In 2015, the Supreme Court held that an occupier of separate floors in an office block which were not contiguous (sharing a common border) or interconnected, and could only be accessed via common parts, were separate units or “hereditaments” for ratings purposes. Previously the Valuation Office Agency had suggested that the tenant at the top of a multi-let building could have all of its contiguous floors treated as one hereditament. However, the VOA has now formally endorsed the Supreme Court’s approach and provided a number of examples in order to illustrate the position.
The key principles are as follows:
- a tenant who is the sole occupier of a whole building will have one assessment for ratings purposes;
- a tenant of a number of floors in a multi-let building will have a separate assessment for each floor (where they are accessed by communal areas);
- an owner of a building who leases out one floor will have a separate assessment for each floor (where they are accessed by communal areas) and the tenant will have an assessment for its floor;
- a tenant of a number of floors in a multi-let building will have one assessment where the floors are self-contained, for example where they are accessed by private staircases; and
- a tenant of two adjacent but unconnected units separated by a communal yard will have a separate assessment for each unit.
No doubt the guidance has clarified what constitutes a hereditament; however, the real question is what impact this will have in practice.
A business which occupies more than one floor in a multi-let building is likely to be hit with separate bills for the different areas and possibly an increased overall rates bill (unless the floors are self-contained). The same is true for an occupier of two adjacent, unconnected units. However, the VOA has failed to confirm when the revaluations are to take place and so businesses can’t yet be certain what the increased liability will amount to or when to expect it.
The changes are set to have retrospective effect. The VOA confirmed that any change in assessment will be backdated to the more recent of (i) 1 April 2015 in England or 1 April 2010 in Wales and (ii) the date of occupation. This will be of concern to many businesses, many of whom may not have made provision for these increased liabilities.
The VOA has stated that a business need not do anything unless it hears from them; however, businesses need to be able to prepare for future increased liabilities and to devise a plan to deal with any backdated costs. Few will be happy to sit and wait for the VOA to contact them but the guidance suggests there is little more that can be done.
Our previous blog on the Supreme Court decision: