Rating Manual section 3: valuation principles

Part 1: hereditament

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

1. Introduction and definition

1.1 Introduction

A part of the Valuation Officer’s duty to maintain rating lists is the need to determine the rateable property, the hereditament, to be entered in a rating list. This 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 Vtesse Networks Limited v Bradford (VO) [2006] 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 a matter of great importance 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 not least to the Valuation Officer who is required to compile and maintain correct rating lists.

1.2 Definition

1.2.1 General Definitions

A hereditament is a ‘relevant hereditament’ if it 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 includes any buildings built on land

The rateable hereditament may in addition to land also include certain items of plant and machinery and chattels, rateability of which, in certain circumstances has been achieved 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. Domestic property is dealt with in Part B of Rating Manual: Section 3 - Valuation Principles formerly Part B Volume 4 Section 2.

A hereditament is composite if part only consists of domestic property. 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.

A hereditament will often include rateable plant and machinery and it may be that certain items which are in the nature of chattels may become assessed with the land e.g. temporary buildings or floating restaurants. (See paragraph 12 of this manual entry)

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

1.2.2 Statutory Definition

Hereditament is defined in section 64 (1) of the 1988 Act as

…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.

Section 115 (1) of the General Rate Act 1967 (the 1967 Act) defines a hereditament as follows:

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 is, in itself, of little assistance in identifying the hereditament to be entered in a rating list; indeed in Reeves (LO) v. Northrop [2013] EWCA Civ 36 Sir Alan Ward in the Court of Appeal suggested that ‘If prizes are to be offered for legislative gobbledegook then the foregoing would surely qualify.’ It is, therefore, to case law that one must turn for guidance.

A recent, closely reasoned, unanimous and clear explanation has now been provided by the Supreme Court in Woolway (VO) v. Mazars [2015] RA 373 as to what constitutes a hereditament. A summary of the case history is given in paragraph 3.8.

1.2.3 Artificial Hereditaments

Some hereditaments exist outside the normal rules as to what constitutes a hereditament. This is the result of special statutory provisions enabling the Secretary of State to prescribe special rules: Under s64(3) Local Government Finance Act 1988:

The Secretary of State has the power to make regulations providing that in prescribed cases–

  • anything which would (apart from these regulations) be one hereditament shall be treated as more than one hereditament;
  • anything which would (apart from these regulations) be more than one hereditament shall be treated as one hereditament.

For example, site sharers on masts have been prescribed as being included in a “Host” mast assessment under SI 2000 No. 2421 in England (See Rating Manual: Section 6 Part 3: Section 860, and corresponding Practice Note for further details). Under s64(3) Local Government Finance Act 1988:

Property in Common Occupation

“(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


(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.”

(2)The amendments made by subsection (1) have effect for financial years beginning on or after 1 April 2010. Under s65A Local Government Finance Act 1988:

S 65A Crown 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.

(3) 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.

2. Identification of the hereditament

Following amendments made by The Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018 some of the rules concerning the indentification of a hereditament are different in England and in Wales. The law applicable only in England is indicated below by the words ‘In England…’

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 from the judgement of the Supreme Court in the Woolway case (Woolway (VO) v Mazars. [2015] RA 373).

The Woolway case concerned whether the 2nd and 6th floors of Tower Bridge House in London formed one hereditament or two. The Supreme Court decided following a careful examination of established legal principles that each floor formed its own hereditament. It set out clear tests for establishing the hereditament. Further background information is given in paragraph 3.8 below.

A previous case of the Court of Appeal in Gilbert (VO) v S Hickinbottom & Sons Ltd (1956 CA, 2 Q.B. 40; 1 RRC 46) was regarded until Woolway as providing the leading decision on the identification of the hereditament. Given the criticism of that case by the Supreme Court in Woolway the *Hickinbottom case should now be disregarded.

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.

The legislation effectively reverses the aspect of the Supreme Court decision which required non-intercommunicating occupations to be assessed separately and reverts to the former 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 in England to determine whether one or more hereditaments in common occupation, meet the contiguity provisions and provided they are used for same purpose (see 2.6) fall to be assessed as one hereditament.

The amendments have effect for financial years beginning on 1st April 2010. This means that the provisions at 2.9 should be applied to determine the unit of assessment for property in common occupation, for all 2017 list casework in England – maintenance, Check, Challenge, Appeal – together with outstanding 2010 appeals in England.

2.2 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 fundamentally assist in identifying the hereditament(s) because the ratepayer may occupy one or more hereditaments. The ‘chicken and egg’ problem of which comes first, identifying the hereditament or identifying the occupier, is a perennial one because they are interlinked. What may be a single hereditament if there is one occupier may be several hereditaments if there is more than one occupier; but merely because one person occupies nearby or contiguous properties does not necessarily make them one hereditament.

It is completely clear, however, that a property rateably occupied by more than one occupier cannot form a single hereditament.

Most complications arise when there is a single occupier and it is necessary to establish if that, or those, properties comprise a single hereditament.

The first test would, therefore, logically be to identify the rateable occupier - but, this returns to the ‘chicken and egg’ question because it is not possible to identify the rateable occupier without knowing what the hereditament is!

What, though, can be established in any situation, hopefully, is who is actually ‘present’ at the property/properties; what their various rights are; the extent of their occupation; what actually occurs in practice on the ground and other matters to do with rateable occupation. Against the background of possible rateable occupation(s) it is possible to examine the first and primary test - the Geographic Test.

See paragraph 3.5 for guidance on identifying the occupier/extent of occupation.

2.3 The Geographic Test

In England this test has been superseded by The Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018. See 2.9 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.

Exceptionally it may be found that, whilst there is a separate fire escape, the main staircase and lavatories on each floor are not accessible by other occupiers but only by the contiguous floors in the same occupation. In this circumstance contiguous floors will intercommunicate without a need to go into common parts and will form a single hereditament. Similarly it might be found the occupier of the top floors of a building has sole occupation of the staircases and the sanitary accommodation for those floors and they are not, in fact, common parts shared in common with the rest of the building. In this circumstance the contiguous top floors in one occupation may be a single hereditament.

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 discontinuous 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.

Appendix 1 gives examples of the working of the rules in Wales.

Appendix 1a gives examples of the working of the rules in England.

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.

2.4 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, 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.

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.

2.5 The test of Occupation

Rating is a tax on property arising from the occupation of land and identification of the hereditament is inextricably bound up with the concept of rateable occupation.

The concept of rateable occupation was developed to determine whether an occupier of a property was liable to pay rates as a consequence of that occupation. What constitutes occupation is well illustrated in LCC v Wilkins (VO) (CA)[1957], where the court brought together earlier cases, including John Laing & Son v Kingswood Assessment Committee [1949] KB 344 which set out four necessary ingredients for rateable occupation, as per Tucker LJ;

First, there must be actual occupation; secondly, that it must be exclusive for the particular purposes of the possessor; thirdly, that the possession must be of some value or benefit to the possessor; and fourthly, the possession must be for not to transient a period.

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 whole occupied by one occ upier will normally be a single hereditament: the same occupied in parts will be several hereditaments.

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. A difficulty may arise in deciding 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.

Rateable occupation is covered in some detail in Ryde on Rating at Division B, Chapter 2. It was also considered in some detail by the Court of Appeal in Vtesse Networks Ltd v Bradford (VO) (2006) EWCA Civ 1339 CA RA 427.

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 Company v 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 occupation has been held not to sufficiently define an occupied are of land 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 Woolway case

The appeal 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.

In February 2010, Mazars proposed that the VO merge the two entries to form a single hereditament. The VTE agreed that the two entries should be merged. The VO appealed to the Upper Tribunal (Lands Chamber) on the grounds that the properties were two separate hereditaments. The Upper Tribunal confirmed that the premises should be treated as one hereditament. The Court of Appeal dismissed the VO’s appeal.

In the VTE an allowance was given for the disability of having the occupation split between two separate floors, (a fragmentation allowance) but on appeal to the Upper Tribunal (Lands Chamber) the then President, Mr George Bartlett QC, found that the presence of high speed lifts between the floors effectively removed any inconvenience and therefore no fragmentation allowance was appropriate. He also found that the speed of access between the 2nd and 6th floors together with the fact that the two floors were within the same building and occupied for a common purpose by Mazars, meant that they formed a single hereditament. Probably because the removal of the fragmentation allowance meant Mazars no longer had a financial interest in the outcome of the appeal to the Court of Appeal, the ratepayers did not take part in that appeal or the subsequent appeal to the Supreme Court, but the Court appointed an Advocate of the Court (a barrister to submit opposing arguments to those of the VO) to ensure that the matter was fully tested.

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.

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, The Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018, effectively reverses this aspect of the ruling by requiring hereditaments that meet a new contiguity test to be treated as a single hereditament – see paragraph 2.9 below.

The case did not actually concern adjacent floors, but the judgments of two of the judges (Lords Neuberger and 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 particular case will depend upon the individual circumstances concerned applying the general principles to the particular circumstances.


Following the Chancellor’s 2017 Autumn statement regarding the reversal of the effects of the ‘stair-case tax’, an addition to the definition of hereditament has been madeto S64(3) of the Local Government Finance Act 1988.

The amendment defines an additional artificial hereditament classification, 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.”

Shall is underlined due to the importance of the word. 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.

Contiguous Empty Property

Only where property which previously qualified as contiguous hereditaments became unoccupied on the same day will the contiguous property in common occupation rules continue to apply to allow one assessment.

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.

Appendix 1a gives examples of the working of the rules in England. These changes affect England only and Appendix 1 gives working examples of the rules in Wales which are unaffected.

Proposals against 2010 List Entries

An amendment to the Non-domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009 has been made to allow proposals to be made in respect of a 2010 list for a limited period of time by ratepayers who consider their occupation qualified under the amended S.64 provisions to be merged into a single hereditament.

3. Coming into existence

3.1 Background

A hereditament should be entered into a rating list when it is capable of occupation for the purpose for which it was designed. There are numerous examples of developments where buildings remain unoccupied for various reasons, waiting for a tenant/occupier. Such units are rarely fitted out for immediate occupation, and therefore are not complete, as different potential occupiers have their own design standards which they prefer to adopt. This is particularly the case with national companies.

Whilst the unit may be structurally complete this does not mean that it is ready for occupation.

Such buildings often attract rent-free periods upon commencement of the lease, reflecting the fact that the new occupier has to carry out certain fitting out works. The rent-free period recognises the time and cost of carrying out such a programme.

3.2 General

If a property is incomplete and incapable of occupation then it cannot properly be a hereditament and cannot be entered into the list. It has to be capable of being occupied for the purpose for which it was designed at the material day.

It is not acceptable to claim that a property is a hereditament simply because it is substantially complete. If it lacks the expected level of tenant’s fit out then it is not a hereditament and therefore not rateable without a completion notice. In Porter (VO) v. Trustees of Gladman SIPPS 2011 the President of the Lands Tribunal said, ‘a building is only a hereditament if it is ready for occupation, and whether it is ready for occupation is to be assessed in the light of the purpose for which it is designed to be occupied. If the building lacks features which will have to be provided before it can be occupied for that purpose and when provided will form part of the occupied hereditament and form the basis of its valuation it does not constitute a hereditament and so does not fall to be shown in the rating list. There is in consequence no scope for including in the list a building which is nearly, even very nearly, ready for occupation unless the completion notice procedure has been followed.’

3.3 Bringing the property into assessment

The general rule is that a building is complete when it is capable of occupation for the purpose for which it is intended.

So, the main issue is whether at the material day, the unoccupied property constitutes a separate rateable hereditament to be entered as a separate item in the list, complete and capable of occupation.

If a property is not a hereditament then it cannot be valued and cannot be entered into the list. If it is a hereditament, the next step is to determine its value in accordance with the doctrine of rebus sic stantibus.

In practical terms VOs should be wary of bringing into assessment new properties with buildings without a completion notice. As the Lands Tribunal determined in Porter (VO) v. Trustees of Gladman SIPPS it is not sufficient for a building to be very nearly ready for occupation: rather it has to be ready for occupation for the purpose for which it is designed. This is, of course, a judgement to be made and if a building is in fact complete it should be entered into the rating list. Again in Porter (VO) v. Gladman SIPPS the Tribunal confirmed that a completion notice is not conclusive in determining when a rateable hereditament comes into existence. The date is only relevant where the property is not completed.

If the building is in fact completed then the VO can, and should, enter it into the list. It is of course difficult on occasion to be completely sure that a building is in fact complete and the existence of a completion notice gives the comfort of certainty.

Evidence of other similar buildings in the locality actually occupied in the same state as the property being considered will be of great assistance in confirming a property is complete and ready for occupation for its purpose. It should be noted this does not necessarily mean that it can actually be used for its purpose.

In the case of light industrial units the required level of fit out can vary significantly and therefore judgement will have to be made by reference to others in the locality. Each case will need to be judged on its merits and the locality not restricted to the actual estate or estates nearby.

The requirement stops short of equipping or furnishing a completed building. There will usually be things required to actually use the building for the intended purpose but their lack would not prevent occupation for the purpose e.g. the telecommunications equipment in Post Office v Nottingham City Council.

A useful test is - ‘will this item be part of the hereditament when provided?’ If it is, then, unless the unit is occupied [and that occupation in effect creates a hereditament], the unit is not complete until it is provided.

This might appear to be a paradox but the test recognises that factual occupation of a building can give rise to a rateable hereditament, whereas the same building left short of ‘completion’ within the Porter context and unoccupied may not be a hereditament in law unless there is a suitably occupied comparator in the locality.

In summary, in determining whether a new or reconstructed building or part of a building constitutes a hereditament that can be entered in a rating list the following should be considered:

  • it must be ready for occupation for purpose for which it was designed to be occupied. Being very nearly ready for occupation is not enough;

  • anything at all, required to enable occupation must be present before a new hereditament can be entered in a list. This excludes features that would be useful to have but are not essential e.g. the staff canteen in the Watford case;

  • an examination of the facts of occupation of other similar hereditaments will enable a determination of whether any particular feature is necessary for occupation;

  • will the item missing from the property be part of the hereditament when provided?

  • is there evidence in the locality of similar types of property occupied in the same state of completion?

This stops short of equipping or furnishing a completed building. There will usually be things required to actually use the building for the intended purpose but their lack would not prevent occupation for the purpose e.g. the telecommunications equipment in the Post Office case; a completion notice is not needed providing the building or part is in fact complete and ready for occupation.

3.4 Completion Notices

Where a building is not regarded as complete and capable of assessment, the billing authority should serve a completion notice (s46A of the 1988 Act). The effect of a completion notice is that the building is deemed complete, which allows the VO to assess it as if it were actually complete from the date of stipulated in the completion notice. Although the VO must assess following service of a completion notice, it should be remembered that a right of appeal to the billing authority against the effective date or validity of a completion notice does exist. If successful, the outcome of such an appeal will have an impact on the effective date of the assessment and may even result in a deletion. [For the sake of clarity, completion notices are only applicable to buildings.] See Valuation Principles: Part 3 Unoccupied Hereditaments and Completion Notices for more details regarding completion notices and unoccupied hereditaments.

3.4.1 Case law - Rateable occupation

The concept of the hereditament and whether it exists in any given case is inextricably bound up with the concept of rateable occupation, and following the Court of Appeal decision in John Laing & Son v Kingswood Assessment Committee (1949) 1 KB All ER 224 in order to be capable of rateable beneficial occupation, four basic tenets have to be fulfilled; i.e. a hereditament must be capable of:

  • actual occupation

  • exclusive occupation

  • beneficial occupation

  • occupation for not too transient a period

If any of these capabilities are missing then there cannot be rateable occupation. The hereditament should be carefully examined to determine whether it is in fact capable of separate occupation and therefore able to be entered in the rating list.

There are a number of cases that cover the question of whether or not a property is capable of occupation, all of them relate to office space.

Watford Borough Council v Parcourt Property Investment Co Ltd (1971) QBD RA 97

This case concerned modern office block comprising net internal area of circa 5850m2 on five floors. Each floor was open plan with no internal partitioning at all and no electrical fixtures and fittings. The common areas benefited from passenger lifts, lavatories, etc. It was held by the Court of Appeal that the building was not a completed building and therefore not a hereditament. When the building lacks features which would have to be provided, and when provided would form part of a hereditament, then prior to their provision the building was not considered complete. The works must be essential to any occupier, not just the eventual actual occupier ‘…where the whole space on each floor is open from window to window and wall to wall and totally devoid of any partitioning …it is unrealistic to contemplate that any occupier would enter into occupation without a substantial measure of partitioning.’

Ravenseft Properties v Newham LBC (1975) CA RA 410

A modern office building comprising 12 floors each with circa 800m2 floor plate. There were no partitions at all, neither were there power points, wiring in place for any lighting system or telephone cables. Central heating and air conditioning were installed. The BA claimed that the building was structurally complete. The Court of Appeal decided that a newly erected building is a completed building for the purpose of unoccupied rates only when it is ready for occupation and not when it is structurally complete. The lack of internal partitions meant that the building was incomplete

Post Office v Nottingham City Council [1976] 1 WLR

The question of whether a telephone exchange was complete was considered. The equipment in dispute included electrical wiring, transformer and the telephone exchange equipment. The Court of Appeal found that being complete did not mean that it should be capable of immediate use as a telephone exchange but rather it should be capable of occupation as a telephone exchange even though it could not actually be used as such until further equipment had been installed. The Lands Tribunal noted that the Court had not found it necessary to introduce into the question of whether a building was capable of occupation for its purpose the ‘highly technical problems of when articles brought onto land do or do not become part of the freehold quoting Browne LJ, ‘I think that in the present case the judge was entitled to find that the building would not be completed until the transformer and electrical wiring had been installed, whether those items in themselves are or are not rateable plant and machinery, because until these had been installed the building, as a building, was not ready for occupation.’

French Kier v Grice (1985) LT RA 202

Concerned the 2nd – 6th floors of refurbished office space, each floor with an approximate area of 335m2, totalling1673m2 for the whole property. The Lands Tribunal held that the premises constituted a separate rateable hereditament. There was no telephone cabling, or lighting although a supply of electricity was available on all floors and central heating was installed, as were suspended ceilings. LT decided that telephones were office furniture and connection to the mainframe in the basement could easily be made. A supply of electricity was available on each floor and the fact that the walls needed a final coat of paint was de minimis. The size of the floors was not incompatible with open plan use and their “L” shape allowed separation from the main area by means of lightweight partitions, which would not form part of the hereditament. Finally, and quite critically, there was no appeal against the completion notice (at which time the premises were in the same physical state as at the date of the proposal), which specified seven days as being the period required for the completion of the building.

3.5 What constitutes a building capable of occupation?

Each case has to be considered on its own facts and it is difficult to generalise and provide specific advice in respect of individual cases. Having said that, the British Council for Offices Guide provides three helpful definitions of degree of “fitting out”.

  • Shell and Core: development includes finishes to landlord’s areas only, with services distribution capped off at risers to each floor.

  • Category A Fit Out (developers finish): typically includes all finishes, suspended ceilings, raised floors, carpets and the extension of mechanical and electrical services to the office area. There is however no standard definition and the level of provision varies from developer to developer

  • Category B fit-out: works are required to go one further and complete the fit-out to the future occupier’s specific requirements, including partitioning to cellular offices, enhanced finishes, carpets, furniture and fittings, data cabling and IT installations. This fit-out can also include modification to shell and core and/or category A finishes and services installations to accommodate space-planning and operational requirements.

As a broad rule of thumb, if the property comes within the shell and core definition then it will not fall to be a hereditament. There is little doubt that bespoke fitting out as described under Category B would indicate a property capable of occupation and therefore a hereditament.

It can be seen from the above that the grey area is “Category A” works, being the ‘level of fitting out between the shell and core building option, and a point at which internal components must be designed to a specification for the particular end user, which is known as Category B, bespoke fitting out works. These works generally follow completion of the base building structural works’ (quote taken from the British Council for Offices Guide)

Works must be essential to any occupier and not just the eventual occupier, but the overriding principle established by case law in relation to office space is that a building must have all the essentials expected by any occupier, such as services and partitions, but to be complete for rating purposes it does not have to have in it all the “finishes”, equipment or furniture that a particular (or the eventual) occupier might want.

Careful analysis of the surrounding market should be undertaken to ascertain whether a similar building has been let and occupied without the occupier substantially fitting it out e.g. adding internal partitioning. Indeed, such partitioning may not be required due to the size and configuration of the unit.

The cases quoted might be somewhat dated in the practical terms of what is now considered acceptable as being capable of immediate occupation. It is important to bear this in mind on a when considering these cases; for example, French Kier was heard at a time when cellular offices were standard whilst today open plan tends to be the norm. Whilst being sensitive to such practical contextual considerations, the basic legal principles emerging from these cases remain valid.

The principles outlined above relate to offices but are equally applicable to retail units, although in general terms retail units will be complete to a shell only standard, with retailers completing/fitting with their own ‘branding’.

3.6 Mergers and divisions

The merger of existing hereditaments or the division of an existing hereditament into a number of separately occupied hereditaments creates new hereditaments.

The President of the Lands Tribunal in Baker v Citibank NA (2007) handed down a decision in relation to two buildings at Canary Wharf where the issue related to the identification of a hereditament in the process of being enlarged successively by the completion of additional floors in an adjoining contiguous tower block. The President said he could see no justification in treating the hereditament as including parts of the building that were incomplete or unoccupied. This was his finding of fact and degree although he thought it could well have been wrong in law to include in the hereditament incomplete parts that were not occupied or capable of being occupied. As each additional part of the project was completed he decided that a new hereditament had been created replacing the one defined by the previous area of occupation.

The President emphasised that the boundaries of a ratepayer’s ownership is not relevant in determining the extent of a hereditament which must be determined primarily by the extent of the occupier’s occupation.

4. Vacant or empty properties

4.1 Background to Vacant or Empty Properties

Historically rateable occupation had to exist in order for liability to arise; since 1966 the owners of unoccupied hereditaments could find themselves liable for empty property rates despite there being no occupation at all. Reg. 2(5)(a) of the Non-Domestic Rating (Unoccupied Property) Regulations 1989 [SI 1989 No. 2261] sets out the classes of hereditament falling within the empty property rate. Whilst these regulations determine rating liability and what class of hereditament is liable, they do not determine the unit of assessment, i.e. the hereditament. These definitions, associated guidance and information can be found at Rating Manual - Valuation Principles - Unoccupied Properties and Completion Notices, paragraph 4.

Sometimes, proposals or reports seek the merger into a single assessment of separately assessed but unoccupied hereditaments within a building in single ownership. The motivation of the owner ratepayer in such cases is the minimisation of the empty rate liability. A merger of the parts would often secure a reduced liability because of the effect of quantum on value.

These separate units of assessment form sometimes contiguous and sometimes non-contiguous hereditaments within the boundary of the whole property in one ownership, mainly but not exclusively within multi storey office blocks.

4.2 The consequence of merger

In some cases the merger of two parts would result in a unit of occupation that would have been quite capable of being offered to let at the valuation date. In other cases the result may be the creation of an “improbable” or “unnatural” hereditament based on ownership and having no regard to likely occupation. As such it will be completely out of keeping and character with the norm for the locality, property age or property type concerned.

If they were created, such large, vacant, “improbable” units of assessment might have boundaries that simply would not occur in the real world and therefore prove unlikely to be attractive propositions to a hypothetical tenant. Using ownership to determine the unit of assessment is contrary to the rating hypothesis, as the rating hypothesis assumes the property is vacant and to let.

A further consequence of creating such “improbable” hereditaments could be that a very large unit may arguably have no hypothetical or actual tenant at AVD, whereas the existing vacant but smaller units may well be expected to let at AVD without too much trouble at all. In such circumstances, the vacant units of assessment would closely mirror reality, in that they were the units of occupation when the building was last occupied; it follows that if a building has been let in many parts, which subsequently fall vacant, there is no reason to disturb those assessments just to replace them with an “improbable” hereditament.

4.3 Identification of the unit of assessment

Mergers of vacant units should only be undertaken when there is a clear overt act by the owner that shows the units are in reality merged. An example would be the removal of separate services and fittings together with the clear intention of letting the units as a single unit.

Identification of the unit of assessment is always a question of fact. If the separately assessed parts remain capable of separate occupation at the material day and there was no overt act on the part of the owner indicating a merger of the parts with a clear intention of effecting a single occupation, then the separate assessments will remain.

The existing pattern of assessment should only be disturbed if there is a positive act to justify the change. Clearly if there is a change in the pattern of occupation within a property then, subject to the normal rules, that should be followed and the unit(s) of assessment revised accordingly.

Merely because two units, e.g. parts of an office floor, or two contiguous office floors, or two contiguous industrial units, could be bounded by a ring fence does not make them one hereditament if they were not previously occupied together, but simply happen to be in the same ownership.

If there is no change in the occupational pattern, there needs to be some physical change to the property, an overt act that suggests when next occupied the pattern of occupation would differ from that implicit in the current pattern of assessment in order to justify it being revised.

Properties falling within the Central List Regulations are subject to special provisions, which prevent this type of effective “merger” taking place. Advice in this respect is held within the Rating Manual - Maintaining the Rating List - Hereditaments Valued by The Central Valuation Officer, paragraphs 8 and 9.

4.4 Practical considerations

Firstly establish what the physical change is; does it indicate a merger of the parts with a clear intention of effecting a single occupation of the whole? E.g. removal of separate kitchen facilities, changing signage and removal of lockable doors denoting separate occupation. If this is evidenced, a merger may be appropriate.

If there is no evidence of an overt physical act resulting in different unit/s of assessment then consideration should then be given to whether the hereditaments remain capable of being separately let. The occupational history of the building will provide the best evidence of this capability, particularly the pattern of occupation immediately prior to the hereditaments becoming vacant. In the absence of any change in the physical state post vacation, then a merger will be inappropriate and the hereditaments remain as they were when last occupied.

If the property is simply vacant pending redevelopment then no action should be taken until it is physically evidenced that the existing hereditament/s have ceased to exist by the necessary overt act, e.g. by demolition.

Information about the intention of the owner with regard to the future use of the property, supported by the planning history and marketing material, may provide additional evidence to support any decision but care should be taken as the intentions of an actual owner are not relevant to rating valuation as such (being ‘accidental’ to the hereditament). They may however clarify what is being seen on inspection. The hereditament has to be considered vacant and to let, rebus, at the material date in accordance with Schedule 6 of the 1988 Act and not necessarily owned by the actual owner.

4.5 VT decision specific to mergers

A VT decision in respect of this issue, where both parties were represented by counsel, concerned Dudley House Albion Street, Leeds LS2 8PN. The hearing was convened specifically to determine the correct identification of the units of assessment to be valued within an unoccupied multi storey office block owned by the appellant.

The VT decision did not accept the appellant’s arguments to merge the vacant separate hereditaments within the property. The VT recognised that case law established occupation as the foundation of rating and that ownership had been shown to be an irrelevant factor. The VT quoted from the Court of Appeal decision in Vtesse Networks Ltd v Bradford (2006) EWCA Civ 1339 CA RA 427 where Lloyd LJ said at paragraph 25:

It is clear that ownership is not a relevant factor for the decision as to whether something is a unit of property so as to constitute a hereditament.

With reference to the facts relating to the building, the VT was not persuaded that any significant or meaningful attempts had been made to either alter the property for single use or market it as such. The management of the empty building, e.g. visits by security staff, were not considered evidence of a single hereditament.

This decision endorsed the approach taken by the Valuation Officer to determine the hereditaments within the property. An appeal to the Lands Tribunal, RA/15/2008, was subsequently withdrawn so the VT decision stands. The legal principles and other relevant factors are detailed below.

4.6 Capable of being separately let

One aspect of the identification of the hereditament is its capability to be separately let or occupied (see Identification of the Hereditament paragraph 2.5).

In the Venus packaging case, where the whole factory site was occupied as one hereditament until, in Feb 1975, the company vacated the northern part of the site. The parts were separated by a brick wall, which had an interconnecting door. In July 1975 an appeal to divide the assessment was made on the grounds:

that the buildings were capable of separate occupation and only a portion is in fact occupied

The Lands Tribunal upheld the VT decision, which was to assess as two hereditaments, each being capable of being separately let:

If one looks at the property as it is, one finds at one end of the premises a factory in operation and at the other end of the premises and physically separated there from empty buildings not in use. The premises therefore have been divided. They are not only “capable of being made into two”; they have been made into two—

The physical separation is distinct from a single hereditament, which simply happens to contain unoccupied parts. Determination of the hereditament relies on whether the part is capable of being separately let which is evidenced by physical facts and occupational history.

In Osborne v Williamson (1980) LT RVR 122 (and transcript 26/10/1979), the ratepayer argued that two hereditaments (a flat and a maisonette in the same building) had become one, after both had fallen empty; the Valuation Officer (the Respondent) argued that:

There were two separate rateable hereditaments with two separate occupiers on 1st April 1973 when the valuation list came into force. These two hereditaments had not in any way changed since that time but remained structurally in the same condition, each being capable of separate letting at the date of the proposal.

The Lands Tribunal accepted that argument, and decided:

In my judgement the submissions put forward by the respondents are to be upheld and I consider that the local valuation court came to a correct decision. Before the ground floor flat became vacant in February 1976 there were clearly two hereditaments in existence and this position was in no way altered when the flat became vacant. —– If the flat when empty constituted a separate hereditament, I cannot see how it ceased to be a hereditament when another hereditament, that is to say the maisonette, subsequently became empty. It would in my judgement require some overt act on the behalf of the owner indicating a merger of the two parts with a clear intention of effecting a single occupation of the whole before it could be properly said that the two parts ceased to exist as separate hereditaments.

This ‘before vacation’ and after vacation’ consideration is a significant factor in determining the unit of assessment.

4.7 Rateable occupation and the owner

In the Vtesse Networks case, the ratepayer leased individual pairs of optical fibres within cables owned by third parties the issue was whether the ratepayer was liable to pay rates, or whether the third party (who owned the cables) should pay them.

In support of its argument that optical fibres were not ‘units’ of property, the ratepayer asked the Court of Appeal to identify the hereditament without regard to the question of “occupation”. Lloyd LJ noted this at paragraphs 14-15: he said that it was “unusual” to try and identify the extent of the hereditament without regard to occupation. He went on to reject the ratepayer’s argument.

This confirmed that occupation is a relevant factor not only in deciding who should pay rates but also in identifying the hereditament itself.

Also, in support of its arguments, the ratepayer drew attention to the fact that it did not own the cable: it only leased individual fibres within the cable. It argued that the owner of the cable should pay the rates, at paragraph 25, Lloyd LJ rejected this argument too, emphasising that:

..it is clear that ownership is not a relevant factor for the decision whether something is a unit of property so as to constitute a hereditament.

The recent decision of Baker (VO) v Citibank (2007) LT RA 93 provides a useful examination of the law relating to the hereditament and the decision adopted the principles established above.

4.8 Summary: Vacant or Empty Properties

Occupation is a key factor enabling identification of the extent of the hereditament. In the absence of occupation the occupational history of the hereditament should be reviewed to establish what the previous pattern of occupation was and compare it to the existing physical state of the property. Where works have been undertaken and evidenced to provide a hereditament different to that originally assessed then revision may be necessary. Without such evidence of change, the previous pattern of occupation should prevail in determining the rateable hereditament.

5. Appurtenant rights and the effects of the rights of others

5.1 Introduction

It must be stressed from the outset that the term “rights” has almost universal application in property matters, and covers most interests in, on, attaching to, detracting from, over and under land. 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 enhancement or diminution of value of the land and as such can be taken into account without question when attributing value to 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 also take account of certain rights attaching to, and beneficially affecting the enjoyment of the hereditament. Examples include access over or use of land or conferring the benefit of facilities outside the hereditament such as service roads/areas, common parts, lavatory or car parking, which will generally have a beneficial effect on value; others may include user rights conferred 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.

Conversely, rights enjoyed and exercisable by others (whether attached to other land or not), may adversely 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 addition 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.

5.2 Rights Appurtenant and Attaching To a Hereditament

The propriety 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 land the occupation from which its exercise flows.

5.3 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 not so extensive as to exhaust its value and a hereditament exists, it is still nevertheless necessary to take account of the effect on value of such rights.

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 may perhaps be evidenced by a car charging regime and, if the rights are not exhausted, a hereditament exists and the car park falls to be assessed taking into account the effect of the burden of those rights enjoyed by the shops.

The effect of rights in relation to shopping centre car parks is considered in greater detail in Rating Manual: Section 6: Part 3: Section 200: Appendix 1. This issue has also been considered by the Upper Tribunal in relation to public lavatory facilities at a shopping centre, in the case of Hodgkinson (VO) v Strathclyde Regional Superannuation Fund (1996) LT RA 129, and further guidance in this respect is given in Rating Manual: Section 6 Part 3: Section 625.

The effects of incorporeal rights not appurtenant to land and whether they can constitute or affect a hereditament are explored in more detail at paragraph 13.

6. Advertising rights and incorporeal hereditaments

6.1 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 2.6

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 devoted to those “incorporeal” hereditaments (or rights), which can loosely be defined as “not tangible”, being the rights and profits annexed to, or issuing out of, land. As stated above, incorporeal rights do not ordinarily 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; although any such effect is by no means guaranteed, those incorporeal rights that can be considered for rating purposes include:

  • advertising rights

  • easements

  • licences

  • tolls or rights of toll

  • rights of common

6.2 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 Rating Manual: Section 6 Part 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 encompass 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 therefore creatures of Statute and their existence is not dependant on satisfying the tenets of rateable occupation. Unfortunately, when it comes to creating an advertising right hereditament it can be very easy to fall into the trap of looking for the tenets of rateable occupation when it is totally unnecessary to do so. Particular care should be taken not to fall into the “not too transient” trap; it should be remembered that 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; Rating Manual: Section 6 Part 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 in more detail at paragraph 13 below.

6.3 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 Rating Manual: Section 6 Part 3: Section 950.

6.4 Easements

The possession of a mere easement over, or a right to enter upon land is insufficient of itself to 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 be of such a character as requires the occupation of land for its exercise, and confers a right to occupy land during its continuance. The person having the possession involved in such an easement is then the occupier and liable to be rated, as decided in Kittow v Liskeard Union (1874) LR 10 QB 7.

6.5 Licences

The Holywell Union case determined that a licence that does not involve possession of land, involving control and regulation 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 do not on the face of it appear to give rise to exclusive occupation of Land should be considered alongside the facts as they present themselves on the ground. In other words, paramount control and the practical outworking of the licence should be explored, to confirm if exercise of the right effectively achieves rateable occupation of the land over which it is exercised. Similar considerations apply where a right to use land is granted by licence, see Westminster City Council v Southern Rly Co (1936) AC 511 at 533, (1936) 2 All ER 322 at 329, HL

6.6 Tolls

6.6.1 Tolls – General

Note: The question of 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 the Rating Manual: Section 6: Part 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 both questions receive an affirmative answer are the tolls to be taken into account for rating purposes.

The following types of tolls are the most commonly encountered:

  • Tolls in Gross

  • Market Tolls

  • Highway Tolls

  • Harbour/Dock Tolls

  • Ferry Tolls

  • Bridge Tolls

6.6.2 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 such a case, as the toll would not be paid to the occupier of the land, it is not rateable.

However, the merits of each case must be carefully considered. The decision as to whether the tolls are rateable should be inferred or established from the circumstances of any particular case, having regard to whether the particular tolls do in fact benefit the occupier of the land and enhance the occupation.

In general, if such tolls are connected with the occupation of any property to the extent that they would pass to a tenant if a lease were granted, any enhancement of the value of the land in respect of the tolls should be incorporated into the valuation.

6.6.3 Market Tolls

Note: Additional guidance in respect of Markets (Excluding Livestock Markets) can be found in the Rating Manual: Section 6: Part 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 seeking to establish 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 need show no grant, prescription nor statutory authority for taking stallage or piccage. The criterion would seem to rest on whether payment of the toll confers on 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 constituent 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 constitute part of the value of the occupation. In consequence of this decision 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 colloquial terminology. The use of the term “market tolls” often encompassed all payments made in respect of the operation of a market, be they franchise tolls, stallage, rents, entry fees, concession payments, etc. Care must therefore be taken to determine those payments that confer ‘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”, primarily achieved by visiting the market place during the time of operation of the market and, if possible, establishing the position regarding the payments 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 Rating Manual: Section 6: Part 3 Section 630. Similarly, consult Rating Manual: Section 6: Part 3: Section 580 for further information in respect of Livestock Markets.

6.6.4 Highway Tolls

Additional guidance in respect of tolls can be found in the Rating Manual: Section 6: Part 3: Section 1100.

In respect of highway tolls, it is essential to establish whether they are a “toll traverse”, being a payment in return 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 thorough” is not.

6.6.6 Harbour/Dock Tolls

Additional guidance in respect of Docks and Harbours can be found in Rating Manual: Section 6: Part 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 undertakers 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 undertakers also own the soil or bed of the harbour is the element of exclusive occupation satisfied in such cases.

Where the undertakers 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 a consideration of the nature of the tolls in each case, but by and large 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 is Swansea Union Assessment Committee v Swansea Harbour in the House of Lords (1907) 71 JP 497In 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, which were vested in them, and were 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 vesting of different parts of the harbour in 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.

6.6.7 Bridge Tolls

As already encountered when considering “Highway Tolls” (see above), a distinction is drawn between ‘toll-traverse’ and ‘toll-thorough’. 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, any one 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

6.7 Common Rights

Common” in legal terms is a profit that a person has in the land of another, deriving its name from the community of 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 by lapse of time continues by “prescription”; there is no deed or instrument 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 being in general not otherwise measured. For example, “Common of Piscary”, or common rights to take fish from another’s water is usually limited only by the amount of surface area of water over which the right exists, the amount of fish under that surface at the time, and 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 liberty 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 that involves such a use of the land as 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 is such that it effectively involves occupation of the land over which it is exercised. For example, it may be that the particular occupation allowed by the exercise of 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 (Valuation Officer) v Burley Golf Club (1960) All ER 199, 6 RRC 73, CA, 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 enhance or reduce its value. An example may be common land over which a person has a right to graze animals.

Where it is considered that the land over which a common right is exercised is 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 diminished by the existence of the common right, or at the full value, including the value of that right?

6.7.1 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 assimilate 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.

6.8 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

7. The corporate veil

7.1 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.

7.2 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 be prescriptive about 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 imply an agency between the holding and subsidiary company.

The DHN Food industries and other cases would, at first sight, seem to imply 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.

7.2.1 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.

7.2.2 The concept of Agency/Alter Ego

This concept has sometimes been used whereby the effect of the transactions entered into by a subsidiary are regarded as those of the holding company 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.

7.3 Rating case law and the corporate veil

The courts have consistently displayed a reluctance 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 gave its incorporation. 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 (1960) LT 53 RIT 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. The company’s articles of association provided that the original number of members was to be nine of which five were to be serving members of the Parochial Church Council (PCC). Religious books 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 J C Chilcott (VO) (2004) VT, heard 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,

  1. show gardens and premises

  2. restaurant and premises

  3. café, plant sales and premises, and

  4. shop and premises

At Snowshill, the existing single entry was replaced by

  1. historic house and premises

  2. shop and premises, and

  3. 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 inasmuch as it was found that a 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.

7.4 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 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 prevailing facts?

  • to what degree do prevailing facts affect the outcome in terms of defining the hereditament?

  • which company is in rateable occupation of the hereditament?

To assist in this endeavour, it is necessary to satisfy the four ingredients (or tenets) of rateable occupation. These ingredients have already been considered in paragraph 4.3, and are:

  • actual occupation

  • exclusive occupation

  • beneficial occupation

  • not too transitory

The main ingredient to consider when examining the status of a person who is a limited company is exclusivity, and the means of satisfying it is by establishing 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 upon the first issue depends on a consideration of 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 Railway Co (1936) HL 24 RIT 278. This case considered the question of when parts of a large hereditament were “so let out as to be capable of separate assessment”. Certain subsidiary rules were established and when considering the question of paramount occupation it is “a question of fact and degree”.

The question of “fact” can only be answered by determining the legal position, together with the position “on the ground”. Such facts must be provided or established to the satisfaction of the caseworker considering the matter.

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

7.4.1 Step 1 Establish Contiguity

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

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

Contiguity is an essential prerequisite to be established before going any further. Apart from certain exceptional circumstances, unless the property is contiguous, separate hereditaments will always result; this outcome will predominate and, in the context of merging the hereditaments. 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 thoroughly examined before any decision can be made.

7.4.2 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 market traders who have various pitches within a market, or separate corporate divisions of a motor company who may have set up a “service company”, “parts company” and “sales company”, each occupying a property with such a degree of inter-connectivity and control that to all intents and purposes 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 let as separate premises, the presumption must be “more than one hereditament”, but again it will be a question of fact and degree.

  • Are the parts dependent to a degree?

If the “parts” are dependent upon each other to the degree 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.

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.

In the first instance, a copy of the actual lease or agreement granting occupation should be examined. From this, it should be possible to establish who is the tenant, 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. It should be possible to 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 be established 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 there directors in each company identical?

  • are the “companies” in reality “trading names”?

  • in any negligence claim, whom would 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 gain a definitive conclusion for every scenario based on guidance in this manual. When considering particularly complex cases further assistance and advice will be required, and the stated protocols for seeking advice should be followed, especially where the decision has widespread implications. However, it is hoped that 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.

7.4.4 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”. It is now essential to accurately establish the operational aspects prevailing “on the ground” on the material day.

It will be necessary to discover who is in control of the day to day running of the business and who is in ultimate control. The degree of control exercised by the “host” or “umbrella” over the “subsidiaries’” occupations needs to be established, both as it affects the physical enjoyment of the property and the way in which the occupation is conducted.

There may be separate managers for each company at regional and head office and it will be important to find out whether there is a separate board of directors for each company and 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?

  • to whom are customer cheques payable?

  • 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 ground?

  • 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 predominantly supportive, for example, having the same VAT registration number would be almost immaterial if it transpires 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.

7.5 Conclusion on Corporate Veil

Non-domestic rates on occupied hereditaments are a tax upon 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 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 the each company who is the legal “person” in occupation

  • establish rateable occupation and control

If, on establishing these facts, the hereditament is in separate occupation by each company, separate assessments prevail.

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

It is suggested that, after a review of the case law provided in the foregoing paragraphs, if resolving the issue means looking behind or lifting the corporate veil, the presumption must be that separate corporate identities prevail; this is a fundamental feature of company law and if a judge is reluctant to look behind the veil of incorporation, valuation officers must exercise similar caution. It appears fair to say that in all areas of law, the courts have displayed a consistent reluctance to look behind the corporate identity.

To the extent that the relationship between companies has any impact on determining the hereditament, which primarily arises where hereditaments are contiguous, it is anticipated that established matters of fact and degree as can be ascertained “on the ground” will be sufficient to make such determinations. 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 prevail.

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 reasons for doubt whatsoever remain in the mind of the caseworker seeking to determine the position, not only must the corporate veil remain undisturbed, but separate hereditaments remain until those facts are fully and undoubtedly established.

8. Ceasing to exist

8.1 General

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 is destroyed, e.g. the redevelopment or demolition of an existing office building by design or external factors, fire, flood etc.

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.

8.2 The Regulations

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.

