07 September 2015 #Commercial Real Estate
The Supreme Court has held that two floors within the same building that do not immediately adjoin each other will be rated separately rather than as a single hereditament in Woolway v Mazars .
In this case the tenant Mazars LLP, a firm of chartered accountants, occupied the second and sixth floors of Tower Bridge House in London under two separate leases on similar terms. Mazars LLP applied to the Valuation Office Agency to merge the two entries for the spaces demised to them to form a single hereditament, seeking a resultant allowance of 10% in respect of the tax due.
Non-domestic rates are a tax on individual properties, so the Valuation Officer was required to determine whether the letting to Mazars LLP constituted one hereditament or two. Where two (or more) floors of a building are assessed as one hereditament, the tax bill can be lower as an end-allowance may be granted to take into account the particular features of the unit (as valuations are made by analogy, a valuer will look at recent comparable property transactions and then make adjustments for the property being assessed e.g. introducing an allowance if the property in question is considerably larger than the comparables referred to). However in assessing the application of rates to the property, the Valuation Officer determined that in this case each floor within the building constituted a separate hereditament, and that accordingly no allowance was due to the occupier. Mazars LLP appealed against this assessment.
The Supreme Court referred to the principles established in prior case law to formulate three tests to assist in their assessment:
On application of the three tests, the Supreme Court held that the second and sixth floors did not intercommunicate, could be let separately and were not necessary to the enjoyment of the other, and therefore should be assessed as separate hereditaments, overturning the earlier decision of the Court of Appeal.
It is also important to note that the judges considered that adjacent floors could also be assessed to be separate hereditaments where the floors in question are self-contained and the only access between the floors is via a public area of the building; in principle this can apply even where the areas are demised under one lease.
This case is significant for anyone with an interest in the valuation of buildings as it shows that occupiers are now likely to be subject to a higher rates liability in respect of different storeys within the same building, as the Court has upheld the Valuation Officers’ approach of treating individual storeys within a building as separate hereditaments when carrying out their assessment.