Part 2: Hereditament

The Valuation Office Agency's (VOA) technical manual for the rating of business (non-domestic) property.

1. Introduction and definitions

1.1 Introduction

Once it is established that rateability exists (See Section 2 Part 1 ‘Rateability) it is then necessary to identify the rateable property that is to be valued in terms of what it comprises and its boundaries. The term ‘Hereditament’ is used for a single unit of rateable property. It is a term that was defined in the General Rate Act 1967 and its meaning has then been interpreted by case law over the years.

Identfying the hereditament and what is to be valued is an important  part of the Valuation Officer’s duty under [Section 41 of the LGFA 1988] to compile and then maintain a rating list. This duty is distinct from the responsibility of the billing authority to determine if there is a rateable occupier of the hereditament who may be liable to pay rates.  In the Court of Appeal, Lord Justice Sedley said;

‘Counsel for the appellant was right to segregate the two things (hereditament and rateable occupation) and to insist that until a hereditament was identified, occupation could not arise.’

The correct identification of the rateable hereditament which will become the unit of assessment is important to all parties; to the occupier whose liability, in terms of the extent of the hereditament, is established; to the billing authority in connection with charging and collection and also the Valuation Officer who is required to compile and maintain correct rating lists.

1.2.  Statutory Definition

The Local Government Finance Act 1988 does not actually define hereditament but  section 64 (1) of the Act states:

‘A hereditament is anything which, by virtue of the definition of hereditament in section 115(1) of the 1967 Act, would have been a hereditament for the purposes of that Act had this Act not been passed.’

Referring to section 115(1) of the General Rate Act 1967 (the 1967 Act):

‘“hereditament” means property which is or may become liable to a rate, being a unit of such property which is, or would fall to be, shown as a separate item in the valuation list;’.

The statutory definition does not assist in identifying the hereditament but does indicate that a hereditament is a single unit of rateable property which will be shown as a separate entry in the rating list.

In most instances identifying the hereditament is straightforward but for more difficult scenarios guidance is provided by case law. The leading case on identifying the hereditament is [Woolway (VO) v Mazars (2015) RA 373].

1.3 Artificial Hereditaments

Some rating list entries of hereditaments are as a result of statute and do not follow the usual identification rules.

Under S.64(3) LGFA 1988 the Secretary of State has power to make regulations provided that in prescribed cases: anything which would (apart from these regulations) be more than one hereditament shall be treated as one hereditament.

For example, site sharers on telecommunication masts have been prescribed as being included in a “Host” mast assessment under The Non-Domestic Rating (Telecommunications Apparatus) (England) Regulations 2000 (See RM S.5a Telecommunication masts and wireless transmission sites, and corresponding Practice Note for further details).

A useful summary of further examples is set out in Ryde on Rating Division C Chapter. 2 Section N Artificial Hereditaments [246 – 300]

1.3.1 Property in Common Occupation [England]

The [Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018] makes provision, where two or more hereditaments occupied or owned by the same person meet certain conditions as to contiguity, for those hereditaments to be treated for the purposes of non-domestic rating as one hereditament by inserting the following paragraphs (3ZA to 3ZD) to S.64 Hereditaments of the LGFA 1988. The amendments have effect for financial years beginning on or after 1^st^ April 2010, but apply to England only:

“(3ZA) In relation to England, where—

(a) two or more hereditaments (whether in the same building or otherwise) are occupied by the same person,

(b) the hereditaments meet the contiguity condition (see subsection (3ZC)), and

(c) none of the hereditaments is used for a purpose which is wholly\ different from the purpose for which any of the other hereditaments is used,

the hereditaments shall be treated as one hereditament.

(3ZB ) In relation to England, where—

(a) two or more hereditaments (whether in the same building or otherwise) are—

(i)owned by the same person, and

(ii)unoccupied,

(b)the hereditaments—

(i)ceased to be occupied on the same day, and

(ii)have each remained unoccupied since that day,

(c) immediately before that day, the hereditaments were, or formed part of, a single hereditament by virtue of subsection (3ZA), and

(d) the hereditaments meet the contiguity condition (see subsection (3ZC)),

the hereditaments shall be treated as one hereditament.

(3ZC) The hereditaments meet the contiguity condition if—

(a) at least two of the hereditaments are contiguous, and

(b) where not all of the hereditaments are contiguous with each other—

(i)one or more of the other hereditaments is contiguous with one or more of the hereditaments falling within paragraph (a), and

(ii)each of the remaining hereditaments (if any) is contiguous with at least one hereditament that falls within sub-paragraph (i) or this sub-paragraph.

(3ZD) For the purposes of subsection (3ZC) two hereditaments are contiguous if—

(a) some or all of a wall, fence or other means of enclosure of one hereditament forms all or part of a wall, fence or other means of enclosure of the other hereditament, or

(b) the hereditaments are on consecutive storeys of a building and some or all of the floor of one hereditament lies directly above all or part of the ceiling of the other hereditament, and hereditaments occupied or owned by the same person are not\ prevented from being contiguous under paragraph (a) or (b) merely\ because there is a space between them that is not occupied or owned by\ that person.”

1.3.2  Property in Common Occupation [Wales]

 Under the powers conferred by S 64(3) of the Local Government Finance Act 1988 the Welsh Government made the Non-Domestic Rating (Property in Common Occupation)(Wales) Regulations 2022 [SI 2022 No. 1025]. These mirror the effect of the Property in Common Occupation Act referred to at 1.3.1 and have the same effect in determining a statutory or artificial  hereditament of the same nature in Wales, where two or more hereditaments occupied or owned by the same person meet certain conditions as to contiguity, so that Wales now aligns with England, but only from 1^st^ April 2023.

1.3.3  Crown Property

In respect of Crown property, the [Local Government and Rating Act 1997] inserted s65A into the LGFA 1998 so that any if any property would consist of two or more Crown hereditaments it is to be treated as one hereditament ‘occupied by such one of the occupiers as appears to the billing authority to occupy the largest part of the property’

(1) This Part applies to the Crown as it applies to other persons.

(2) Accordingly, liability to a non-domestic rate in respect of a hereditament is not affected by the fact that-

(a) the hereditament is occupied by the Crown or by a person acting on behalf of the Crown or is used for Crown purposes, or

(b)the Crown or a person acting on behalf of the Crown is the owner of the hereditament.

(1) If (apart from this subsection) any property would consist of two or more Crown hereditaments, the property is to be treated for the purposes of this Part as if it were a single hereditament occupied by such one of the occupiers as appears to the billing authority to occupy the largest part of the property.

This does not however relate to where property becomes vacant, as s65A only relates to occupied Crown property and not vacant property.  The vacant part will form a separate hereditament

1.4  General Definitions: Relevant / Non-domestic and Composite Hereditaments

‘Relevant hereditaments’ which are liable to be rated are those defined by s.64(4) of the Local Government Finance Act 1988 and consists of property of any of the following descriptions:

• Lands
• Coal Mines and most other Mines
• Certain Advertising Rights
• Meters to measure a supply of gas or electricity

‘Lands’ are not defined but are taken to mean everything on, over or under the surface of land and will, therefore, include buildings and areas of surface water [See Electric Telegraph Co. v Salford Overseers (1855)]

The rateable hereditament may in addition to land also include certain items of plant and machinery and chattels, the rateability of which, is established by legislation and judicial decisions respectively; it may also take into account the impact of certain incorporeal rights. These subjects are considered later in this RM section.

Under section 42 of  the Local Government Finance Act 1988 (the 1988 Act), the rating list maintained by the Valuation Officer must show for each day for which it is in force all ‘relevant’ non-domestic hereditaments, regardless of whether or not they are currently occupied. The only exceptions to entry being hereditaments which are exempt or included in a central rating list.

A hereditament is non-domestic if either:

• it consists entirely of property which is non-domestic, or
• it is a composite hereditament.

‘Non-domestic’ property is not defined in the legislation.  Instead, ‘domestic’ property is defined in Section 66 of the 1988 Act; non-domestic property is anything which is not domestic.

A hereditament is composite if only part of it consists of domestic property as defined in S64(9) LGFA 1988).

In the case of a composite hereditament it is the whole hereditament that falls to be entered in the local rating list.  However, the rateable value of a composite hereditament is confined to the value ‘reasonably attributable to the non-domestic use’ of the hereditament. Sched 6 Para 2(1A) LGFA 1988

The Domestic/ Non-domestic borderline and Composite hereditaments are covered in detail in RM S.2 Pt.5 The Domestic/ Non-domestic borderline

A hereditament will often include rateable plant and machinery, sometimes items which are chattels may also be assessed with the land e.g. temporary buildings or floating restaurants. See RM S.5 Pt.4 Valuation of Plant and Machinery)

What constitutes a rateable hereditament is a question of fact; the premises and the occupation must be considered as they actually are at the material day, and not as they might or could be.

2. Identification of the hereditament

2.1 Introduction

In many cases the identification of the hereditament will be a straightforward matter, but it is the first thing that needs to be done. Before a valuation can be made it is necessary to know what is to be valued - the hereditament - and how many there should be.

From case law a number of broad rules can be discerned particularly now following the leading case [Woolway (Appellant) v Mazars (Respondent) [2015] UKSC 53]  in which Lord Sumption following a careful examination of established legal rules set out three principles for establishing the hereditament. See details of the case at paragraph 2.2 below.

In England, the Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018 provides for hereditaments meeting a new contiguity condition to be shown in a list as a single hereditament under S64 of the Local Government Finance Act 1988 from 1^st^ April 2010.

The provisions of the Act in England have been replicated in Wales by The Non-Domestic Rating (Property in Common Occupation) (Wales) Regulations 2022 but only come into force from 1^st^ April 2023.

The legislation effectively reverses the aspect of the Supreme Court decision in Woolway which required non-intercommunicating occupations to be assessed separately and reverts back to the former VO practice where separate but adjoining areas, used for the same purpose and in common occupation are valued as a single assessment.

Paragraph 2.9 below covers the considerations which should be applied to determine whether one or more hereditaments in common occupation, meet the contiguity provisions and provided they are used for same purpose (see Para. 2.6) will fall to be assessed as one hereditament.

The amendments have effect in England for financial years beginning on 1^st^ April 2010 and in Wales for financial years beginning on 1^st^ April 2023. This means that the provisions at Paragraph 2.8 should be applied to determine the unit of assessment for property in common occupation, for the 2023 rating list in England & Wales; for all 2017 list casework in England – maintenance, Check, Challenge, Appeal – together with outstanding 2010 appeals in England. 2017 casework in Wales and any outstanding 2010 appeals in Wales will ignore the provisions of legislation and have regard to the tests emanating from Woolway v Mazars referred to at 2.2

2.2 The Woolway case

The case of  Woolway v Mazars ([2015] UKSC 53) concerned Tower Bridge House, an eight-storey office block in St Katherine’s Way, London. Mazars, a firm of chartered accountants, occupied the second and sixth floors of the building under separate leases. These floors were separated by common areas in the building and were entered in the 2005 rating list as separate hereditaments.

The issue for the Supreme Court to determine was whether the two floors formed one single hereditament or two separate hereditaments.  The leading authority on the identification of the hereditament was the Court of Appeal decision in respect of Gilbert v S Hickinbottom and Sons Ltd ([1956] 2 QB 40) and the principal arguments focused on the meaning and application of the tests used in that case; whether the primary test was geographic (that the occupation can all be ringed around on a map without intervening occupations) or a functional test (that the parts were occupied together in the same building and without inconvenience caused by the lack of contiguity). 

Since the Gilbert case it has been the practice of VOs to treat contiguous occupations (those that touch each other) as single hereditaments and those that are not contiguous as separate hereditaments unless an ‘essential functional connection’ existed between the parts – that is to say that unless both parts are occupied together they could not properly function according to their character – for example, a golf course divided by a road could not function as a golf course if each part was a separate hereditament. The Supreme Court, as explained earlier did not consider the Gilbert case correctly decided and set out appropriate tests to determine the hereditament bringing English and Welsh law into line with Scottish law, Lord Sumption derived three principles:

‘First, the primary test is, as I have said, geographical. It is based on visual or cartographic unity. Contiguous spaces will normally possess this characteristic, but unity is not simply a question of contiguity, as the second Bank of Scotland case illustrates. If adjoining houses in a terrace or vertically contiguous units in an office block do not intercommunicate and can be accessed only via other property (such as a public street or the common parts of the building) of which the common occupier is not in exclusive possession, this will be a strong indication that they are separate hereditaments. If direct communication were to be established, by piercing a door or a staircase, the occupier would usually be said to create a new and larger hereditament in place of the two which previously existed. Secondly, where in accordance with this principle two spaces are geographically distinct, a functional test may nevertheless enable them to be treated as a single hereditament, but only where the use of the one is necessary to the effectual enjoyment of the other. This last point may commonly be tested by asking whether the two sections could reasonably be let separately. Thirdly, the question whether the use of one section is necessary to the effectual enjoyment of the other depends not on the business needs of the ratepayer but on the objectively ascertainable character of the subjects. The application of these principles cannot be a mere mechanical exercise. They will commonly call for a factual judgment on the part of the valuer and the exercise of a large measure of professional common sense. But in my opinion they correctly summarise the relevant law.’.

So the first and primary test is geographic. Can the property be ring fenced on a map? Where two properties are geographically separate a functional test may still apply and enable assessment as a single hereditament. However, this test is based on the requirement for one part to be essential to the function of the other part and this essentiality must be down to the character of the property as opposed to just the business needs of the ratepayer. The example of an 18 hole golf course split by a public road referred to in Hickinbottom  seems to meet the functional test, but two industrial units located on opposite sides of a public road (as was the case in Hickinbottom) where the occupiers process meant occupation of both was essential to their operation in each part would not. Each unit could be separately let independently of the other and any functional connection between the two is due to the needs of the occupier and not the characteristics of the property. The Woolway case concerned whether it was correct to assess together two non-contiguous offices floors in a multi-let building. The Supreme Court determined, unanimously, that it was not correct to do so because the primary test was a geographic one and was whether the occupation can be ringed around on a map or plan without any intervening occupations.

