A 2015 Supreme Court ruling to overturn a landmark decision on business rates could leave businesses that occupy multiple but unconnected premises facing higher demands says Ashleigh Phillips, Associate and Team Manager of the Bruton Knowles Plymouth office.
In July 2015, the Supreme Court took the unprecedented step of overturning a landmark decision relating to the calculation of business rates for companies occupying multiple but unconnected floors in a building.
The case in question involved accountancy firm Mazars and its offices on the second and sixth floors in Tower Bridge House in London. Mazars had successfully argued at a Valuation Tribunal and Upper Tribunal that the two floors in occupation should be treated as one for the purpose of setting business rates.
The floors are separated by common areas in the building and were assessed separately in the 2005 rating list. However, by merging the floors a reduction of the total rateable value would be possible as lower rates may be applicable for a larger occupation, taking into consideration the reductions due to quantum.
The Valuation Office Agency (VOA), which advises the Government on property valuations for the purposes of taxation and benefits, challenged the decision in the Supreme Court, with the court ruling in favour of the Valuation Officer, who argued the two floors are not “contiguous” and should therefore be rated separately.
Rating consultants and tenants had been eagerly awaiting the outcome of the hearing as it would set a precedent for future rating appeals involving occupiers of multiple but potentially unconnected floors.
Sadly, on this occasion the decision did not go in the occupier’s favour.
This issue dealt within the Mazars case is not unique. There have been a number of cases relating to companies occupying multiple but unconnected premises.
A parcel firm appealed against their assessment of two properties in Hounslow. The premises comprised two separate warehouse and office developments, which were individually assessed by the Valuation Officer. In this case, the functional and operational dependence of the two premises was sufficient to get them merged into one assessment.
At Victoria Park Mazda, Cardiff the ratepayer contended that there was sufficient intercommunication between two sites for Mazda and Alfa Romeo/Fiat to be regarded as a single assessment.
There are exceptional cases where two properties, separated by a public highway, may be treated as a single assessment for rating purposes. In such cases the two properties on either side of the road are so operationally essential to each other that they should be regarded as one.
The question this raises is ‘does the degree of functional interdependence of the buildings overcome the geographical separation’?
Bruton Knowles recently acted on behalf of Hilton Meats in a case against the Valuation Office Agency in which we were seeking to merge the business rates assessments of two properties into one due to functional and operational dependency of the two buildings.
Hilton Meats is one of the leading meat processing and packing companies in the UK, supplying to the major supermarkets such as Tesco. Its main facility is in Huntingdon, Cambridgeshire, where it employs circa 2,500 staff and occupies a seven acre site.
The company originally occupied 80,000 sq ft across six units, which we successfully argued should be merged for the purpose of assessing business rates, attracting a ten per cent reduction in the 2005 rating list and subsequently saving Hilton Meats thousands of pounds on its business rates bill. Hilton Meats then purpose built a 63,000 sq ft unit on the site, which was separated from its existing buildings by a road.
Although the building is separate, we challenged the VOA to assess it with units 2 - 8 given the functional and operational dependence of the two sites. Units 2 - 8 received a ten per cent allowance for split sites on their own and merging unit 18 into the assessment would, in our opinion, have attracted a reduction far in excess of this.
Furthermore, units 2 – 8 are around seven times larger than other units in the area. Incorporating the additional unit would essentially mean the combined unit is circa 14 times larger than other units, thus a substantial allowance would have been more than fair and reasonable.
The VOA opposed our challenge so we prepared to take it to Valuation Tribunal.
However, whilst preparing our case, Hilton Meats took a lease on units 10 – 12, which are connected back-to-back with units 6 – 8. It then refurbished all of the units. This changed the case, and upon further evaluation we decided that it would be better not to pursue going to tribunal to merge the assessments given that any potential savings would not have outweighed those by keeping them separate.
We agreed a new rateable value on units 2 – 12 and kept unit 18 separate, saving Hilton Meats circa £500,000 following the refurbishment works.
What these cases serve to highlight is the complete lack of consistency shown by the Valuation Office Agency when assessing business rates and the fact that the current system has no real regard for the actual business in occupation.
Rateable Values (RVs) along with the current Uniform Business Rates (UBR) sets what the ratepayer is liable for year on year. The RV, in most cases, is arrived at by establishing what is essentially a hypothetical rental value of the property at a specific point in time.
With the 2017 Revaluation around the corner and considering the contents of the Enterprise Bill and the recent The Autumn statement, it is becoming clear that the Business Rates landscape will continue to change, largely in the Government’s favour. Ratepayers will therefore need the best advice to be aware of the Business Rates implications of property decisions and how to mitigate their exposure.