The effect of this is 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 relevant where the previous hereditament has not previously been deleted from the list because it had been rendered incapable of beneficial occupation, in line with the Monk and Jackson (VO) v Canary Wharf Limited cases.

8.3 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 redevelopment or demolition 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 Valuation Principles Valuing Vacant Property. A hereditament which has ceased to exist and is deleted cannot be brought back into the rating list unless it is evidenced capable of occupation for the use intended, or is subject to a completion notice. 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 paragraph 3 - Coming Into Existence.

8.4 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, there being no external indication of its presence whatsoever, this is a material change of circumstance 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 is extinguished, no rent is passing, and no new advertising displayed on the existing hoarding since the right was extinguished, then the separate advertising right entry in the rating list should be deleted from the date the right was extinguished.

Conversely, any continued advertising after the period of the licence 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 such a scenario, 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 of rateable occupation to be fulfilled for a hereditament to exist.

8.5 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 repairs economic and there was no evidence that he would be unable to enjoy beneficial occupation until the agreed date upon which the advertising hoarding were actually demolished.

9. Cross boundary properties

Prior to 1990 it was an established principle that property in more than one rating authority area would be divided into at least the same number of hereditaments as the rating authority areas in which the premises are situated.

Post 1990, with the move to a national non-domestic rate, this rule has been set aside by regulation 6 of the Non-Domestic Rating (Miscellaneous Provisions) Regulations 1989.

Where a hereditament falls within the area of two or more billing authorities it should be treated as situated in the billing authority area where the greater or greatest part of the rateable value is located. This is calculated not on the plot size of the hereditament but on the relative values of the parts.

Should the value be equal then the 1989 regulations referred to above provide for the decision as to which rating list should contain the single entry is to be decided by lot, drawn by the VOs concerned (regulation 6(5)).

10. Plant and machinery and chattels

10.1 Introduction

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:

  • 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.

Whilst the position as to the rateability of chattels has been established by case law the rating of plant and machinery is expressly governed by legislation. In the following paragraphs the rateability of plant and machinery is covered briefly in the context of the hereditament. Plant and machinery is covered in much greater detail, particularly in relation to rateability and valuation issues in * RM- Valuation Practice- Plant and Machinery

As a general rule of thumb, Plant and Machinery are items with which the business is carried out, but Chattels (as defined in b. above) are items in which the business is carried out.

10.2 Plant & Machinery

As stated above, the rateability of plant and machinery is, and has been since 1925, expressly governed by legislation in the form of various Acts of Parliament and Statutory Instruments.

For the purposes of this Rating Manual Section, only the current position in relation to the 2005 Rating Lists is outlined. For previous lists and a commentary on the historical development of the law in relation to the rating of plant and machinery, the more detailed guidance in Rating Manual Valuation Practice Plant and Machinery should be referred to.

10.2.1 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. Copies of the statutory instruments are included as appendices to the main RM section on plant and machinery.

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.

Rateability of plant and machinery can be a contentious issue and is considered in detail in in Rating Manual Valuation Practice Plant and Machinery. 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’

10.2.2 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, whether or not it is part of the hereditament.

Instead the regulations state that: ‘the value of any (other) plant and machinery has no effect on the rent to be estimated….’ The question therefore arises as to whether plant and machinery so disregarded by the prescribed assumption, is nevertheless still assumed present in or on the hereditament, albeit that its value has no effect on the rent to be estimated.

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.

The intent of s.21 is embodied in the 2000 P & M Regulations and, although the wording differs, the position does not appear to be materially altered.

10.2.3 Part of the Hereditament 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. Arguments were generally mounted in order to avoid rateability, as these features could not be identified as items in the relevant plant and machinery regulations.

The leading case in relation to the rateability of partitions is 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; “rawlplugs” 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 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.

10.3 Chattels

The 1988 Act, as with predecessor legislation, only specifies “lands” as rateable together with a few rights, e.g. advertising rights (See paragraph 4.6). Chattels, where they are not enjoyed with lands, are therefore not rateable. However they may be rateable in certain circumstances, typically when they are occupied together with land for a sufficient time.

The leading decision was given by the House of Lords in LCC v Wilkins (VO) (1956) HL 49 RIT 495 confirming that chattels if enjoyed with land and enhancing the value thereof, may be rated with the land.

The case related to four builders’ huts, used by contractors during a substantial building project, it was claimed by the ratepayers that the huts were chattels and as such not rateable.

The Lands Tribunal, the Court of Appeal and the House of Lords all rejected the ratepayer’s contentions. In the House of Lords, Viscount Kilmuir LC said:

‘I think that the respondent’s submission was right, viz, that the test of rateability is whether there is evidence that the structures were enjoyed with the land and enhanced its value. In considering this, the intention of the erector and the other elements of annexation, period, size, quality, amenities and purpose are all material. All these factors are important, but intention, and certainly what I may call the “conscious element” in intention, is no more than one factor and its importance is not overriding. The question is eminently one of fact …’

Lord Radcliffe said:

‘… I think it equally well established that a structure placed on another person’s land can with it form a rateable hereditament, even though the structure remains in law a chattel and as such the property of the person who placed it there. It has been habitual practice to treat gas and water pipes, drains and sewers, telegraph posts placed in, and telegraph or telephone wires placed over, land as being themselves rateable subjects. Yet I do not think that there is any foundation for supposing that when the undertaker, equipped with the licence of the owner of the soil or with statutory powers, affixes his apparatus to a building or lays it in or on the soil the law regards him as thereby making it part of the freehold. It is quite common in these cases to find stress laid on the point that the apparatus concerned remains the “exclusive property” of the undertakers …’

and later in the same speech he said:

‘when the owners of pipes, cables, posts, etc, are rated as occupiers they are rated in respect of those things themselves, by means of which they occupy land, not merely in respect of the land that is occupied …’

The huts were in situ for between eighteen and twenty one months, which was held to be sufficiently permanent for rateability.

The builder’s huts in Wilkins and more recently the storage containers in *Storehire (UK) Ltd v Wojcik (1991) LT RA 39 were held by the Lands Tribunal not to be ‘plant’. If the chattel being considered is plant or machinery then rateability is governed by legislation which is considered in the above paragraphs and in more detail in other sections of this manual.

A case where the plant and machinery regulations effectively exempted a chattel which would otherwise have been treated as rateable with the land on which it stood arose in the case of Platts (NH) & Sons v Hanstock (Valuation Officer) (1963) LT 3 RVR 344; 10 RRC 57, which related to an automatic milk vending machine.

Subsequent decisions of the Lands Tribunal, have decided that the following chattels are all rateable: caravans, a hinged carport, a floating clubhouse, a spoil heap worked for shale, shipping containers used for storage and a flower stall in a shopping centre.

It is now clear that the occupier of a chattel enjoyed with the land for a sufficient time may be rateable, not just for the land but also for the chattel, which occupies land, itself. There cannot be assessment of chattels alone; there must first be occupation of land (except where specific statutory provision has been made to the contrary, for instance gas meters). For more information in respect of gas meters, refer to Rating Manual - Maintaining the Rating List - Hereditaments Valued by the Central Valuation Officer.

In determining rateability of chattels therefore one must consider –

  • Is the chattel an item of plant or machinery in which case, rateability will be determined by the relevant regulations?

  • A chattel cannot be rated by itself.

  • Is the chattel enjoyed with land and with such a degree or permanence that the chattel with the land can be regarded as one unit of occupation?