In England, Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018 and in Wales The Non-Domestic Rating (Property in Common Occupation) (Wales) Regulations 2022, effectively reverse part of this ruling by requiring hereditaments that meet a new contiguity test be treated as a single hereditament – see paragraph 2.9 below.

Mazars did not actually concern adjacent floors, but the judgments of Lord Neuberger and Lord Gill suggested that such floors should be assessed separately unless they intercommunicated directly (for example by an internal staircase). Lord Sumption clearly regarded intercommunication as important and Lord Toulson agreed with Lords Sumption, Neuberger and Gill. Lord Carnwath said that it was “unobjectionable” that such floors should be assessed together and preferred not to express a firm view. It is clear from the speeches that the court’s view was very much that non-intercommunicating floors should be separately assessed.

Whilst the Supreme Court decision sets out general principles, it is important to remember that determining the extent of a hereditament in any case will depend upon the individual circumstances concerned and then applying the general principles to those circumstances.

2.3 Occupation

Rating is a tax on the occupation of land and buildings.  The ratepayer is taxable in respect of their occupation, but this does not always assist in identifying the hereditament(s) because the ratepayer may occupy one or more hereditaments. For detailed consideration of rateable occupation please refer to [RM S.2 Pt.1 Rateable Occupation]. 

In Woolway, the Supreme Court made it clear that the primary test in identifying the rateable hereditament was geographic and it might be thought occupation had little to do with this. However, as Lord Neuberger pointed out (para 49):

‘the occupation of premises can in some circumstances serve to control their status as one or more hereditaments. An office building let to and occupied by a single occupier would be a single hereditament, but if the freeholder let each floor of the building to a different occupying tenant, retaining the common parts for their common use, then each floor would be a separate hereditament.’

Occupation, therefore, needs to be considered and will very often determine what is or is not a hereditament. A single geographical unit wholly occupied by one occupier will normally be a single hereditament: the same occupied in parts will be several hereditaments. Note that the final sentence of the quote from Lord Neuberger has been superseded by the change in legislation for contiguous properties through the Rating (Property in Common Occupation) Act (England) and SI 2002/No.1025 (Wales) referred to at No’s 1.3.1 & 1.3.2 and No. 2.9

Absence of occupation and the four tenets or ingredients of rateable occupation, does not mean that an identified hereditament cannot be entered in a rating list or remain there; the fact the property is capable of separate occupation in accordance with the established hereditament ‘rules’ will enable entry as ‘property which is or may become liable to a rate.’ 

Sometimes connected companies or organisations will be found to be occupying the same building or site. It may be difficult to decide whether each occupation comprises a separate hereditament or whether there is a single hereditament occupied by the main company with the other companies either being in the position of lodgers, not in paramount occupation of their areas or are merely the main company under another name.  Paragraph 7 deals with the question of “corporate veil” and contiguous occupying companies.

The concept of Landlords retaining paramount control over property occupied by lodger was revisited by the UKSC in Cardtronics and the Court of Appeal in Ludgate House which are covered in paragraph 2.8.

2.4 The Geographic Test

In England this test has, in many situations, been superseded by The Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018. See 2.8 Property in Common Occupation - In England for considerations to be applied in England.

The Geographic Test simply looks at whether the premises under consideration constitute a single unit on a plan.  This might be a single unit horizontally or vertically - it is not a plan in two dimensions only.  Normally this will be a self-contained piece of property i.e. all parts of which are physically accessible from all other parts, without having to go onto other property

This unity on a plan is not simply a question of contiguity: it is not simply a question of whether two pieces of property touch.  There needs to be direct communication between the two parts.   Normally, if it is necessary to go out of one part and into the other part via the street or common parts (for example, from one floor to another in an office building) this will mean the two parts are separate hereditaments notwithstanding there being a single occupier.

It might be thought floors next to each other in a building e.g. the second and third floors, or two shops side by side occupied by a single occupier might constitute one hereditament because they are contiguous.  However usually there will be no direct communication between them and to reach each of the floors it will be necessary to go out into the shared common parts which are not in the occupation of the occupier or with the shops go out into the street or shopping mall. 

Floors adjacent to each other in an office building will also not be contiguous to each other because there will often be a void between them which contains servicing equipment and is in the possession of the landlord of the building rather than the occupier.

If direct communication were to be established, by piercing a staircase through the floor slab or a doorway through the wall then the occupier would usually be said to have created a new and larger hereditament in place of the two which previously existed.

Prima facie, where an occupier has two or more continuous and intercommunicating parts these will form a single hereditament because of the Geographic Test: conversely where an occupier has two or more separate or non-intercommunicating occupations these will not, because of the Geographic Test, form a single hereditament.   The outcome of the initial Geographic Test may, though, need to be modified because of the other tests.

Note following the Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018 and the Non-Domestic Rating (Property in Common Occupation)(Wales) Regulations 2022, property that is in the same occupation and contiguous but not interconnecting and used for the same purpose can now be regarded as one hereditament. See paragraph 2.9 below.

Appendix 1 gives examples of the working of the rules in Wales prior to 1^st^ April 2023.

Appendix 1a gives examples of the working of the rules in England following the Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018 and in Wales from 1^st^ April 2023 following the Non-Domestic Rating (Property in Common Occupation) (Wales) Regulations 2022.

Connection by cables, wires, pipes and railway lines have generally not been held to create geographic unity. Therefore, premises separated by property in other occupations, including public highways, private roads (where the occupier does not have exclusive rights over the road), railway and canals are not geographically one merely, because of such connections.

Appendix 2 discusses the connection by cables, wires and pipes.

2.5 The Functional Test

Where two parts of a property or two spaces are geographically distinct, a functional test may, nonetheless, enable them to be treated as a single hereditament but this will only be so where the use of one is necessary to the effectual enjoyment of the other.  It will be the exceptional situation.

This situation might need to be considered where two parts are divided by a public road, e.g. a factory complex with buildings either side of a highway; or where two parts are divided by land in the occupation of a third party.

An objective test of the property, not one based on the way the ratepayer uses premises

Prior to the Woolway case this question was normally considered on the basis of whether the two parts were ‘functionally essential’ the one to the other.  Sometimes this was considered having regard to the particular way the occupier chose to use the two parts.  Following Woolway having regard to the actual use is not correct and, indeed, this phrasing of the test appears wrong.  Importantly the Functional Test is not a question of examining the particular needs or way of operating the two parts by the actual occupier but looking at the nature of the premises objectively.  As Lord Gill said,

‘It cannot be right that geographically separate premises should be valued as one hereditament simply because the ratepayer chooses to link his use of one with his use of the other. To modify the geographical test with considerations of functionality, in this sense of the word, is to add to a clear and objective test the uncertainty of a test that is dependent on whatever happens to be the ratepayer’s choice of use.’

‘Functionality… is not a reference to the use that the ratepayer chooses to make of the premises. It is a reference to a necessary interdependence of the separate parts that is objectively ascertainable.’

Lord Sumption:

‘the question whether the use of one section is necessary to the effectual enjoyment of the other depends not on the business needs of the ratepayer but on the objectively ascertainable character of the subjects.’

Effectual enjoyment

Whether the use of one part is necessary to the effectual enjoyment of the other was described in Woolway by Lord Sumption as something that:

‘could commonly be tested by asking whether the two sections could reasonably be let separately?’

To a large extent, of course, any two parts ‘could’ be let separately but the question asks whether they could ‘reasonably’ be let separately.   This appears to invoke a test of whether one part could be separately let and therefore separately occupied without significant detriment to the other part.

Lord Gill said:

’ Properties that are discontiguous but nonetheless geographically linked, may constitute one hereditament if the occupation of one part would be pointless without the occupation of the other.’

Lord Neuberger echoed this in saying that ‘strict necessity is not the test’ but if one property ‘could not sensibly be occupied or let other than with the other property’ then the two parts should be treated as one hereditament.’

The rare case

It is important to note that treating two separate properties as one hereditament is very much the unusual situation. As Lord Neuberger said, ‘Where premises consist of two self-contained pieces of property it would, in my view, require relatively exceptional facts before they could be treated as a single hereditament.’  Lord Sumption described the circumstance as ‘rare’:

‘There are, however, rare cases in which function may also serve to aggregate geographically distinct subjects.’ (para 6)

How far apart can the geographical separate parts be?

In cases before the Woolway case was decided it was very clearly established that the two parts needed to be close to each other - normally simply the distance of a road’s width away.

In Edwards (VO) v BP (Llandarcy) Ltd (1974 LT RA 1), the Lands Tribunal (Mr Stuart Daniels QC and Mr Emlyn Jones FRICS) stated the following, which included what has been seen as a very useful and often quoted analogy:

‘Consideration of these two cases leads us to the conclusion that the two separate properties which are not directly and physically contiguous could not properly be regarded as a single hereditament unless firstly, there is an essential functional link between the two parts and secondly, there is a substantial degree of propinquity. One might perhaps consider the analogy of a sparking plug where the gap between the parts is so small that it can physically be traversed in the course of the functioning of the whole. It might also be true to say that the stronger the spark the greater the gap that can be traversed.’

Note: The word “propinquity”, in the context of the above quotation, can be taken to mean “nearness”.

In Re the appeals of Evans (VO) (2003 LT RA 173) it was held that the functional connection was not sufficiently strong to overcome a geographical separation of 380 metres (in which seven intervening buildings were situated) between the two buildings.

As Gilbert was disapproved by the Supreme Court in Woolway, cases decided by reference to Gilbert will no longer act as precedent.  Given the more restrictive construction given to the Functional Test in Woolway, it is reasonable to assume that these questions would certainly not be interpreted more favourably (in the sense of a single assessment) if they were to be decided today.

In Woolway the judges did not mention the degree of separation.  However, the test of whether one part could be separately let and therefore separately occupied without significant detriment to the other part is very much more likely to be met where the two parts are geographically very close and the geographical separation small.  In the rare cases to which the functional test applies to aggregate two geographically distinct parts it is likely that if the two parts are not close that they will reasonably be capable of separate letting and therefore remain two hereditaments.

2.6 The test of whether part is ‘Used for an entirely different purpose’

In Woolway Lord Gill noted that functionality might also ‘be relevant where premises that are apparently geographically linked are wholly disassociated’ and gave as an example the hotel and engine sheds in the York Union case (see later).

Lord Sumption said that ‘the functional test serves to divide a single territorial block into different hereditaments where severable parts of it are used for quite different purposes.’

This aspect of the functional test has long established that premises, comprising a single geographical unit and in a single occupation, may form more than one hereditament if parts of the premises are used for entirely different purposes.

In what is generally referred to as the leading case in respect of the ‘entirely different purpose’ exception, in North Eastern Railway Co v Guardians of York Union 1900 1 QB 733 the railway company were rated, in one lump sum, for the whole of York station (including the railway hotel and refreshment rooms, a number of engine sheds, carriage and wagon shops and similar buildings, an electric light works, a pumping station, coal yards and warehouses), together with running lines and sidings. It was admitted by the respondent that the hotel and refreshment rooms should have been separately rated, but it was denied that any further subdivision was necessary.  It was found as fact that various parts might be occupied separately from the railway, but as presently laid out, they were only adapted for use by the railway company themselves. On these facts, it was held that no further subdivision of the property was necessary apart from the hotel and refreshment rooms

The entirely different purpose exception to the general rule appears to come from the remarks of Channell J, which, although strictly obiter dicta, are repeated below:

‘We are not asked to give any opinion about the hotel and refreshment rooms. If we had to give a decision upon them, I think the matter would be one of greater difficulty. If it is a mere question of fact whether the hotel is to be treated as a separate hereditament from the rest of the station, speaking for myself, I should be inclined to find that it ought to be so treated. In arriving at that conclusion I should be influenced by the fact that the hotel and the rest of the railway station are used for wholly different purposes……‘ 

Subsequently decided cases provide some further guidance on the question of what constitutes use of property for an entirely different purpose, such use being sufficient to justify dividing what would otherwise constitute a single hereditament.

In Dick Hampton (Earth Moving) Ltd. v Lewis (VO) and United Gravel Co. Ltd. v Sellick (VO) (1973 (LT RA 227), (1975 CA RA 269), which involved the rateability of borrow pits from which huge quantities of gravel were excavated for use in the building up of embankments on adjoining motorways, it was held that although the motorway site and borrow pit were in a single occupation and comprised a single geographical unit, nevertheless there were two hereditaments.

In his decision Lord Denning MR said:

’ …The two sites are used so much as one that they might in the ordinary way be regarded as a single hereditament for rating purposes. But the authorities show there are exceptional cases where an apparently single site may be treated as two or more hereditaments…. This is I think an exceptional case. The contractors occupy the two sites in two different capacities. They occupy the site of the motorway in their capacity as contractors doing the work of constructing the motorway, and therefore exempt from rating. But they occupy the site of the borrow pit in their capacity as suppliers of material, like the occupiers of a quarry supplying material for use elsewhere. These two different capacities mean that there are two separate hereditaments, the motorway site is not rateable, but the borrow pit is.’

In Brook (VO) v National Coal Board and Burnwell Coal Ltd. (1975 CA RA 367), Lord Denning MR, determining that a spoil heap whilst being contiguous to and in the same occupation as an adjoining mine nevertheless constituted a separate hereditament said:

‘….I gave as an instance the case where one part is used for some entirely different purpose…. This spoil heap is used for an entirely different purpose from the rest of the mine property. It is to be valued quite differently. And there is the difficulty of ascertaining who is in occupation - whether it is the contractors or not.’

The following general principle emerges from this leading decision:

That premises occupied by one person (in the legal sense), and which comprise one uninterrupted and continuous whole so that they form a single geographical unit, should be regarded as a single rateable hereditament, unless

(a) any part is used for “entirely different purposes”, and

(b) that part is capable of separate occupation.

In Trafford Metropolitan Borough Council v Pollard (VO) (2007 LT RA 49), the issue of whether two parts were used for “wholly or entirely different purposes” on the same site was considered.

