s judgement should have lead to wholesale alterations to the Rating List.


Every multi-let office building in the country should have been split into individual floors and virtually every hereditament that was assessed as one due to functional essentiality should be split. 


What happened in reality?


After several months, many hereditaments that should have been split weren’t due to two key challenges:

  • The substantial administrative load faced by the VOA, which was impractical to process in the short to medium-term

  • Substantial potential increases in Rateable Value nationwide, particularly relating to City of London offices, but of application to all ratepayers.


In particular, Levels 3, 4 and 5 within Tower Bridge House remained as one hereditament until almost a year after the Supreme Court’s judgement. There are also countless multi-let buildings nationwide which should have been split, but still currently remain as one hereditament.


What does the market think of the decision?


In the opinion of Kit Rabbette, Chartered Surveyor and rating specialist at Paul Rabbette Ltd, ‘we never really saw the full impact of the Supreme Court’s decision, we experienced a small sample of the change but not on the scale that it would have impacted on if implemented fully’.


What next?


In our final business rates blog article, we will focus on the Staircase Tax.


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N.b. Nothing in this article constitutes legal or financial advice.