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Radhika_KapilaIn the recent appeal of Woolway v Mazars, the Supreme Court ruled that non-contiguous floors within the same office block could not be judged as the same unit or ‘hereditament’ for the purpose of paying business rates.

The appeal brought by the Valuation Officer, Peter Woolway, sought to overturn the decisions made in the Valuation Tribunal, Upper Tribunal and Court of Appeal that the two non-contiguous floors occupied by accountancy firm Mazars LLP within the same office block should be rated as a single hereditament. The appeal was unanimously allowed.

Background

A more detailed appellate history can be found in the case preview, but the main facts are as follows.

When Mr Woolway entered the two floors occupied by Mazars in the same office block (floors two and six) as two separate hereditaments on the 2005 ratings list, Mazars disputed the decision and brought the issue before the Valuation Tribunal of England with the purpose of establishing the two floors it occupied in the office block as a single hereditament. The Valuation Tribunal concluded that the two floors should indeed be considered as one unit for the purpose of the rating list as a result of their “essential functional link” as floors occupied by the same tenant within the same office block.

Mr Woolway then went on to appeal the Valuation Tribunal’s decision at the Upper Tribunal, arguing that, as the floors were not adjoining, there was no contiguity. The Upper Tribunal dismissed the appeal, applying the case of Gilbert (VO) v S Hickinbottom & Sons Ltd [1956] 2 QB 40 and ruling that a “common sense” approach should be applied to the notion of contiguity. In using a common sense approach, the two floors were judged sufficiently connected to be considered a single unit.

When Mr Woolway brought the case to the Court of Appeal following the Upper Tribunal’s decision, his appeal was once again dismissed, with the judges concluding that geographical and physical proximity tests established in the case of Gilbert should be applied flexibly and that the fact that the floors were connected through common parts of the building was evidence enough of a geographical and physical connection.

Following this decision, Mr Woolway was granted permission to appeal the Court of Appeal’s decision at the Supreme Court in January 2015.

Supreme Court Decision

On the 29 July 2015, the Supreme Court allowed Mr Woolway’s appeal, reversing the decisions made at the Valuation Tribunal, Upper Tribunal and Court of Appeal and ruling that the two floors should be treated as separate hereditaments.

Rather than using the tests established in Gilbert which were applied in the previous decisions, Lord Sumption amalgamated tests used in various Scottish cases, including Bank of Scotland v Assessor for Edinburgh [1891] 18 R 936, Burn Steward Distillers plc v Lanarkshire Valuation Joint Board [2001] RA 110 and University of Glasgow v Assessor for Glasgow [1952] SC 504  to come up with a three pronged approach comprised of the key principles of (1) geography (2) functionality and (3) enjoyment. These issues were discussed in the following ways:

Geography

In his judgment, Lord Sumption described the basis of this test as “visual or cartographic unity”. Physical proximity and contiguity often evidence this unity. However, as explored in Bank of Scotland v Assessor for Edinburgh, contiguity is not the sole characteristic of geographical proximity. Contiguous units need to be interconnected and easily accessed by one another. Lord Sumption observed that the two floors in question were not sufficiently interconnected by virtue of having to pass through common parts of the building not owned by Mazars.

Functionality

Even if the geographical test is not fulfilled, the principal of functionality might have considerable influence over a decision in favour of two separate units being treated as one hereditament. The basis of this test is whether the two units have any functional reliance on one another, namely, is one necessary for the enjoyment of the other? Lord Gill noted (at paragraph 39 of the judgment) that this test was primarily one of interdependence between separate parts, such interdependence being “objectively ascertainable”. The use made of the units by the occupier should not be considered as part of this and Lord Gill observed that in the Court of Appeal decision, the consideration of the occupier’s use of the premises added an element of confusion to the notion of functional connectivity.

Lord Sumption highlighted the fact that the floors occupied by Mazars could be let separately, suggesting that the two could function independently and did not comprise of one unit. As such, a functional connection could not be established.

Enjoyment

It was decided that where premises consisted of two self-contained pieces of property, exceptional facts were needed to be able to treat the two as a single hereditament.  It would depend on the character of the subjects and the individual characteristics of the units when operating together. Lord Neuberger, in agreement with Lord Sumption, observed that as the separate floors occupied by Mazars LLP were two self-contained units accessed by common parts of the building (rather than, for example, being connected through a private internal passage or staircase), there were no such ‘exceptional’ facts in this instance.

The Supreme Court’s decision deviated from the previous judgements made in the Valuation Tribunal, Upper Tribunal and Court of Appeal primarily due to the fact that, unlike the previous appeals, the justices chose not to apply Gilbert, deeming it to be “plainly an unsatisfactory decision” (Lord Gill at paragraph 28). By instead applying the more definitive tests established in the Scottish cases, the decision at the Supreme Court was reached unanimously.

Comment

Unsurprisingly, the Supreme Court’s decision is likely to disappoint many commercial tenants, many of whom occupy non-contiguous floors within the same office block. The decision will mean that rate payers will be prevented from seeking a discount on the rates payable by claiming that separate floors constitute a single hereditament. However, the Supreme Court’s ruling draws on key points from previous cases and is rooted in practicality; if two floors are capable of separate occupation and require the tenant to use common areas before entering another floor, there is both practical and legal grounding to evidence the fact that these two units are separate.