The ratepayer owned a 5 hectare site in Urmston in Manchester containing the Flixton County Secondary School for Girls and the Urmston Leisure Centre. In brief, the material considerations to be taken into account included:

• whether the two parts were capable of separate occupation;
• the nominal purpose for which the two parts of the site were used are as a school and as a sports and leisure centre;
• the activities comprehended in the use of each part of the site;
• the extent to which parts of the valuation officer’s school hereditament were used by the public and the sports centre was used by the school;
• the history of the proposal for dual use facilities;
• how the sports centre was financed
• the separate management of the two parts under different statutory powers
• the degree of physical separation between the two parts.

The most significant considerations were that the sports centre and the all-weather pitch were conceived as dual use facilities and were operated as such, there was a significant degree of interaction between the two parts of the site, and the concept of this interaction was a fundamental part of the development of the sports centre.

Mr George Bartlett QC (president), said:

“….it is a question of fact and degree for the decision maker (valuation officer, valuation tribunal or the Lands Tribunal) whether property in one occupation should be entered in the lists as one or more than one hereditament, it follows that there can be no more conclusive tests for determining the issue when it arises.”

He went on to determine:

“It is, of course, the case, that the two parts of the site can readily be identified as a school on the one hand and a sports centre on the other and that they are managed separately under different statutory powers. These, in my view, are important considerations, which argue quite strongly in favour of treating them as separate hereditaments. On balance, however, in the light of all the considerations I think that counsel for the ratepayer council is right in contending that the degree of functional connection between the two parts of the site is such that the whole site is properly to be treated as a single hereditament.”

2.6.1 Where only part is used, does this constitute an entirely different purpose?

Perhaps the most obvious example of use for an entirely different purpose is when part of premises is used and part disused, the question then arises as to whether the disused part constitutes a separate hereditament.

Historically the general rule is that occupation of part is occupation of the whole but where a part that is capable of separate occupation is completely unused, notwithstanding the fact that it may have been so used when last occupied, a separate hereditament may exist.

This leading case in this respect is the decision of the Lands Tribunal in Moffat (VO) v Venus Packaging Ltd (1977 LT RVR 199); (243 EG 391).

The Venus Packaging case concerned a factory, wholly owned by the appellant ratepayer company, part of which was unused following the construction of a new manufacturing facility. The property comprised three distinct parts having been built in phases in 1959, 1961 and 1967, of which at the relevant date only the 1967 built (the southernmost) section was occupied, the other parts having been vacated.

It was agreed that the other parts were at the date of proposal unoccupied and capable of separate letting, indeed subsequent to the relevant date the two parts were actually occupied, for a period of three months, by separate companies. 

The Lands Tribunal accepted the general rule that occupation of part of a hereditament is occupation of the whole.

However, the Tribunal member Mr Emlyn Jones decided that:

‘…Quite clearly the unused part is not used for the same purpose as the used part.’ 

As the two parts were clearly defined and the unused part capable of separate letting the property was held to comprise two hereditaments.

The existence of a separate hereditament is a question of fact and degree and VOs should be satisfied that the unused part is capable of separate occupation, that there are no acts of occupation however slight; and that although unoccupied the part has not been reserved for future use.

2.7   The test of Capability of Separate Definition

A hereditament must be capable of identification, i.e. it must be sufficiently defined or ring fenced. Two examples of cases where the hereditament has been held not to be sufficiently defined  so as to constitute a hereditament include; a golf club who had a licence to use an undefined part of a public forest as a golf course, and a market trader with no right to occupy a defined portion of ground for his stalls. The trader having acquired only the right to a given stall in a given row, and not the right to place one on any definite portion of ground; for further reference, the two cases are Peak (Valuation Officer) v Burley Golf Club (1960 All ER 199, 6 RRC 73, CA) and Spear v Bodmin Union ([1880] 49 LJ, MC 69; 43 LT 127; 44 JP 764), respectively.

Part of the test of separate definition is the requirement for property to be capable of separate letting or occupation so as to be considered as a separate hereditament. It is suggested that capability for letting does not necessarily equate with capability for separate occupation: it might be possible to achieve a letting of premises not otherwise capable of separate occupation – the latter is the real test.

In considering whether a property is capable of separate occupation, regard should be had to the accessibility and facilities/services available within and to the property; the Town and County Planning situation should also be ascertained. A consideration of past patterns of occupation may also provide assistance: a relevant factor in the Venus Packaging case.

Although it is permissible when considering if the property is capable of separate occupation to envisage alternative uses, within the constraints of the physical limb of the rebus sic stantibus rule, the possibility of more than minor alterations to the property cannot be considered.

2.8 The Paramount Occupier - The Lodger and Landlord scenario

In determining who is in paramount occupation one needs to consider control. In Westminster Council v Southern Railway [1936] AC511 Lord Russel stated

“The general principle applicable to the cases where persons occupy parts of a larger hereditament seems to be that if the owner of the hereditament (being also in occupation by himself or his servants) retains to himself general control over the occupied parts, the owner will be treated as being in rateable occupation; if he retains to himself no control, the occupiers of the various parts will be treated as in rateable occupation of those parts.” (Para 530)

“In truth the effect of the alleged control upon the question of rateable occupation must depend upon the facts in every case; and in my opinion in each case the degree of the control must be examined, and the examination must be directed to the extent to which its exercise would interfere with the enjoyment by the occupant of the premises in his possession for the purposes for which he occupies them, or would be inconsistent with his enjoyment of them to the substantial exclusion of all other persons.” (para 532)

There have been two recent cases that considered paramount occupation.

2.8.1 Cardtronics UK Ltd and Others v Sykes and Others VO 

In Cardtronics v Sykes [2020] UKSC 21, the UK Supreme Court unanimously agreed that the sites of fixed ATM machines, in Superstores and other retail settings, were capable of being a separate hereditament, the host stores had not sufficiently parted with possession and, when this was considered alongside control and “purpose” they concluded that the host remained in rateable occupation of the site of the ATM. The relationship between the Host store and ATM operator being akin to that of a Landlord and Lodger.

The Upper Tribunal’s description of the arrangement in Cardtronics, which was quoted in the Supreme Court at para 48 concluded that:

“The store has not, in any of these cases, parted with possession of the site of the ATM, but it has agreed to confer rights on the bank which substantially restrict the store’s use of that small part of its premises which comprises the ATM site. The store has agreed to that restriction because the presence of the ATM furthers its own general business purposes and because the operation of the ATM by the bank provides the store with an income.”

Lindblom LJ in the Court of Appeal (at para’s 87-88)

I think there is force in the submission [for the retailers] that where the ‘owner’ has given up neither possession nor actual occupation of the site in question, where the purpose for which that site is occupied—in this instance, the operation of an ATM—is a common purpose with that of the other party in occupation and is of direct benefit to the ‘owner’, and where the ‘owner’ retains physical or contractual control over the site to realise that benefit and this can be demonstrated by objective evidence, the principle of ‘general control’ applies, in the normal way…

“On a straightforward application of the ‘general control’ principle, in the light of the facts the Tribunal accepted, the correct answer seems to me to have been that the retailer, as ‘owner’, had in all these cases—both internal and external ATM sites—retained sufficient control of the site, in contractual, physical and functional terms, to be regarded as being in rateable occupation of it.”

The Supreme Court found for the ATM operators and retail hosts, concluding that;

• the service provided at the ATM site was not a “distinct business activity, but an integral part of the business activity of the store”, but instead “one of the typical services provided at a modern retail store”, and so regarded by their users”;

• this situation was different to Southern Railway where selling newspapers was “no part of the railway company’s business” 

• the retailers had given only “limited possession” of the operators of the ATM sites in order to further the retailers own general business purposes,

When considering the concept of rival occupations discussed by Lord Russell in Southern Railway Lord Carnworth said (at Para 42) that  “…By that [rival occupations] I think he meant, not rivals in any commercial sense, but simply distinct business activities (selling newspapers or running railways in Southern Railway)…”

2.8.2 Ludgate House - London Borough of Southwark v Ludgate House Ltd. & Andrew Ricketts (VO)

Ludgate House was an office block comprising ground and lower ground floors with 9 upper storeys. It was purchased by Ludgate House Ltd [LHL] in 2010 with a view to demolition and redevelopment of the site in the future.

In March 2015 the former tenants vacated and in June 2015 a company called VPS (UK) Ltd [VPS] approached LHL with a proposal to protect Ludgate House from squatters by providing live-in guardians. VPS vetted each guardian and issued a strict contract to them which determined how the guardian was permitted to live within Ludgate House.

The contract between VPS & LHL provided that VPS would “occupy the building as a licensee” and that no Landlord & Tenant relationship was created, and that LHL “ retains control, possession and management of the property”. VPS further agreed not to allow any guardian to “take possession of the property or any part of it”. The agreement was terminable on 30 days’ notice, at the end of which the building was to be vacant. The agreement also stated that the services were “intended to provide a reasonable deterrent to unauthorised access or detect the presence of certain events.”

The licences provided by VPS to the guardians made clear the obligations of the guardian to protect the whole property from intruders, not just their personal living space.

Although keys to individual rooms were provided, exclusive possession was not granted and under the terms of the licence a guardian could be requested to move rooms. Access into the building was controlled by security guards 24/7. 

The licence obliged guardians to not be away from the property more than 2 nights in 7 and restricted the number of visitors a guardian could allow into the building.

In return for their obligations to protect the building from trespass and damage the guardians paid a modest rent to live in Ludgate House, which was situated on the South Bank close to Blackfriars tube station.

Demolition work started in May 2017 following the termination of the guardians licence agreements with VPS and the termination of VPS contract with LHL.

At the VTE, the Vice-President determined that Ludgate House remained one hereditament occupied by the guardians on behalf of LHL as their agent, the VTE held that it was not domestic or a composite as none was used ‘wholly for the purpose of living accommodation’.

The Upper Tribunal determined that Ludgate House was not one Hereditament and as a consequence of that decision, that it should be deleted from the rating list.  The UT decided that each licensee’s room was capable of being identified as a hereditament and that each licensee had exclusive possession of its own room. As LHL did not have a contract with the individual guardians the UT disagreed with the VTE’s findings that the guardians were in occupation of Ludgate House on behalf of LHL [See - Ludgate House Ltd v Ricketts and London Borough of Southwark UKUT 0278 (LC) [RA-56-2018]].

Lord Justice Lewison at the Court of Appeal disagreed with the UT.

LHL had contracted with VPS to protect Ludgate House, and the means of that was the property guardians vetted and installed by VPS to live within Ludgate House.

“The presence of the guardians was an essential component of that which LHL had bargained for. That is why the licence provided that it was a serious breach if a guardian did not make the property their abode.”    

Drawing analogies with a lodger in a lodging house and a bank placing an ATM in a retail supermarket

“…the purpose of the guardian on the one hand and VPS/LHL on the other were complimentary and mutually reinforcing. To borrow a phrase from Lord Carnworth in Cardtronics SC, the purpose of the guardians in living in the building was “to facilitate” VPS’ operation of providing property guardianship services to LHL. VPS needed the guardians to fulfil its obligation to provide property guardianship services to LHL; and the guardians knew (because the licence agreement told them) that that was so. They had gone through an induction programme to ensure that they understood their responsibilities. Both the recitals, and the terms on which they were permitted to live in Ludgate House, were entirely consistent with and supportive of that mutual purpose. Indeed, the agreement between them and VPS calls them “the Guardian” throughout. Labels like these are not chosen at random.”

The Court of Appeal placed no importance on the provision of keys to individual rooms to guardians, comparing this to the situation with lodgers and Hotel guests. Quoting Blackburn J in Allan v Liverpool Overseers (1873-74) LR 9 QB 180, where the paramount control of the Landlord over a lodging house was confirmed. The sense that a guardian had exclusive use of their room was no different to the exclusive use a lodger has over their room.

The UT had stated that the terms of the guardian’s licence were not inconsistent with residential use, but the Court of Appeal thought that was not the right question here.

“The question was whether the terms of the licence were inconsistent with exclusive occupation by the guardians. As the lodger cases show, sole use is not necessarily the same as exclusive use. The terms of the licence proclaim several times that a guardian is not being granted exclusive occupation of any part of the building … If, as Blackburn J held, the test is whether a guardian would be entitled to maintain an action for trespass, it seems to me to be clear that the terms of the licence did not give them exclusive possession, which is the necessary foundation for an action in trespass.”

The UT had been incorrect to disregard the guardians obligations to challenge intruders as normal for any residential occupier to protect their property and had overlooked the obligation to protect the whole property under the contract and not only those parts used as living accommodation.

The Court of Appeal reaffirmed the position that occupation of premises by an employee or caretaker is not beneficial occupation by the employer, nor is it rateable occupation by the caretaker. But the UT should not have ignored the common or complimentary purpose of LHL in having the guardians occupy the rooms.

The agreement between VPS and LHL was clear in that LHL had not given up possession of any part of Ludgate House and retained both possession and control, VPS was forbidden from occupying the property.

There was no suggestion that this agreement was a sham.

“The purpose for which Ludgate House was occupied (including the rooms used by the guardians) was a common purpose which was of direct benefit to LHL and/or VPS. It was a case in which LHL, and/or VPS retained at least contractual control, over the building to realise that benefit, precisely because neither had parted with possession (or indeed occupation) The question is not, therefore, one of “paramount occupation;” but of “general control” which is the decisive factor in establishing who is in rateable occupation of the building.”

The Court of Appeal found the requirement for the guardians to move rooms at short notice, which had been exercised by VPS in two cases, to be a significant interference with the use of that room for living in. The contract between VPS and the guardians did not grant them exclusive possession of their individual rooms and could require them to move at short notice, therefore the UT had been wrong to conclude that the guardians were in rateable occupation of their individual rooms. [See - London Borough of Southwark-v-Ludgate [2020] EWCA Civ 1637]

2.8.3 Determining General Control and Rateable Occupation

From these recent cases it is clear that to identify who is in paramount control, one needs to determine whether the Host has parted with possession, and if not, the degree of control, (whether contractual, physical, or functional),  that the Host retains over the  putative hereditament.

