Case Preview: Woolway v Mazars
21 Tuesday Apr 2015
Under Section 41 of the Local Government and Finance Act 1988, it is the Valuation Officers’ job to maintain ratings lists for each authority area. With new lists required every five years, it is each Valuation Officer’s ongoing task to assess and define what a unit of rateable property is for the purposes of this list. Before the case of Woolway v Mazars began, each unit on the ratings list (known as a ‘hereditament’) was considered to be a separate unit unless two buildings or floors were ‘contiguous’ – in other words, next to each other or adjoining. This meant that if a company owned various floors in an office building but these floors happened to be separated, it would incur several rateable assessments.
However, the progression of Woolway v Mazars through the Upper Tribunal and Court of Appeal, and now the Supreme Court, has exposed the need for clarification of this complex and often misinterpreted area of law. The Supreme Court’s decision is expected to address the practical significance of the various tests used to establish a substantial link between floors in a communal building and is likely to shed further light on the question raised in the Upper Tribunal and Court of Appeal of how sufficient connection between floors should be measured.
The accountancy firm Mazars LLP occupies the second and sixth floors in an eight-storey office block in Tower Bridge, while floors three, four and five are occupied by the law firm Reynolds Porter Chamberlain. Mazars has two separate fifteen-year long leases for each of their floors. When the Valuation Officer, Peter Woolway, entered the ratepayers leases onto the valuation list in 2005, he listed floors two and six as two separate hereditaments, taking the view that the two floors could only be entered as a single hereditament if they were ‘contiguous’.
Mazars disputed Woolway’s decision, considering their two floors sufficiently connected to be one single hereditament for the purpose of the ratings list. They took the issue to the Valuation Tribunal of England (“VTE”), which applied the case in Gilbert (VO) v S Hickinbottom & Sons Ltd  2 QB 40 and concluded that Mazars’ two separate floors should be entered on the ratings list as a merged entity due to there being an ‘essential functional link’ between the two floors. The VTE agreed that the floors should be listed as a single hereditament from November 2007.
In Gilbert, two tests were established in order to define separate floors as a single hereditament. The first of these tests was sufficient functional connectivity between floors and the second was physical proximity.
Woolway appealed the VTE’s decision at the Upper Tribunal, arguing that these two tests were not fulfilled. This was because each of the floors belonging to Mazars was self-contained and did need to be in close proximity to the other floor in order to function.
Woolway also reasoned that, as the floors weren’t adjoining, there was no ‘contiguity’, a concept that was also considered to be a requirement in defining a single hereditament. As a result of this, it was usual practice for Valuation Officers to list floors with separate leases as separate hereditaments unless they were sequential floors.
The Upper Tribunal dismissed Woolway’s appeal, upholding the VTE’s decision. It held the application of the tests of functional connection and physical proximity established in Gilbert should be not too rigid and were not an ‘incontrovertible formula’ for identifying a hereditament. Morris LJ had noted in Gilbert that the decision was more a question of fact and a common sense assessment of the features of each individual case. Applying this approach, the Upper Tribunal reasoned that if floors three, four and five were one hereditament then floors two and six should be one too, as in both circumstances the connection between floors was established through the common parts of the buildings.
It was also held that separate floors in an office building owned by the same ratepayer should be considered as a single hereditament even if there wasn’t ‘contiguity’, as this word failed to have practical significance in light of there being a connection between all floors in a modern office block by means of a common lift.
Court of Appeal decision
Woolway then went on to challenge the Upper Tribunal’s decision in the Court of Appeal, on the basis that the Upper Tribunal’s decision did not correspond with the definition of hereditament in the General Rate Act 1967 and that sufficient weight had not been placed on the geographical test established in Gilbert.
His appeal was once again dismissed. The Court of Appeal ruled that the definition of hereditament in the General Rate Act 1967 was circular, defining itself solely in relation to the ratings list and not providing any further clarity. It also held that when the important geographical test established in Gilbert was applied, the two floors could easily be considered a single hereditament as they existed in the same building and were connected sufficiently through the use of the common parts. The Court ruled that the Upper Tribunal’s decision did not deviate from the established geographical and physical principles in Gilbert.
The judges concluded that flexibility should be used when applying the physical or geographical test, and in light of this flexibility, a geographical connection could be found between floors two and six. The floors did not need to constitute ‘a physical cube’ as argued by the Appellant’s lawyer. Consequently, the Upper Tribunal’s decision was upheld and it was held that that two separate, non-consecutive floors held by the same owner in a modern office block could be considered an individual hereditament for the purposes of the ratings list.
Woolway was granted permission to appeal the Court of Appeal’s decision at the Supreme Court in January 2015. The appeal was heard on 11 February 2015 by Lord Neuberger, Lord Sumption, Lord Carnwath, Lord Toulson and Lord Gill.
The Supreme Court’s decision is expected to provide a much needed explanation of the definition of hereditament and to address the Court of Appeal’s discussion of whether a flexible approach should be applied to the concept of contiguity to reflect the changing nature of communal office blocks.
Commercial rates payers will no doubt hope that the Supreme Court upholds the Court of Appeal’s decision and advocates a flexible interpretation of the tests established in Gilbert; they are likely to make savings in terms of the rates they have to pay if they are able to list non-consecutive floors as single hereditaments.