Woolway v Mazars [2015] UKSC 53

Mazars, a firm of chartered accountants, occupied the second and sixth floors of an office block under separate leases. The Supreme Court held these constituted separate hereditaments for rating purposes, establishing that the geographical test takes primacy over functional considerations.

Facts

Tower Bridge House is an eight-storey office block in London. Mazars, a firm of chartered accountants, occupied the non-common parts of the second and sixth floors under separate leases. The floors were not contiguous and could only be accessed from one another by leaving the demised premises, traversing common parts (including a lift) over which Mazars had only a licence, and entering the other floor.

In the 2005 rating list, the two floors were entered as separate hereditaments. In February 2010, Mazars applied to merge the two entries into a single hereditament with a fragmentation allowance, contending the floors were functionally interdependent. The Valuation Tribunal for England agreed to merger, as did the Upper Tribunal (Lands Chamber), albeit disallowing the fragmentation allowance. The Court of Appeal upheld this. The Valuation Officer appealed to the Supreme Court.

Issues

The central issue was how different storeys under common occupation in the same office block should be entered in the rating list for the purpose of non-domestic rating—specifically, whether non-contiguous floors occupied by the same occupier constituted a single hereditament or separate hereditaments.

Arguments

The Valuation Officer contended that the floors were geographically separate and should be entered as distinct hereditaments. The Advocate to the Court, Mr Forsdick QC, made submissions to assist the court on a novel and difficult point, including arguments derived from the Court of Appeal’s decision in Gilbert v S Hickinbottom and Sons Ltd [1956] 2 QB 40, suggesting that the relationship between the geographical and functional tests was a question of fact and degree for the tribunal.

Judgment

The Supreme Court unanimously allowed the appeal, holding that the second and sixth floors were to be entered in the rating lists as separate hereditaments.

Lord Sumption’s reasoning

Lord Sumption (with whom Lord Carnwath and Lord Toulson agreed) derived three broad principles from the Scottish rating authorities (including Bank of Scotland v Assessor for Edinburgh (1890) 17 R 839; University of Glasgow v Assessor for Glasgow 1952 SC 504; Midlothian Assessor v Buccleuch Estates Ltd [1962] RA 257; and Burn Stewart Distillers plc v Lanarkshire Valuation Joint Board [2001] RA 110):

First, the primary test is geographical, based on visual or cartographic unity. Where adjoining or vertically contiguous units do not intercommunicate and can only be accessed via property of which the occupier is not in exclusive possession, this is a strong indication that they are separate hereditaments.

Secondly, where two spaces are geographically distinct, a functional test may enable them to be treated as a single hereditament, but only where the use of one is necessary to the effectual enjoyment of the other. This may be tested by asking whether the sections could reasonably be let separately.

Thirdly, this necessity depends not on the business needs of the ratepayer but on the objectively ascertainable character of the subjects.

Lord Sumption considered that the decision in Gilbert could not be supported on the grounds given, and held that the President of the Lands Chamber had erred by introducing an arbitrary distinction between horizontal and vertical separation. The fact that Mazars had to leave its demised premises, enter common parts, and ascend by lift was no different geographically or functionally from leaving one building and entering another.

Lord Gill’s reasoning

Lord Gill agreed the appeal should be allowed. He distinguished Gilbert as a de-rating case, where ratepayers had a particular incentive to emphasise functional connection. He emphasised that valuation for rating is concerned with physical premises, and that geographically separate premises cannot be valued as one hereditament merely because the ratepayer chooses to link the use of one with the other. He observed that the President had been influenced by the use the occupier had chosen to make of the premises and had introduced irrelevant considerations of fairness.

Lord Neuberger’s reasoning

Lord Neuberger agreed with both Lord Sumption and Lord Gill, adding that two separate self-contained floors in the same office building, whether or not contiguous, cannot satisfy the test for a single hereditament absent very unusual facts. He noted that even consecutive floors are typically separated by service voids in the possession of the landlord. Once an internal means of access (such as a staircase) is created, the two hereditaments would normally be treated as having been converted into a single larger hereditament.

Lord Carnwath

Lord Carnwath agreed with Lord Sumption but preferred to express no firm view on the treatment of contiguous floors in single occupation, considering the Valuation Officer’s concessionary practice on that point unobjectionable.

Implications

The decision clarifies that, in identifying a hereditament for non-domestic rating purposes, the geographical test enjoys primacy. Functional considerations are subordinate and only operate to unite geographically separate premises where the use of one is objectively necessary to the effectual enjoyment of the other—not where the occupier merely chooses to use them together for business convenience.

The judgment significantly disapproves the reasoning in Gilbert v S Hickinbottom and Sons Ltd [1956] 2 QB 40, which had created uncertainty in English rating law for nearly 60 years. It aligns English law with the more principled Scottish approach.

Practically, the decision matters to occupiers of multi-storey commercial buildings, valuation officers, and rating practitioners. Occupiers of non-contiguous floors will normally face separate rating assessments for each floor, which may have significant financial consequences (as noted in Trunkfield (Valuation Officer) v Camden London Borough Council [2011] RA 1). The decision leaves open the precise treatment of contiguous floors in single occupation, with Lord Carnwath expressly declining to decide that point, while Lord Neuberger and Lord Gill expressed views suggesting that even contiguous floors lacking direct internal communication might be separate hereditaments. The judgment underlines that rates are a tax on property, not on the occupier’s business, and that the unit of assessment must be determined by reference to objectively ascertainable physical characteristics rather than the occupier’s business arrangements.

Verdict: The Supreme Court allowed the Valuation Officer’s appeal, set aside the orders of the Valuation Tribunal and the Upper Tribunal, and declared that the premises demised to Mazars on the second and sixth storeys of Tower Bridge House are to be entered in the rating lists as separate hereditaments.

Source: Woolway v Mazars [2015] UKSC 53