Although not determinative the presence of a Lease will be an important consideration. A lease by definition will give exclusive possession and will contain a covenant (whether express or implied) of quiet enjoyment. If it is considered that the Landlord has parted with possession, then the let out should be considered to be a separate unit of assessment.

If the host has not parted with possession, then the degree of control that the host retains over the putative hereditament will need to be considered. Matters that may indicate that Host is in rateable occupation may include the rights of the Host to:

• Move location of the let out
• Control the way the let-out operator undertakes their business
• Control branding and marketing
• Rights of access over the let out  

2.9 Property in Common Occupation - In England

The Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018 implemented two policy commitments made in the November 2017 Budget.

The Act set out to reverse the ‘staircase tax’ a colloquial term given to the effects of the SC Judgement in Woolway v Mazars on which judgement was given in July 2015. The effect of Mazars [See 2.2] was that properties that were contiguous, but where access from one to another was through a communal area, were required to be treated as separate and could not be valued as a single hereditament.

The Act made an addition to the definition of hereditament has been made to S64(3) of the Local Government Finance Act 1988.

The amendment defines an additional artificial type of hereditament, for property which is in the same occupation and contiguous to each other either vertically or laterally.

This amendment effectively orders the Valuation Officer to assess together properties that would fall to be individual assessments following the UKSC decision in Mazars.  This is ordered because the wording used in the legislative amendment is:

“the hereditaments shall be treated as one hereditament.”

The use of the word ‘shall’ in the above is significant.  It is not a neutral word such as ‘may’, therefore there is no discretion on the part of the Valuation Officer.

The contiguous properties must also be used by the common occupier for the same purpose.

To be classed as contiguous, some part of a wall, fence, or other means of enclosure of one property must form part of a wall, fence or other means of enclosure of another property in the same occupation.

Ceilings and floors, where directly overhead or below each other, will allow property to be considered as contiguous where the properties are in the same occupation.

A property will still be considered contiguous if there is a service space between the floor and ceiling, control of which remains with the landlord.

The Space Proviso

The Valuation Officer appealed to the Upper Tribunal (Lands Chamber) against a decision of the VTE, which concerned the meaning of Space in 3ZD of the new provisions.

The VTE decided that two offices separated by a fire corridor, could be merged to be shown as one hereditament in the list, based on the meaning of space within 64(3ZD).  The Deputy President of the Upper Tribunal, Martin Rodger heard the appeal of Roberts (VO) v Backhouse Jones Ltd.  Mr. Rodger declared the last three lines of 3ZD should be known as the “space proviso”.

Mr. Rodger in his decision at paragraphs 36. and 37. very helpfully explained the meaning of the space proviso:

“36. In the context of rating occupation is important in defining the unit of assessment. On normal

principles the fact that such a void or compartment in a wall or floor may not be in the

occupation of the person occupying the rooms on either side, and may be used by the

building owner to house conduits and service installations, would arguably be enough to

justify the conclusion that premises so separated were not contiguous within the meaning of

Section 64(3ZD)(a) or (b). They are not enclosed by the same wall, but by two walls with a

void between them; or the floor of one is not “directly” above the ceiling of the other, but is

above a service void below which lies the ceiling. The clear purpose of the space proviso is

to deal with that uncertain situation, and to confirm that the presence of such a space or void

or gap does not prevent otherwise contiguous hereditaments from being treated as one.

37. It is clear from the structure of the subsection that the space proviso is not intended to be an

alternative to the conditions in paragraphs (a) or (b), but is provided to clarify or qualify their application. The direction that two spaces are “not prevented from being contiguous …

merely because” they are separated by a space simply allows one difficulty to be overlooked

in cases where the qualifying condition would otherwise be met. To be contiguous two

hereditaments must therefore satisfy the requirements of either paragraph (a) or paragraph

(b), but those requirements will not be prevented from being satisfied by the presence of a

space between the hereditaments which is not in the same occupation. Once it is recognised

that the requirement of separation by the same wall, or by a common floor and ceiling,

remains an essential characteristic of contiguity, it becomes clear that the space to which the

proviso refers is a space within the wall or ceiling, forming part of the same enclosing

structure which surrounds both hereditaments.

Mr. Rodger found that the fire corridor did not come within the meaning of the space proviso as described above. The Valuation Officer’s appeal was allowed and the properties which were removed from the list as a result of the VTE’s decision, were ordered to be reinstated. 

Contiguous Empty Property

Previously occupied contiguous property will continue to be one assessment where it all becomes empty on the same day. If parts are vacated on separate days then individual assessments will apply.\ So if a tenant who formerly occupied floors 3 - 7 vacated each floor of a 7-storey office block on different days the Landlord would not be eligible to request a single assessment for those floors.

But if notice to quit had been given and they were vacated on the same day the valuation officer could assess together any that were previously contiguous.

Proposals against 2010 List Entries

An amendment to the Non-domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009 allowed relevant proposals to be made in respect of the 2010 list between 17 December 2018 and 31 December 2019, to merge or reconstitute assessments, where a ratepayer believed the provisions of S64 Local Government Finance Act 1988, applied to any period they were in occupation.

2.10 Property in Common Occupation - In Wales’

Between 9^th^ March and 1^st^ June 2022, the Welsh Government consulted on a proposal to make secondary legislation which would clarify the circumstances in which two or more units of property should be treated as one for non-domestic rating. reinstate the practice before the Mazars Supreme Court ruling whereby units of property that were in the same occupation and contiguous would be treated as a single hereditament.

The Non-Domestic Rating (Property in Common Occupation) (Wales) Regulations 2022 effectively replicate the sections (3ZA), (3ZB), (3ZC) and (3ZD) that were introduced to S.64 Hereditaments of the LGFA 1988 by the Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018 other than that the provisions only come into force from 1^st^ April 2023 and so relate only to the 2023 and subsequent rating lists.

2.11 Property in Common Occupation Appendices

Some examples of the working of the rules have been prepared:

Appendix 1a gives examples of the working of the rules in England and for Wales from 1^st^ April 2023

Appendix 1 gives working examples of the rules in Wales prior to 1^st^ April 2023.

3 Appurtenant Rights attaching to the Hereditament and the effects of the Rights of Others

3.1 Introduction

For the purposes of this paragraph, “rights” are defined as either those appurtenant and attaching to the hereditament in question, or those enjoyed by others but detrimentally affecting or detracting from the enjoyment of the hereditament in question. In other words, the presence of such rights brings an increase or decrease in the value of the land and can be taken into account when valuing that land. The issues relating to rights that are not normally appurtenant or attached to lands, namely incorporeal rights, are dealt with in some detail at paragraph 13.

It is necessary when identifying a hereditament to consider certain rights attaching to, and beneficially affecting the enjoyment of the hereditament. Examples include access over or use of land or use of facilities outside the hereditament such as service roads/areas, common parts, toilets or parking, which will generally have a beneficial effect on value; others may include user rights falling  under the Town and Country Planning legislation, such as “A3 User” rights, that permit a retail unit to be used as a Restaurant, Café or Snack bar. Such beneficial rights can also be described as appurtenant; in other words they are incapable of being enjoyed unless they are attached to land.

On the other hand, rights enjoyed and exercisable by others (whether attached to other land or not), may negatively affect the hereditament. An example may be a right of way through the sales area of a shop intended to form a route of escape from a residential block of flats at time of fire or other emergency. Such a right will in all likelihood affect the value to the tenant of the shop, imposing additional burdens on him compared with other shop units. Another example, although arguably of a lesser impact, might be a right of way for a utility company to inspect a substation that can only be accessed through the basement of an office block.

3.2 Rights Appurtenant and Attaching To a Hereditament

The correctness of taking account of rights attaching to a hereditament was established in the case of Shell-Mex and BP Ltd v Langley (Valuation Officer) (1962) CA  9 RRC 249. The case related to the assessment of fuel depots at an airport, the land for the fuel depots was let and included the right to trade over the airport, i.e. including areas outside the actual demise/hereditament.  The rent under the letting included both the demised land and also the right to trade; there was no division of the rent. The Lands Tribunal accepted the rent as evidence of value for the fuel installation without making adjustment for the right to trade. The Court of Appeal upheld the decision of the Lands Tribunal holding that when valuing a hereditament for rating purposes there must be taken into account any rights over other land that are appurtenant and inseparable from the hereditament.

In the decision of the Court of Appeal, Lord Denning MR said:

‘If the rights here in question were to be regarded as distinct and severable from the hereditament itself, which is the subject of the assessment, I would agree that the rights themselves should not be rated, and their inclusion would either make the rentals valueless as a guide or there would have to be a deduction on account of them. Such was the case with the right of trading in John Menzies & Co v Assessor for Glasgow.  The newsagents there occupied a bookstall at the Central Station, Glasgow, which was the rateable hereditament. They also had the right to sell newspapers over the whole railway system. It was held that the latter right could not be regarded “merely as a pertinent of the bookstall”. But in the present case the right to trade over London Airport seems to me to be a right appurtenant to the letting of the petrol installation and to be inseparable from it.’

For any right to be taken into account it must therefore be appurtenant to and inseparable from the occupied land which gives that right.

3.3 Rights Exercised over a Hereditament which Affect it, often Detrimentally

Rights exercised by others over land should also be taken into account when determining whether in the first instance a hereditament exists and secondly the value of a hereditament.  Where the rights over land are so extensive that the land is incapable of beneficial occupation then a hereditament does not exist. Examples are public parks or highways over which the public has free and unrestricted access; the land is said to be ‘struck with sterility’, incapable of beneficial occupation, and as such does not constitute a hereditament.

Where rights over land are less significant and a hereditament exists, it is still necessary to take account of the rights and their effect on value.

An example of the impact of rights on both the land to which the right attaches and also the land over which the right is exercised can sometimes be found in a shopping centre’s car park. Typically in these cases shop tenants under their leases are granted rights of use over the car park for the benefit of their customers. In such cases the shop rents would reflect the beneficial effect of the car parking rights and, following Shell-Mex and BP Ltd v Langley, the assessment of the shops should properly reflect the right, but equally the value of the car park (if any) should take due account of the rights exercised over it. In certain cases, where such shopping centres are closer to other local amenities, retail centres or tourist attractions, the value of the car park is not wholly exhausted by the impact of the rights enjoyed by the shops in the centre; this might be evidenced by a parking charge and, if the rights are not exhausted, a hereditament exists and the car park falls to be assessed taking into account the effect of those rights enjoyed by the shops.

The effect of rights in relation to shopping centre car parks is considered in greater detail in RM S.5 Pt. 3 Section 200 App.1.  This issue has also been considered by the Upper Tribunal in relation to public toilet facilities at a shopping centre, in the case of Hodgkinson (VO) v Strathclyde Regional Superannuation Fund RA 800 1992(RA 129), and further guidance in RM S.5 Pt. 3 Section 625  The effects of incorporeal rights not appurtenant to land and whether they can constitute or affect a hereditament are considered at paragraph 4.

4 Advertising Rights and incorporeal hereditaments

4.1 Introduction to Incorporeal Rights and the Hereditament

In previous paragraphs, the “bundle of tangible rights” that brings with them occupation and enjoyment of “Land” have been explored in some detail. This includes the effects of those less tangible rights appurtenant to and inseparable from “Lands”, which were considered at Identification of the Hereditament paragraph 2.

In Land Law terms, all property interests in the UK are in effect a “bundle of rights” and only the Crown actually owns land. In practice, this makes “fee simple absolute in possession” the property right closest to actual ownership of land, being in effect a freehold estate held “unshackled”, whilst a right “let out from land” is arguably the farthest away from actual ownership. The many types of property rights in existence generally fall into two main categories: Corporeal and Incorporeal.

This paragraph is covers those “incorporeal” hereditaments (or rights), which can loosely be defined as “not tangible”, being the rights and profits attached to, or arising from, land. As stated above, incorporeal rights usually do not enhance or diminish occupation of “land”, they are almost always distinct and severed from it and therefore not rateable as a matter of course. Generally, such rights only give rise to rateable occupation if the exercise of them necessarily involves the exclusive occupation of land or if they are made rateable by statute.

Whether or not the exercise of an incorporeal right involves the occupation of land and therefore rateable in its own right, consideration should be given to whether the exercise of any incorporeal right enhances or diminishes the rateable value of any other lands subject to it or over which it is granted.

Therefore, certain incorporeal rights are more likely to have an effect on the occupation of land than others; the incorporeal rights that can be considered for rating purposes include:

• advertising rights
• easements,
• licences
• tolls or rights of toll
• rights of common

4.2 Advertising Rights – A separately defined incorporeal hereditament

Advertising Rights are an incorporeal right expressly made rateable in certain circumstances separate from the occupation of land, by statute in S64 (2) and S64 (4)(e) of the 1988 Act (as amended). The rateability of advertising rights is covered in detail in RM S.5 Pt. 3 Section 20

Advertising Rights are an incorporeal hereditament, they are let out from land and not appurtenant to it, being distinct and severed from it. Other examples of such incorporeal rights, and whether they can constitute or affect a hereditament are explored in more detail below.

When considering advertising rights, a separate hereditament is created by s.64(2) of the 1988 Act (as amended) in respect of a “right” to use any land for the purpose of exhibiting advertisements and -

• the right is let out or reserved to any person other than the occupier of the land, or
• where the land is not occupied for any other purpose, the right is let out or reserved to any person other than the owner of the land.

Paragraph 5.1 of SI 1990/582 states that an advertising right hereditament (“advertising right” as defined by s.64(2) of the 1988 Act) shall not be treated as coming into existence until the earlier of either:

• the time at which any structure or sign is erected (after the right constituting the hereditament has been let out or reserved) to enable the right to be exercised, or
• the time at which any advertisement is exhibited in carrying out the right.

The usual definition of ‘land’ is extended to include any wall or other part of a building and any sign, hoarding, frame, post or other structure erected or to be erected on land. This definition does not include advertising rights. However, advertising rights are an incorporeal hereditament, and as such are not “lands” as defined by s.64(4) of the 1988 Act.

Once an advertising right is identified as such, statutory authority creates the hereditament whether the tenets of rateable occupation are satisfied or not; therefore, once exercised, advertising rights fall to be entered in the relevant rating lists. The person for the time being entitled to the right is to be treated as the rateable occupier; and, as advertising rights are not “land”, the four tenets of rateable occupation need not be present.

Advertising Rights are created by Statute and their existence is not dependent on satisfying the tenets of rateable occupation. When creating an advertising right hereditament it can be easy to fall into the trap of looking for the tenets of rateable occupation when it is not necessary to do so. Care should be taken not to fall into the “not too transient” trap; as even if an advertising right is exercised for just one day, and then removed, it is a hereditament and an entry in the rating list is appropriate. It follows that once the advertising right hereditament exists as defined by s64 of the 1988 Act, it should be entered in the relevant rating list, irrespective of the length of time the hereditament exists or existed.

“Advertising Rights” must therefore also be distinguished from “Advertising Stations” and “Land used for Advertising”, which are where land is included in the occupation and therefore the normal rules apply; RM S.5 Pt. 3 Section 20 deals with the valuation of all types of advertising displays in more detail and should assist in making this distinction in practical application.

Other examples of such incorporeal rights, and whether they can constitute or affect a hereditament, are explored further at paragraph 13 below.

4.3 Sporting Rights

Until 1997, sporting rights were also made expressly rateable in the same manner by S64(4)(d) of the 1988 Act, but this statutory rateability was repealed. For further guidance, see RM S.6 Pt.3 Section 950

4.4 Easements

The ownership of an easement over, or a right to enter upon land alone will not create rateability, as explored in R v Mersey and Irwell Navigation Co of Proprietors (1829) 9 B&C 95. However, the easement may be so extensive in its nature that the enjoyment of it may involve the exclusive occupation of land, as explored in Holywell Union v Halkyn District Mines Drainage Co (1895) AC 117 HL. Similarly, an easement may require the occupation of land to be used,f and grants a right to occupy land whilst it continues. The person owning such an easement is then the occupier and liable to be rated, as decided in Kittow v Liskeard Union (1874) LR 10 QB 7.

4.5 Licences

The Holywell Union case decided that a licence that does not involve possession of land, or any control of the property, would not be rateable. However, licences can give rise to exclusive occupation of land for a term of years absolute for an appropriate consideration or rent.

Street v Mountford (1985) 274 EG 821 HL determined that the distinction between a licence and a lease or any other tenancy depends on the truth of the relationship between the parties involved, not the label which they choose to put upon it.

Licences that appear at first not to give rise to exclusive occupation of land should be considered alongside the actual facts on the ground. In other words, paramount control and the practical application of the licence should be explored, to confirm if exercising the right effectively achieves rateable occupation of the land. Similar considerations apply where a right to use land is granted by licence, see [Westminster City Council v Southern Rly Co Ltd [1936] 2 All ER 322]

4.6 Tolls

The rateability of tolls is complex and is dealt with in some detail in Ryde on Rating, Division C, Chapter 3C, 334. Additional guidance in respect of tolls can be found in RM S.5 Pt. 3 Section 1100.

Several cases indicate that tolls are not rateable where they do not arise from or are associated with occupation of land. The general principle is that a toll is not rateable by itself. On the other hand, a toll that might otherwise be rateable could be made exempt by a local act (an example might be certain canal tolls).

The judgment of Lush J, in Faversham Navigation Commissioners v Faversham Union (1867) 31 JP 822 should be noted:

‘A toll itself is not a rateable subject, but if a toll is payable in respect of the use of land, and where the occupier of land acquires thereby a right or power to receive tolls, their occupation is taken into account in estimating the rateable value of the land.’

The rateability of tolls therefore depend on whether the person is in occupation of the land in which it arises, and they arise from the use of that land rather than from the person’s position as an inhabitant.

The two broad questions to be asked in any case of tolls are:

• is the recipient of the tolls an occupier of land and, if so
• are the tolls paid for the use of that land?

Only if the answer to both questions is yes are the tolls to be taken into account for rating purposes.

The following types of tolls are the most commonly found:

• Tolls in Gross
• Market Tolls
• Highway Tolls
• Harbour/Dock Tolls
• Ferry Tolls, 
• Bridge Tolls

4.6.1 Tolls in Gross

Tolls in Gross benefit, or are paid to, a person other than the occupier of the property, or may be paid to the occupier of property but not in his capacity as occupier of that property. Tolls in Gross are one of the most common form of incorporeal right and were often granted to a person with no interest in the land as a reward for services in respect of that land (mending walls, supervising fairs etc). In which case, as the toll would not be paid to the occupier of the land, it is not rateable.

However, each case must be carefully considered on its merits. The decision as to whether the tolls are rateable should be made on the circumstances of any particular case and whether the particular tolls do in fact benefit the occupier of the land and enhance the occupation.

In general, tolls connected with the occupation of property to the extent that they would pass to a tenant if a lease were granted, should be included in the valuation of the property.

4.6.2 Market Tolls

Note: Additional guidance in respect of Markets (Excluding Livestock Markets) can be found in RM S.5 Pt.3 Section 630

A “market” with an established “market place” is rateable as lands; there may even be a rent passing to assist in making an entry in the rating list in respect of the market. However, when establishing whether the tolls received can be taken into account, the nature of such tolls received has to be carefully considered. If exclusive possession of a stall or standing is required by a trader, this can be obtained only by the permission of the owner of the soil of the “market place” (not necessarily the owner of the market); any payment for such privilege is known as stallage or piccage. Stallage or piccage is a profit of the soil and is rateable. The owner of the market place doesn’t need to show any grant, prescription or statutory authority for taking stallage or piccage. The criterion would seem to rest on whether payment of the toll gives the payer a right to occupy part of the soil of the market. If so, the tolls are in the nature of “stallage” or “piccage” and should be included as a part of the assessment of the market. If not, they are in the nature of “franchise tolls” and should not be taken into account.

In 1810 it was decided in R v Nicholson (1810) 12 East 330 that an occupier could not be rated in respect of tolls, unless those tolls were so connected with the ‘land’ of which he was the occupier as to become part of the value of the occupation. Consequently it became necessary to distinguish between different classes of tolls taken in a market.

The distinction was described by Russell LJ in Oswestry Corpn v Hudd (Valuation Officer) (1966) 1 WLR 363, 11 RRC 365 CA, as follows:

‘In connection with a market, there is a distinction to be drawn between the “market” in the sense of the right to hold a concourse of buyers and sellers, and the place where the concourse is held – the “market place”. The market in the former sense is a local monopoly right in the nature of an incorporeal hereditament, commonly originating in a grant from the Crown, sometimes regulated by statute, sometimes superseded by a statutory creation of the market and sometimes originating in a statutory creation. A market necessarily confers on the public a right to attend it. The owner of the market commonly has conferred on him as such a right to levy tolls on merchandise thereat, though such right is not a necessary incident of the incorporeal hereditament; the payment of such tolls is the fruit of the incorporeal hereditament and not the profit of the soil of the market place. Such tolls in respect of goods may be exigible from the buyer, or the seller, or on merchandise brought to the market whether sold or not; they constitute a condition of the public right to resort to the market and do not confer on the payer any position or privilege. As against the occupancy of the owner of the soil of the market place, no member of the public has any right other than that in common with all others of attending the concourse; should anyone wish a privileged position of special occupancy of a stall or standing or area, either alone or in common with certain others, he cannot have it save by the permission of the owner of the soil, and if the latter requires payment for such privilege the former must pay. Such payments are therefore profits of the soil.’

Experience has shown that the term “market tolls” is often used in an unqualified manner, both in official documentation and ordinary language. The term “market tolls” often encompassed all payments made in respect of the operation of a market;  franchise tolls, stallage, rents, entry fees, concession payments, etc. Care should be taken to determine those payments that grant ‘a privileged position of special occupancy of a stall or standing area, either alone or in common with others’. This is often made much more straightforward by establishing what happens “on the ground”, usually by visiting the market place on a market day and, if possible, establishing what payments are made by the market traders.

Although the above will assist in identifying the effect of market “tolls” on any market hereditament, full guidance in respect of Markets (Excluding Livestock Markets) is available at RM S.5 Pt.3 Section 630. Similarly, consult RM S.5 Pt.3 Section 580 for further information in respect of Livestock Markets.

4.6.3 Highway Tolls

Additional guidance in respect of tolls can be found in the RM S.5 Pt.3 Section 1100 .

With highway tolls, it is essential to establish whether they are a “toll traverse”, being a payment for the right to use land as a highway; or a “toll thorough” (or “toll through”), being a payment presumed (or actually) granted to a person for a service (such as maintenance) to an existing highway where there is already a right to use the highway irrespective of the payment of any toll. A “toll traverse” in respect of highways is rateable; a “toll through” is not.

4.6.4 Harbour/Dock Tolls

Additional guidance in respect of Docks and Harbours can be found in RM S.5 Pt. 3 Section 350

The principles for determining the rateability of tolls of this description are the same as those for tolls in general, that is, such tolls are not rateable unless there is an occupation of land, and the tolls are paid for the use of that land. A special feature is the important question of whether the harbour or dock operators are in rateable occupation of the harbour or dock.  The maintenance and improvement of a navigation, by such acts as dredging and the regulation of shipping, does not by itself give rise to rateable occupation, the occupation not being exclusive. Only if the operators also own the soil or bed of the harbour is the element of exclusive occupation satisfied in such cases.

Where the operators own the soil of the harbour, the harbour tolls have been held rateable but where they do not own the soil of the harbour, the issue has centred on whether the tolls can be considered as paid, directly or indirectly, for the use of such areas as the docks, wharves and breakwaters which the undertakers do own and occupy. This involves consideration of the tolls in each case, but historically the courts have rejected claims to rate the ‘entrance’ tolls of a harbour where the undertakers do not own the soil of the harbour itself. Tolls paid for the use of wharves and quays will normally be rateable.

The leading case on the rating of harbour tolls isSwansea Union Assessment Committee v Swansea Harbour in the House of Lords (1907) 71 JP 497. In that case the harbour trustees were authorised by a special Act of 1854 to take various tolls on ships entering different parts of the harbour, and on goods loaded or unloaded in those different parts. When the Act of 1854 was passed the trustees were in occupation of a small proportion only of the harbour as defined by that Act. By later Acts the trustees were authorised to construct additional works, owned by them and within the harbour, so that the proportion of the harbour occupied by them was increased, but the trustees did not at any time own the whole harbour. It was held by the Court of Appeal and the House of Lords that the trustees were not the occupiers of the harbour; that the tolls authorised by the Act of 1854, were (when created) tolls in gross, and that the nature of those tolls was not altered by the subsequent transfer of different parts of the harbour to the trustees under later Acts; and that consequently the tolls could not be included in arriving at the net annual value of the property occupied by the trustees. Lord Atkinson said:

“At that time the trustees do not seem to have been in occupation of any portion of the subaqueous soil of the harbour, and it would, I think, be impossible to contend that on the construction of this Act these tonnage rates are, to use the words of Lord Blackburn in New Shoreham Harbour Commissioners. v Lancing Overseers (1870) LR 5 QB 489, “levied” “on account of the occupation of any land, or that they could not be received without the occupation of any land”. In other words, that they are not tolls in gross … These tolls were, I think, tolls in gross, their “meritorious cause” being the establishment and maintenance by the trustees of the lighthouse at the Mumbles, the dredging of the bar, the lighting, controlling and management of the port and the providing of moorings within, and services of that description rendered by the trustees.”

4.6.5 Bridge Tolls

As already mentioned when considering “Highway Tolls” (see above), a distinction is drawn between ‘toll-traverse’ and ‘toll-through’. In Hammerton v Earl Dysart (1916) 1 AC 57 at 78, Lord Parker explained:

“If, apart from the franchise, no one would have had a right to do that for which the toll is charged, the toll is a toll-traverse. If, apart from the franchise, anyone would have had the right to do that for which the toll is charged, the toll is a toll-through. In the former case the consideration moving to the public may be found in the right conferred on the public by the franchise. For example, if before the creation of the franchise the road, for the use of which toll is charged was a private road, the consideration may be the dedication of the road to the public. In the latter case the consideration moving to the public cannot be the dedication of the road, for the road was ex hypothesi at the time of the creation of the franchise already a public road. It must be found elsewhere, for example, in an obligation to keep the road in repair. There is some doubt whether a ferry toll ought to be classified as toll-traverse or toll-through”

A “toll traverse” in respect of highways is rateable; a “toll through” is not.

So where the road over the bridge is a public highway, the tolls have been held not rateable, though the toll houses may be. But where there is no public right of way over the bridge, the bridge is in rateable occupation and the tolls, being for the use of the bridge, are rateable.

4.7 Common Rights

“Common” in legal terms is a profit that a person has in the land of another, deriving its name from the common interest that arises between the claimant and the owner of the soil, or between the claimant and other commoners entitled to the same right.

A “Right of Common” is an incorporeal right, and can best be likened to an almost ancient agreement between the ruling classes and the tenants under their control at the time, which over time continues as of right;  without anything in writing which proves the original contract or agreement. It therefore differs from a rent, principally in freedom of enjoyment on the one hand, and freedom from obligation on the other. It also differs in that its “fruits” are always taken “in kind” and generally are not measured. For example, “Common of Piscary”, or common rights to take fish from another’s water is usually limited to the surface area of water over which the right exists, not the amount of fish under that surface at the time, or the fishing skills of the person benefiting from the right.

Examples of type of “Common” or “Rights of Common” include:

• Common of Pasture – or the right to graze on another’s land
• Common of Piscary – or the right to fish in another’s water
• Common of Turbary – or the right to take turf from another’s land
• Common of Estovers – or the right to take wood from another’s land (for firewood)

A person exercising a right over land using it to be nearly, if not quite, equivalent to an occupation of the land could be subject to a rate. In other words, the exercise of the right effectively involves occupation of the land over which it is exercised. For example, it may be that the occupation allowed by the right over the land provides exclusive occupation for the purpose of that particular use. Such considerations are illustrated by two cases involving golf clubs. In [Peak (VO) v Burley Golf Club [1960] 2 All ER 199 CoA], unenclosed land in the New Forest was used by two golf clubs under licence. The Court of Appeal held that neither golf club was rateable, because neither was in exclusive occupation of the land forming the golf course. However, Harman LJ additionally relied on the commoners’ rights of pasture over the land and (possibly) picnicking and camping by the public on the land as showing that the occupation was not exclusive, whereas the point was put differently by Pearce LJ who said that the picnicking and camping interfered with the club’s occupation for its particular purposes, which it is submitted is a legitimate approach. This was clarified to some degree by the decision in Pennard Golf Club v Richards (VO) (1976) RA 203, 20 RRC 225, the trustees of a golf club were held to be in occupation of a golf course on common land. They occupied under a lease and although the land was subject to assimilated rights of common, their occupation was exclusive for the purposes of the golf course use and therefore held to be rateable.

Alternatively, the exercise of the Common Right may impact on a ratepayer who occupies the land over which the right is exercised. However, it is possible that rights of common exist over land already subject to public access, which may mean that any value in that land is already exhausted and the common right over it cannot further affect its value. An example may be common land over which a person has a right to graze animals.

Where land over which a common right is exercised could be affected, three questions may arise:

• Whether there is any occupier at all?  If so,
• Who is the occupier? And
• Is the occupier to be assessed at the value of the land as reduced by the common right, or at the full value, including the value of that right?

4.7.1 Common Land not to be confused with Common Rights

It should be noted that rights of “common” exist in respect of land belonging to another person. “Common rights”, or “rights of common”, are therefore not to be confused with “common land”, which involves the protection of the rights of commoners and the public (although they may also include certain rights of common).  Over time, common land has been established and regulated by Inclosure Acts (sometimes referred to as Enclosure Acts), Commons Acts and the Law of Property Act 1925.

4.8 Incorporeal Hereditaments – Summary

In summary the following general conclusions can be drawn where incorporeal hereditaments are concerned:

• Distinct and severable incorporeal rights on their own do not give rise to rateable hereditaments, unless
• rateability is secured by statute, as in the case of certain advertising rights, or
• exercise of the right is such that the tenets of rateable occupation are satisfied in relation to the land from or over which the right is exercised, or there is rateable occupation of land in relation to which the occupier exercises an incorporeal right, in respect of which it is appropriate to take due account when assessing the land.

5 The Corporate Veil

5.1 What is meant by the term “corporate veil”?

The concept of the corporate veil is at the heart of company and tax law in the UK and is a term used by the courts to establish the status and extent of businesses set up under the normal practice of a registered limited company.  It is used to “ring-fence” liabilities and to defend parent companies from the losses or tax liabilities of subsidiaries.

A registered limited company is an independent legal person. The word “limited” means just that: liability is ordinarily limited solely to the assets of the company. It is exceptionally rare for the Courts to look beyond the actual company.

The principle is set out in Salomon v Salomon (1897) HL AC 22, that a body corporate is a separate entity, separate that is from its members which led to the use of the phrase “veil of incorporation”, which is said to hang between the company and its members and, in law at least, acts as a screen between them.

In this particular case, a leather merchant converted his business into a company.  The nominal capital of the company was divided into shares passed between himself, his wife and his five children.

The merchant raised debentures as part payment by the company for the business.  The company got into financial difficulties and the holder of the debentures appointed a receiver.

The House of Lords held that the merchant was not liable and affirmed the fundamental principle that a company is an independent legal person distinct from its members.

5.2 General Law: Exploring whether it is possible to “lift” or “pierce” the corporate veil

The principles surrounding the potential or otherwise of lifting the “corporate veil” can, in certain instances, cause difficulty. In a number of cases the law lifts the corporate veil so that the human and commercial reality behind the corporate personality can be taken into account.  The veil may be lifted by the judiciary or by statute.

It is difficult to gauge the circumstances in which a judge will lift the corporate veil.  However, this will usually be done on the basis of one of the following reasons:

• fraud;
• the company being a sham;
• the company being the agent (alter ego) of the shareholder;
• the companies are part of single economic unit (rarely established without also showing one of the above grounds);
• interests of justice require this result.

The courts have on occasion lifted the corporate veil to allow a group of companies to be regarded as one, because in reality they were not independent either in human or commercial terms.

Of interest here is DHN Food Distributors v London Borough of Tower Hamlets (1976) CA 239 EG 719 which is a compulsory purchase and compensation case.  DHN Food Distributors (DHN) was a holding company that ran its business through two wholly owned subsidiaries.  Bronze Investments Ltd (Bronze) owned the premises and DHN Food Transport Ltd (DHN Food) ran the distribution side.  The local authority issued a CPO and they agreed to pay compensation for the land but not disturbance because DHN and DHN Transport had no interest in the land.  The Court of Appeal lifted the corporate veil and treated DHN as owners of the property whereupon disturbance became payable. The two companies (Bronze and DHN Transport) were wholly owned by DHN, they had no separate business operations whatsoever and the owners of the business were disturbed in their possession and ownership of the property.  It was not felt necessary to make a connection between the holding and subsidiary company.

The DHN Food industries and other cases would, at first sight, seem to say that the courts will imply a general principle of “group entity”; however this is not the case.

Woolfson v Strathclyde Regional Council (1978) HL 248 EG 777: in a similar situation to DHN, the decision was not followed as subsidiaries were active trading companies and not, as in DHN, mere shells.

Dimbleby & Sons Ltd v NUJ (1984)HL, ICR 386: a group of companies was regarded as a series of separate entities so that the picketing of one company within the group by workers employed by another company was regarded as unlawful secondary picketing.

5.2.1 Groups of Companies

The basic principle established in Salomon in relation to single companies was comprehensively reviewed and extended to groups of companies in the decision of the Court of Appeal in Adams v Cape Industries plc (1990) CA, 1 Ch 433. In brief, this involved an English registered company whose business was mining asbestos in South Africa. The company was the subject of a lawsuit in the United States, and the company attempted to avoid fighting the case in the American courts on grounds of jurisdiction. The Plaintiffs obtained a judgment against the English company in the American courts, but as Cape had no assets left in the U.S., they then sought to enforce the judgment against the principal company in the group in the English courts.

The Court of Appeal held that, as a matter of law, it was not entitled to lift the corporate veil against a defendant company, which was a member of a corporate group, merely because the corporate structure had been used so as to ensure that the legal liability in respect of particular future activities of the group would fall on another member of the group rather than on the defendant company.

In coming to this decision, the court stated:

“Whether or not this is desirable, the right to use a corporate structure in this manner is inherent in our corporate law. … in our judgement Cape was in law entitled to organise the group’s affairs in that manner …”

Following this decision, it appears that the court may only pierce the corporate veil in the following circumstances:

• when the court is construing a statute, contract or other document;
• when the court is satisfied that the company is a “mere façade” concealing the true facts; or
• when it can be established that the company is an authorised agent of its controller or its members (corporate or human)

In effect, the Court of Appeal in Cape Industries rejected the argument that the corporate veil should be pierced just because a group of companies operated as a single economic entity. It follows that the court is unwilling to lift the corporate veil just because it considers that justice requires it. Nor can it have regard to the economic reality and regard a group of companies as a single entity.

5.2.2 The concept of Agency/Alter Ego

This concept has sometimes been used where the actions of a subsidiary are regarded as those of the holding company and for which the holding company is liable.

Nozari-Zadeh v Pearl Assurance plc (1987) CA, 2 EGLR 91. The landlord opposed the grant of a new lease on the grounds that “the applicant did not prior to the term date and has not thereafter occupied the demised premises within the meaning of s23 L&T Act 1954 and accordingly is not entitled to the benefit and protection of the said Act.”  The premises had been occupied by a number of incorporated companies that were wound up after a short time.  The tenant took a minor role in the running of the business, although holding shares in the last two companies.  It was argued that these companies were each an alter ego of the applicant and that occupation of the premises by each of these two companies is equivalent to occupation by the applicant.  The alter ego argument was regarded as unsustainable.

5.3 Rating case law and the corporate veil

The courts have declined to disturb this veil or barrier unless there are compelling reasons to do so.  Separate legal personality of companies is a fundamental feature of company law and a company is a legal entity, entirely separate from those persons who set it up.. An excerpt taken from Salomon v Salomon makes that point

“here the landlord and her company are entirely separate entities. This is no matter of form; it is a matter of substance and reality.”   

The normal scenario is for a company to assert separate legal personality in order that the parent company can avoid being fixed with the liabilities of its subsidiaries, and it is the authorities trying to pierce the veil.  However, in the rating cases that follow, the position is reversed and the ratepayers wished to breach the corporate veil by arguing for one assessment whereas the VO contended for separate assessments.

Barr (VO) v Manley & Regulus Ltd LVC 1642 1958 (1960 53 R&IT 213) concerned three properties within the curtilage of a single factory.  Manley & Regulus Ltd (parent company) were brass founders whilst Wiseman & Bros Ltd (subsidiary company) were heating and plumbing engineers and McKeand Smith & Co Ltd (subsidiary) were building and public works contractors.

Manley had many dealings with the other two companies as they produced parts essential to their business as brass founders.  In order to ensure that they could always call on their services, Manley acquired a considerable number of shares and made them subsidiaries.  Neither of the subsidiaries were solely involved in work associated with the parent.

All three factories were within the same curtilage with no real physical boundary between them but there was no doubt that the areas occupied were well known to each of them.

The Lands Tribunal held that they were separate assessments because each had a separate legal identity, carry on a separate business, were directed by separate directors, and kept separate accounts. In coming to this conclusion, the LT quoted [North Eastern Railway Co v York Union [1900] 1 QB 733] as follows:

“one thing I think is clear, that property must be rated according to what it is, and not according to what it might be.”

Glenwright (VO) & Durham CC v St Nicholas PCC (1988) LT RA 1: The question here was whether a former vestry converted for use as a shop was ancillary to the church and therefore exempt or correctly formed a separate hereditament.

The former vestry was owned by the church and occupied by the company (a registered charity) without payment or formal lease, licence or tenancy.  Its objects were to help disabled and disadvantaged people and to support the ministry of St Nicholas Church.  A condition of the company was that 5 of its 9 members were to be serving members of the Parochial Church Council (PCC).  Religious books were sold in the church and paid for in the shop, the proceeds being returned to the church.

The ratepayer contended that the company was set up as a commercial organisation able to enter into contracts because the PCC was by its nature not fitted to do so.  It was expressly for the benefit of the PCC and its function was to act as the purchasing and selling agents on behalf of the PCC.  The PCC had a majority on the board of the company and enjoyed practical control of the company.  They argued that the company was the alter ego of the PCC.

The Lands Tribunal held that the company could not be regarded as an agent of the PCC.  By virtue of its existence as a limited company it has a separate identity, separate not only from the PCC, but also from its promoters and the individuals who control it.  The goods sold in the shop belong to it and it is the occupier of the shop.  Also, case law authorities (including Salomon and Nazari-Zadeh above) contradict the possibility that the company was the alter ego of the PCC.

Similarly, “The Hyde Group of Companies” appealed to the Lands Tribunal against a decision of the Manchester North Valuation Tribunal in Hyde Group of Companies v David George Hooper (VO) (1999) VT. In this matter, 1990 list proposals raised a mixed question of fact and law (although values were not an issue), namely whether land and building comprising the Hyde Industrial Estate in Duckinfield, Manchester, constituted a single hereditament when parts of it were occupied by various companies within the Hyde Group of Companies. In making its decision, the Valuation Tribunal accepted;

• there were common directors;
• the companies were not carrying out unrelated businesses; and
• the hereditaments were contiguous and functionally essential.

They nevertheless determined that the assessments should not be merged and remain separate.

In answering a Statement of Case following an appeal to the Lands Tribunal, the respondent Valuation Officer concluded that he did not accept that the property was so occupied as a matter of fact; and furthermore did not accept that occupation of different bays (being the companies to which reference seems to have been made in the proposals as “trading names” of Hyde Group Limited) could have constituted a single occupation either by the Appellant or by any of the other companies in the Hyde Group of Companies.

The conclusion the Valuation Officer arrived at was that there was no suggestion that the property was jointly occupied (as a whole) by more than one of the companies in the Hyde Group of Companies.  Accordingly, the sole question in this appeal was whether, on 1 April 1992, the property was occupied, or could properly be treated as having been occupied, by a single person.

The appellant accepted the VO’s position and the appeal to the Lands Tribunal was withdrawn (with consent). This means the VT Decision remains in place; in summary that the hereditaments were capable of separate occupation, the corporate veil should not be pierced and the assessments should not be merged.

A more recent case is National Trust V JC Chilcott VO 2004 VTE 16106295070/214N00heard in April 2004 by Gloucester Valuation Tribunal. The case concerned Hidcote Manor Gardens and Snowshill Manor, where the VO had identified certain elements requiring separate rating assessments.

At Hidcote, the existing single entry was replaced by,

(i) show gardens and premises,

(ii) restaurant and premises,

(iii) café, plant sales and premises, and

(iv) shop and premises.

At Snowshill, the existing single entry was replaced by

(i) historic house and premises,

(ii) shop and premises, and

(iii) restaurant and premises.

A charity is permitted to exercise a trade in the course of the carrying out of a primary purpose of the charity, however the charity cannot carry out non-primary purpose trading on a substantial basis because funds may not be risked in trading activities simply to raise money.  There are also tax implications.  To circumvent this, charities use the device of a wholly owned subsidiary trading company.  This is permitted because it protects the property of the charity from the risks and liabilities of trading – in other words the corporate identity of the trading arm is necessary to protect the assets of the charity and thus make the trading acceptable in charity law.

So, National Trust Enterprises (NTE) was set up for the non-primary purpose trading.  At Hidcote this covered (ii), (iii) and (iv) and at Snowshill (ii) and (iii).

The VO argued that separately identified hereditaments satisfying the tenets of rateable occupation existed and should be assessed.  The ratepayer sought to pierce the corporate veil and argued for one assessment in each case with the NTE occupation included in the larger National Trust (NT) hereditament.

The NT argued that NTE was wholly separate, acting at the behest of NT, who controlled the activities of NTE; i.e. NTE is wholly owned by the Trust; its business plan wholly integrated with that of the Trust; it has a single accounting system with accounts read as a single set of accounts for a single organisation; the Managing Director of NTE is the Trust’s Director of Customer services and staff are allowed to cross between NT and NTE.

The Valuation Tribunal decided that there were two separate organisations with separate functions and aims; one a registered charity and the other a registered company.  It considered that the establishment of NTE in line with Charity Commissioners guidelines was an important factor to consider, making it clear that a trading subsidiary must be a separate legal entity as it carries out activities that are not compatible with the charitable status of the charity.  The Tribunal concluded that NTE was a separate legal entity from the NT, the terms of the licence made it clear that it is NTE who were in exclusive occupation of the identified units. Having concluded that NTE were a separate entity to NT, the tribunal saw no need to address the question of paramount occupation.

Also of interest is another VT decision in April 2004: The Chapter of the Abbey Church of St Alban v Booth (VO) (2004) VT.  The facts were comparable to those in Glenwright, the shop and refectory were run by a separate company with a separate identity, with activities quite distinct from the objectives of the Cathedral.

It was also contended that the chapter had paramount control as they had control of the entrances and so could restrict access as well as having a final say on items sold in the shop and furniture used in the refectory.  The Tribunal decided that the church had no control over the day to day running of the café and shop and without this involvement paramount control remains with the company.  The shop/café were run separately from the cathedral and no functional link was established between them.

5.4  Rateable Occupation and the Corporate Veil

Where more than one company are in occupation, which company is in occupation of which part of the hereditament is almost always a matter of fact. Once it is established which company is in occupation of which part, and recognising that the corporate veil cannot and should not be lifted unless a judge so decides (see paragraph 6.2), the next questions to consider are:

• What are the dominant facts?
• To what degree do the facts affect the outcome in terms of defining the hereditament?
• Which company is in rateable occupation of the hereditament?

To assist, identify the four ingredients (or tenets) of rateable occupation. These ingredients have already been considered in RM S.1 Pt.1 Rateability, and are:

• Actual occupation
• Exclusive occupation
• Beneficial occupation
• Not too transitory.

The main ingredient to consider when looking at a limited company is exclusivity, and deciding that either:

• the person (in this case the company concerned) has the exclusive use of the premises; or,
• if there are two persons who have the use for the same purpose, the one who is in paramount occupation is deemed to have exclusive occupation.

Identification of the hereditament and rateable occupation are bound up together and each case will have to be considered on its own merits, as different circumstances will arise which will provide different answers.

The issue of whether there is one occupier or more than one has to be established.  If more than one, then further issues as to who is in paramount control arise.  Deciding the first issue depends on determining who is in exclusive occupation – which involves examining the relationship between companies.  

Exclusivity determines that there can only be one rateable occupier for a particular purpose.  If there is more than one occupier for a particular purpose, then one or the other must be in paramount control.

The leading case on the subject of paramount occupation is [Westminster City Council v Southern Rly Co Ltd [1936] 2 All ER 322] .  This case considered the question of when parts of a large hereditament were “so let out as to be capable of separate assessment”. Certain secondary rules were established and when considering the question of paramount occupation, it is “a question of fact and degree”.

In determining the question of the “degree” to which established facts point to the correct rateable occupier and as a consequence define the hereditament, it is convenient to divide this issue into four headings or steps;

• establish contiguity, and then
• establish the physical aspects of the property
• establish the facts regarding each company who is the legal “person” in occupation, and finally
• establish rateable occupation and control

5.4.1 Step 1 Establish Contiguity

Identifying the physical characteristics of the property is important. The North Eastern Railway case provides some guidance;

“… property must be rated according to what it is, and not according to what it might be.”

First establish is there contiguity to other property in the same occupation?. Unless the property is contiguous, separate hereditaments will generally always result. If there is no contiguous hereditament, there is no need to go on to establish the legal occupier, consider corporate veil or paramount control. (As a factor to be considered in determining the hereditament, contiguity is more fully explored in paragraph 3.)

However, assuming the property is contiguous, other facts and associated legal aspects of the situation must be establishedbefore any decision can be made.

5.4.2 Step 2 Establish the Physical Aspects of the Property

Once it has been established that the property is contiguous, other physical aspects need to be established:

• Are the parts fully interdependent?

Although a particularly rare occurrence, if the “parts” are dependent on each other to the degree that it is not possible to reasonably define any physical areas of individual occupation within them, it is important to note that a “single hereditament” would probably result irrespective of the status of the companies occupying those parts: the issue becomes one of “paramount control”. An example may be separate corporate divisions of a motor company who have set up a “service company”, “parts company” and “sales company”, each occupying parts of a property with such a degree of common purpose that they are one hereditament

• Are the parts for all intents and purposes separate?

Where the parts appear to be separate, and within premises capable of being  separately let, there will usually be  ”more than one hereditament”, but again it will be a question of the particular circumstances or ‘fact and degree’.

• Are the parts dependent to a degree?

If the “parts” are dependent upon each other to the extent that they share areas vital to carrying out the business, but they are nevertheless capable of separate assessment, the determination as to whether a “single hereditament” or “more than one hereditament” exists will turn on the question of fact and degree, and further consideration required;

It is important to remember the previously cited comment from North Eastern Railways:

“one thing I think is clear, that property must be rated according to what it is, and not according to what it might be.”

Whether or not establishing the physical aspects of the property has led to a firm conclusion, it should have assisted in answering some questions; it is at this point that the status of the companies or company in occupation should be examined and associated questions leading to the status of the corporate veil.

See also the Cardtronics UKSC decision.

5.4.3 Step 3 Establish the Facts regarding each Company who is the Legal “Person” in occupation

To reach this point, the property will be contiguous, and the physical aspects established; different limited companies will be occupying different parts. The next factor to consider is the relationship between those companies; in other words, although the corporate veil cannot be lifted as far as the companies in occupation are concerned, are there any reasons to support the notion that only one company is in “de facto” occupation of the whole.

There are many facts that must be established or produced in order to gain a proper understanding of the status of the relationships between companies. However, there is no definitive set of questions to be answered, or checklist to be ticked; it is essentially a matter of substance and reality, fact and degree. It is not only essential to establish what practically happens on the ground, but also equally important to establish the legal and operational status of the companies involved and their relationship.

Some guidance can be provided, but this should not be considered exclusive.

First, a copy of the actual lease or agreement granting occupation should be examined.  To establish who the tenant is, whether there are separate leases and who pays the rent.

Turning to the issue of corporate identity where groups of companies are concerned, it is important to understand the companies’ structure and relationship.  Where possible establish whether the companies’ fall under the same umbrella, are independently run or merely trading in different aspects of the same overall operation.  If, for example, the companies fall under the umbrella of one retailing operation and not independently run, then the presumption may tend toward a single hereditament.  An example of this would be where a subsidiary is effectively a shell where the different names adopted are for marketing purposes and are merely “retailing formats” or “brands”.

Continuing on this theme, are separate accounts held for each company? If one of the companies should fail would losses affect the group as a whole or could the ailing company go to the wall without affecting the parent company?

Questions to ask may include the following:

• Are the companies’ separate legal entities in law?
• Are the companies separately registered and/or incorporated?
• Do the companies file separate accounts?
• Are there directors in each company wholly different?
• Are there directors in each company mainly different?
• Are the directors in each company identical?
• Are the “companies” in reality “trading names”?
• In any negligence claim, who could a customer sue?
• In any successful negligence claim, which company would pay the cheque?

It is neither possible nor reasonable to expect Valuation Officers to be able to decide every scenario based on guidance in this manual. When considering complex cases, further assistance and advice can be sought from the Technical Advisers via the Technical Query Log. This guidance will alert caseworkers to the type of questions that need addressing and provide enough assistance to deal with most situations that arise on a day-to-day basis.

5.4.4 Step 4 Establish Rateable Occupation and Control

Once contiguity is established, the physical aspects are known, and the status of the company established, it follows there is potential for one hereditament but, by definition two or more limited companies occupy what could equally be “one or more hereditaments”.

You need to understand how the property is occupied and actually used “on the ground” on the material day.

You need to find out who is in control of the day-to-day running of the business and who is in ultimate or ‘paramount’ control.  The degree of control exercised by the “host” or “umbrella” over the “subsidiaries’” occupations needs to be understood, both as it affects the physical enjoyment of the property and the way in which it is occupied.

There may be separate managers for each company at regional and head office. Is there a separate board of directors for each company or are the directors the same people?

Other questions that can be established “on the ground” include the following:

• Do the companies actually “trade”?
• Do the companies in occupation have separate leases?
• Do the businesses have separate managers on the ground?
• Who decides what can be sold in each location, target figures, etc.?
• Who employs the staff?
• Who are customer cheques payable to?
• In whose name is the invoice, bill or receipt given to a customer of the company?
• Are staffing resources regarded as part of a central pool, i.e. shared between properties?
• Is there only one telephone number at the location?
• Is there only a single “switchboard” at the property?
• Are there shared loading facilities, with common deliveries for all companies on the site?
• Are there shared loading facilities, even though separate deliveries are made?
• Are there separate loading facilities, and separate deliveries?
• Are VAT registrations/numbers separate?

More weight should be attached to answers to the first questions on the list and generally less weight attached to later questions. Certain answers are more relevant, for example, having the same VAT registration number would not support a single hereditament if there are multiple leases, separate managers and separate deliveries. Similarly, having too few answers is unacceptable; for example, it cannot be deduced that it is one operation on the ground merely on the basis there are shared loading facilities.

5.5 Conclusion on Corporate Veil

Non-domestic rates on occupied hereditaments are a tax upon the occupation of land, rather than the person; s43 of the 1988 Act provides that;

A person (the ratepayer) shall as regards a hereditament be subject to a non-domestic rate in respect of a chargeable financial year if the following conditions are fulfilled in respect of any day in the year-

on the day the ratepayer is in occupation of all or part of the hereditament, and

the hereditament is shown for the day in a local non-domestic rating list in force for the year. 

The Act therefore requires that first of all the hereditament is identified, then the occupier [or the person entitled to occupy], and finally whether any exemptions apply.

In brief:

• Do not pierce the corporate veil – it is not to be disturbed unless a judgement to that effect is received.
• establish contiguity,
• establish the physical aspects of the property
• establish the facts regarding each company that is the legal “person” in occupation
• establish rateable occupation and control, consider the Landlord and Lodger principle

If, on the facts, the hereditament is in separate occupation by each company, separate assessments will apply.

Only where such a degree of inter-connectivity and control exists between the companies will it be necessary to consider one hereditament; the issue being paramount control. In all cases, the corporate veil should remain undisturbed and intact.

If after a review of the case law provided in the paragraphs above, a lifting of the corporate veil would be required, then it must be assumed that separate corporate identities exist; this is a basic feature of company law and if a judge is reluctant to look behind the veil of incorporation, valuation officers must not either. It is reasonable to say that in all areas of law, the courts have displayed a consistent reluctance to look behind the corporate identity and piece the corporate veil.

To the extent that the relationship between companies has any impact on determining the hereditament, which usually arises where hereditaments are contiguous, the matters of fact and degree that can be gathered “on the ground” will be sufficient to make decisions. In broad terms, in the case of two companies, e.g. a parent and subsidiary, where it is claimed one assessment exists, if the subsidiary has a separate legal identity (regardless of the fact that it may be a wholly owned subsidiary with shared directors) and is trading in its own right (it is not a shell) then separate assessments will apply, unless one company can be said to be in paramount control of the whole hereditament.

Bearing in mind it is a matter of “fact and degree” it is essential that the full facts are established. In those circumstances where there are any unanswered questions, or any doubt remains, not only must the corporate veil remain undisturbed, but separate hereditaments remain until those facts are fully and undoubtedly established.

6 Ceasing to exist

A hereditament will remain in the rating list until it ceases to be ‘property which is or may become liable to a rate’. Practically, this means a hereditament will continue to exist until it is evidenced at the Material Day that:

• it is subsumed into a different hereditament, i.e. a merger
• it becomes a different hereditament, e.g. a split
• it becomes incapable of beneficial occupation due to redevelopment.

Works in progress which are not economic repair, and therefore to be disregarded in accordance with Schedule 6 of the 1988 Act, may affect the rateable value and/or description of the hereditament, including to reduce it to a nil value. Valuation of empty hereditaments and those undergoing works is dealt with in detail in Rating Manual Valuation Principles Valuing Vacant Property. Where works of redevelopment/conversion/demolition are in progress at the Material Day and the hereditament is incapable of beneficial occupation this may justify deletion. On completion of the works, or following service of a completion notice, it is anticipated that the billing authority will submit a report to insert a new hereditament in the list.

6.1 Structural Alteration

S46A(5) of the 1988 Act, provides that, where a completion day is determined under Schedule 4A to that Act (the successor to Schedule 1 to the 1967 Act) in relation to a new building which is produced by the structural alteration of an existing building, the hereditament that comprised the existing building shall be deemed for the purposes of section 45 (which imposes liability for rates for unoccupied hereditaments), to have ceased to exist, and to have been omitted from the list, on that day.

This means that a hereditament undergoing structural alterations to produce a new building, i.e. one different from that which was there before, is deemed to continue to be the old hereditament until the new comes into existence. A new building includes part of a building.  This will only be when the previous hereditament has not been deleted from the list because it was rendered incapable of beneficial occupation by the redevelopment works. This is in line with the Newbigin (Valuation Officer) (Respondent) v S J & J Monk (a firm) (Appellant) [2017] UKSC 14  and Jackson v Canary Wharf Ltd (2019) UKUT 0136 (LC)  cases.

6.2 Conclusion

In summary, once entered in a rating list, a hereditament will only cease to exist when its identity has been altered or destroyed, by reconstitution or demolition or redevelopment rendering it incapable of beneficial occupation. Interim changes within the hereditament are valuation matters to be considered in accordance with Schedule 6 of the 1988 Act and dealt with in detail in Rating Manual S.2 Valuation Principles Pt.9 The Empty Property Rate and Demand in the Rating Hypothesis.

A hereditament which has ceased to exist and has been deleted cannot be brought back into the rating list unless it is fully capable of occupation for the use intended, or is subject to a completion notice, or is in fact occupied. The repair assumptions in Schedule 6 of the 1988 Act are valuation assumptions applicable to existing hereditaments only. Different considerations apply to determine whether new property is in fact a hereditament to be entered in the list, as detailed in RM S.2 Part 3 ‘Unoccupied, new/ altered buildings and completion notices’

6.3 Cessation of a Right to Advertising

The incorporeal nature of Advertising Rights presents different considerations. Essentially, once exercised (see above), an advertising right will only cease to be a rateable hereditament once the actual right itself is extinguished.

If the structure, hoarding or other display is completely dismantled, so that there is no sign of the advertising right this is a material change of circumstances affecting the enjoyment of the advertising right hereditament, whether the right is still in existence or not.

Even if the right exists and is displayed, it could in certain circumstances be considered of little or no value. An example of this may be a right to display advertisements on a “gable end” where an infill development has now completely obscured the hoarding.

If the right ceased to exist but the display or hoarding was still in place, careful consideration should be given to the situation on the ground. If the right to advertise has ended, no rent is passing, and no new advertising has been displayed on the existing hoarding since the right ended, then the separate advertising right entry in the rating list should be deleted from the date the right ended.

Any continued advertising after the period of the license granting the right came to an end would indicate either a possible “holding over” or “run-on” after the right is terminated. Both of these scenarios will probably continue to result in an entry in the rating list. If the right is “held over”, it would still exist as a right as the rent under the terms of the original agreement is still being paid and therefore the “right” has not been extinguished.

A “run-on” scenario may mean the right is extinguished, but the continued use of the hoarding to display advertisements is quite likely to result in a new hereditament, probably an “advertising station”. In which case the occupier is the person occupying the land on which the hoarding stands, or the property to which the hoarding is attached; this would now require the four tenets, or ingredients, of rateable occupation to be present for a hereditament to exist.

6.4 Cessation of Land used for Advertising and Advertising Stations

Where the advertising displays or hoardings involve the occupation of land, the hereditament is described as an “advertising station” or “land used for advertising”. This must not be confused with an “advertising right”, the exercise of which does not involve occupation of lands. When land is occupied to display advertisements, and an incorporeal right has not been created, the usual rules apply when considering from what date the hereditament ceases to exist.

The Lands Tribunal considered the date of deletion from the rating list of “land used for advertising” in O’Brien v Clark (VO) [2007] RA 17, determining that the date of deletion was the date upon which it was agreed the supporting structures were demolished. The appellant’s contentions that the hoardings were “struck with sterility” by being incapable of occupation prior to that date, as evidenced by his inability to let them and by disrepair which he could not afford to remedy, were rejected.

Instead, the Lands Tribunal said that there were two grounds upon which the deletion of the hereditament from the rating list may be justified – firstly, if the hereditament had ceased to exist and, secondly, if the hereditament had become incapable of beneficial occupation and was therefore unusable.

The Lands Tribunal held that the hypothetical tenant would find the repairs economic and there was no evidence that he would be unable to enjoy beneficial occupation until the date it was agreed that the advertising hoarding were actually demolished.

7 Cross Boundary Properties

Prior to 1990 property covering more than one rating authority area was divided into at least the same number of hereditaments as the rating authority areas in which they were situated.

Post 1990, the move to a national non-domestic rate saw this rule set aside by regulation 6 of the Non-Domestic Rating (Miscellaneous Provisions) Regulations 1989 [SI 1989/1060]

So, a hereditament spanning the area of two or more billing authorities must be treated as being situated in the billing authority area where the greater, or greatest part, of the rateable value is located.  This is calculated on the relative values of the parts, not the plot size of the hereditament.

Should the value be equal, or there is a disagreement, regulation 6(5) of SI 1989/1060 stipulates the billing authority area in which the single entry should be shown, must be decided by lot, drawn by the VOs concerned.

Regulation 6 applied across England and Wales and so hereditaments spanning the border would fall either within the relevant billing authority of Wales or England.

From 1^st^ April 2017,  to reflect the separate administration of non-domestic rating in England and Wales, the Non-Domestic (Miscellaneous Provisions) (Wales) Regulations [SI 2017/327 (W.82)] amended the 1989 Regulations [SI 1989/1060] so  they applied only in England. However, in doing so it remade the same provisions in Wales.

8 Cross Border Properties – England/ Wales

In April 2015 non-domestic rates were fully devolved to Wales.

Previously hereditaments spanning the border would fall either within the relevant billing authority of Wales or England by application of the 1989 regulations [SI 1989/1060].

To reflect the separate administration of non-domestic rating in England and Wales, the Non-Domestic (Miscellaneous Provisions) (Wales) Regulations [SI 2017/327 (W.82)] amended the 1989 Regulations [SI 1989/1060]

These respective regulations make no provision for the determination of the billing authority area for hereditaments bisected by the border of England and Wales. As the tax bases in England and Wales are now administered separately, these hereditaments need to be shown in each country’s appropriate lists.

There is no prescribed approach to valuation of part of a property so an apportionment of the value of the whole should be made on an area basis. For property valued on a rentals basis this will mean taking the proportion of the RV that is attributable to the parts of the property in Wales, and in England, rather than trying to value the parts as though they were separate hereditaments. For non-bulk classes the apportionment may be more difficult.

9 Plant & Machinery

Section 42 of the Local Government Finance Act 1988 requires a local non-domestic rating list to show the rateable value of each hereditament in the local authority’s area.

The hereditament will usually comprise land either with or without buildings, unless one of the few classes of rights which are rateable without land. Whilst personal property is normally not rateable, certain items which are neither land nor buildings may form part of the rateable hereditament if they comprise either:

• Rateable plant and machinery, or
• Chattels which are not plant nor machinery, but which are sufficiently attached to and enjoyed with land so that its value is enhanced.

The rateability of chattels is considered in RM.S.2 Pt.1.

The approach to what plant and machinery should be included in the hereditament had been controversial and subject to a number of legal rulings until the Rating and Valuation Act 1925, which provided a list of classes of plant and machinery that were deemed to be part of the hereditament and therefore rateable and this led to the making of the Plant and Machinery (Valuation for Rating) Order in 1927.

Plant and machinery (‘plant’) will be valued as part of a hereditament if it is included within the current plant and machinery regulations.

As a general guide, ‘premises’ will comprise the land and buildings, including things like doors, windows, wall and floor finishes, embedded pipes and wiring, stairways, certain supported first floors, fixed full height partitioning and general lighting, heating and sometimes air conditioning. All the things that make up the physical environment ‘in which’ business is carried on.

If something is part of the premises ‘in which’ business is carried on, it will almost always be rateable as part of the hereditament. If something is plant ‘with which’ business is carried on, rateability depends upon whether that item of plant is included in:

SI 2000 No. 540 The Valuation for Rating ( Plant and Machinery ) ( England ) Regulations 2000 or;

SI 2000 No. 1097 (W.75) The Valuation for Rating (Plant and Machinery) (Wales) Regulations 2000.

The current ‘regulations’

For the purpose of assessing the rateable value of a hereditament all the plant and machinery specified in the schedules (the schedule to each set of regulations contains four classes) to the regulations is deemed to be a part of the hereditament, and the value of any other plant or machinery in or on the hereditament is to be assumed to have no effect on the rent to be estimated on the statutory terms.

9.1 Rateability of Plant & Machinery – the current position

The rateability of plant and machinery which would not ordinarily form part of the hereditament is presently governed by the Valuation for Rating (Plant and Machinery) (England) Regulations 2000, (SI 2000 No. 540) and the Valuation for Rating (Plant and Machinery) (Wales) Regulations 2000 SI 2000/1097. These provisions apply for the purpose of the valuation of any hereditament in England and Wales for rating lists effective post 1 April 2000. 

For the purpose of assessing the rateable value of a hereditament all the plant and machinery specified in the schedules (the schedule to each set of regulations contains four classes) is deemed to be a part of the hereditament, and the value of any other plant or machinery in or on the hereditament is to be assumed to have no effect on the rent to be estimated on the statutory terms.

In broad terms the classes of plant and machinery included in the Schedule to the Regulations are:

Class 1 – Power plant,

Class 2 – Service plant,

Class 3 – Infrastructure Plant, and

Class 4 – ‘Structures’.

Each Class contains its own particular provisions as to whether plant will be rateable or not, rateability within each Class is explained in RM S5

9.2 Plant & Machinery not forming part of the hereditament

Plant and machinery in or on the hereditament which does not belong to any of the classes set out in the Schedule to the P&M Regulations is to be disregarded in terms of its effect on value,

Is the presence of plant and machinery the value of which is not to be included in the assessment under the regulations for rating valuation purposes to be assumed part of the hereditament?

This issue was considered by the Court of Appeal in Edmondson (VO) v Teeside Textiles Ltd. (1984) CA RA 247.

This case related to the valuation of a vacant factory which was previously used for the production of artificial fibres. At the material day much of the floor space was taken up by non-rateable process plant and machinery. The ratepayers argued for a much-reduced value reflecting the limited use made of the hereditament and the fact that much of the floor space was encumbered with the non-rateable plant and machinery.

The Court of Appeal, in a majority decision, confirmed the decision of the Lands Tribunal holding that section 21 of the 1967 Act involved an assumption that in valuing for rating purposes, process plant and machinery was to be ignored and treated as if it were not there, whether the actual effect of its presence in the hereditament was that a tenant would pay more or less.

For valuation purposes therefore, it is convenient to assume that non-rateable plant does not exist.

9.3 Part of the Hereditament as being part of the ‘premises’ or Plant & Machinery

A number of cases in the past have considered whether certain features such as partitions and mezzanine floors within hereditaments are plant. 

British Bakeries Ltd v Gudgion (VO) and Croydon LBC (1969) LT RA 465.  In this case, considered by the President of the Lands Tribunal, Sir Michael Rowe QC, the sole issue was the rateability of ‘demountable’ or ‘removable partitioning’ in an office block.

The vast majority of the partitioning comprised three main types:

• standard type, full height unglazed
• standard full height, double-glazed, and
• half height.

The full height partitioning (floor to ceiling) was used to make separate rooms or offices for the ratepayer company’s higher executives and for some specialised sections of staff, whilst the half height partitioning was used to break up the space outside the executives’ offices to make ‘boxes’ for their secretaries.

The full height partitioning was assembled on site by craftsmen and firmly screwed to walls, floor and ceiling.  Some of the components had to be cut to the exact length required.  Holes were bored for screws; “raw plugs” were inserted in walls; places for locks or light switches were cut and so on.  The work of erection was a skilled job and took some time, although nothing like that required when erecting a wall.  The work of removal merely involved undoing a number of screws, no damage being done to the components and the work of making good the main structure was trivial.

The half height partitioning was brought onto the site prefabricated for it to be screwed on to the floors: several sections could be easily joined together.  A layman could carry out its removal quite easily and, indeed, in most cases, its erection could be so carried out.

Counsel for the ratepayers argued that,

• the partitions are not part of the hereditament, and
• that they are plant and not rateable because of s24 Rating & Valuation Act 1925.

The solicitor for the valuation officer and the solicitor for the rating authority both submitted that this partitioning was rateable because it was enjoyed with land: it was part of the hereditament: it was an essential part of the office hereditament and not tools of the ratepayer’s trade (plant) and it was not a commercial necessity that it should be movable.  It was conceded that that if the partitioning was plant it could not be rated.

In reaching his decision the President summarised the issue before him as:

The arguments before me proceeded, I think, on the basis that there were two separate questions: “Is this partitioning part of the hereditament?” or secondly, “Is it plant or part of the setting for carrying on the trade?” For myself I doubt whether they are two different questions: I think it would be truer to say that they are really two different approaches to answering the question, “Is it plant?”’

In arriving at his decision the Member had regard to the decision in Jarrold (Inspector of Taxes) v John Good & Sons Ltd., CA (1962) 3 RVR 25 and also the House of Lords decision in Inland Revenue Commissioners v Barclay Curle & Co Ltd (1969) HL RA 102.

In his decision the President, referring to the decision of Pearson LJ in Barclay Curle said:

‘Taking first the full height partitioning, I have no doubt it is rateable … I think that it falls entirely within Pearson LJ’s description of the view that partitioning constituted the internal walls of the building’.

It is worth noting that none of the full height partitioning has been moved, again, to use Pearson LJ’s words:

‘until they are moved [they] stand firm and solid, fully performing the function of internal walls’.

Again to take Donovan LJ’s words in the same case:

‘the partitioning is in my view more a part of the setting than part of the apparatus for carrying on the trade. Its function is I think to make offices for the staff, to provide places in which the business is carried on, not to be plant with which it is carried on. On these findings of fact I hold that the full height partitioning is rateable.’

The half height and three quarter height partitioning was held not to be rateable:

‘because its function was that of a low screen, breaking up open space without affording privacy and being easily moved, and as it was furniture and part of the plant with which the business was carried on, like desks, filing cabinets etc.’

Although the full height partitions in the British Bakeries and Jarrold cases were physically similar, the decision in the former to treat as rateable as being part of the setting rather than plant, as in the case of Jarrold, is justified on the basis of the function performed by the partitions.

It is considered that the facts will generally lead to the conclusion that full height partitions are rateable.

More recently the rateability of tenant added floors (commonly known as mezzanines) has been challenged before the Lands Tribunal in Rogers (VO) v Evans (1985) 275 EG 727.  Again the argument for the ratepayer was that the floor constituted plant which as such was not rateable. The Lands Tribunal Member found:

‘It is very similar to the full height partitions in British Bakeries save that the partitions constitute internal walls, but here the structure is a floor and until it moves it stands ‘‘firm and solid, fully performing’’ (see Jarrold) the function of a floor and is ‘‘more part of the setting than part of the apparatus for carrying on the trade’’. In the words of the learned President in British Bakeries: “Its function is I think to make offices for the staff, to provide places in which the business is carried on, not to be plant with which it is carried on.”’

Consequently, the floor was held to be part of the building and as such rateable.