  • Is the occupation of the land enhanced by its being occupied with the chattel

It is anticipated that only in relation to (iii) and the issue of transience, or a lack of permanence of the occupation of the chattel that difficulties might be encountered. When considering permanence in relation to whether a chattel is properly rated in respect of a rateable occupation of land the Lands Tribunal has generally adopted a ‘rule of thumb’ of 12 months, although this is by no means an absolute rule.

Physical permanence in terms of attachment to the land is not required, indeed in many of the decided cases the chattels determined as rateable have remained capable of being moved readily; notably in relation to caravans and floating vessels. What is most important is the expectation in terms of the duration of the occupation by the chattel of land. Movement of the chattel within the hereditament is not a bar to it being rated with the land. In Thomas (VO) v Witney Aquatic Co Ltd (1972) LT RA 493, the floating clubhouse (a chattel) was moved within the hereditament (a lake) to a winter mooring.

Contractor’s site huts and floating hereditaments, as specific examples of chattels commonly found rateable are dealt with in detail in Rating Manual: Section 6: Part 3: Section 300, and Rating Manual: Section 6: Part 3: Section 400 respectively where further and class specific advice is given.

Appendix 1: The Hereditament - Common scenarios (Wales){:#appendix-1}

Office buildings where issue is vertical proximity
Whole building of ground and 6 floors let as single leases but occupied by a single ratepayer.  Lavatories on each floor in common parts. All parts form a self-contained hereditament Single hereditament for whole building
Similar building but occupied by two ratepayers who each occupy whole floors. Floors GF to 3F and 4F to 6F.  There should be 7 hereditaments even though on a pre Woolway understanding this would have been 2 hereditaments Each floor forms its own self-contained unit.
Similar building but each floor is occupied separately 7 hereditaments
Similar building but owner lets off one floor and occupies the rest. 7 hereditaments Each floor forms its own self-contained unit.
Similar building in multi occupation but tenant of 3F, 4F and 5F inserts a private staircase between these floors 4 hereditaments.  3F, 4F and 5F will be one as they are intercommunicating.
Similar building newly constructed but not yet at all occupied When occupied the building could form one or several hereditaments VO should consider what is the likely pattern of occupation and assess accordingly (see BRR v. Hopkins (VO) [1981] RA 328) – either as a single assessment or 7 hereditaments as appropriate.  Essentially this is a practical consideration.  What does the VO think likely?  Examining the marketing literature and letting agent’s comments are relevant.
Car parking spaces in adjoining car park or in basement The landlord retains control of the car park and charges for use.   In this situation there will be a single car parking hereditament with the landlord in occupation.  The value of the individual floors will exclude the value of the car parking but will, of course, reflect its availability at a charge.
Car parking spaces in adjoining car park or in basement There are no allocated spaces but the individual office floor occupiers have the right to park in the car park.  In this situation the value of the car park is exhausted by the rights of the individual floor occupiers and should either be ignored or given a nominal value.  The floor assessments will reflect the value of the non-dedicated parking albeit with no mention in the description.  The benefit is included but the spaces do not form part of the office hereditaments.
Car parking spaces in adjoining car park or in basement The office floors have allocated spaces to the particular occupier.  Each occupation of spaces should have its own assessment at value with the value of the car parking (but not its potential availability at a charge) excluded from the office floors.   The number of car parking hereditaments will depend on contiguity.  So if the occupier of Floor 7 occupies contiguous spaces 11-15 and contiguous spaces 31-35 then these will form two hereditaments.  It is of course possible for the occupier of Floors 4-6 to occupy contiguous spaces 36-75 and this form a single assessment, due to the same occupier occupying them, notwithstanding Floors 4, 5 and 6 should be separately assessed because they do not intercommunicate.
Office buildings where issue is based on horizontal proximity
Converted premises where individual rooms are accessed from shared corridor where some rooms are next to each other but not intercommunicating The same principle should apply as with floors.  Because the rooms are not intercommunicating, albeit touching and occupied by the same occupier, they should be separately assessed.
Office units that adjoin each other but do not intercommunicate except via common parts. The same principle should apply as with floors.  Because the rooms are not intercommunicating, albeit touching and occupied by the same occupier, they should be separately assessed.
Retail premises where issue is based on horizontal proximity
Adjacent premises with no intercommunication with same occupier Separate assessments required
Adjacent premises intercommunicating Single assessment
Retail premises where issue is based on vertical proximity
Two shop units in shopping centre but no internal communication although directly on top of the other. Separate assessments required
Adjacent premises on a vertical plane intercommunicating internally e.g. by a staircase Single assessment
Industrial premises where issue is based on horizontal proximity
Two factory units not adjoining Separate assessments required
Adjacent premises on a horizontal plane intercommunicating internally Single assessment
Adjacent premises on a horizontal plane not intercommunicating internally. It may be that the yard/car parking at the front or rear is in single occupation and therefore the premises are intercommunicating within the hereditament.  One assessment. Otherwise two hereditaments.
 Non-contiguous premises facing each other across a public road and occupied by the same company where the two premises comprise specialised properties used together for a specialised process. The test is not whether the two parts are functionally essential the one to the other as under the old ‘Gilbert v. Hickinbottom test) but whether one part could be separately let and therefore separately occupied without significant detriment to the other part (see para 3.4). It is important to note the actual use made by the particular occupier is not the test but instead it is the nature of the premises which needs to be examined. It might well be these two parts will form a single hereditament because one or both could not be separately let as they only have a use with the other part.
Other situations
A church hall with a car park on the other side of a highway where there is a planning requirement car parking is provided. This is the Stamp (VO) v. Birmingham Roman Catholic Archdiocesan Trustees situation. The planning situation appears to make it not possible to separately let the church hall without substantial detriment to it if planning enforcement action would be taken.

Appendix 1a: Examples following legislative amendments by the Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act 2018 (England)

Multi storey office buildings

How many hereditaments?


Floors two and three of an office building occupied by the same company. The floor plates are directly above and below each other and they are both accessed via the common areas of the building.


The two floors pass the contiguity condition and can be treated as one hereditament.


A six-storey office building occupied by two separate companies. Company A occupies the ground to second floors and the fifth floor. Company B occupies the third and fourth floors. All floor plates are directly above and below each other and all access into the offices is via common areas of the building.



Company A has three contiguous floors but floor five is not contiguous to any part of their occupation. Company A is treated as having two hereditaments.
Company B will be one because it passes the contiguity test for floors 3 & 4.


Four different companies occupy a six-storey office building. Floors one and two are unoccupied and were vacated by the same company on the same date. The ground floor and floors three to five are all occupied by the four different companies.



The four separate companies all have their own floor and will each be one hereditament. The two unoccupied floors pass the contiguity condition and were previously occupied by the same company who vacated on the same day, they are also in the same ownership. Therefore they can be treated as one hereditament.


A newly built five-storey office building has a completion notice served on the whole building and a Billing Authority Report has been sent to the VO requesting the building be brought into the rating list.



This will depend on the expected occupation pattern of the building which can be informed by the occupation of similar buildings in the local area. When a completion notice is served it is the VO’s responsibility to identify the hereditaments. This example could be one hereditament if the building has been built on an estate of five-storey office buildings with each one occupied by one single company. If local patterns of occupation suggest each floor will be occupied separately then, there should very likely be five hereditaments.


A two-storey office building on a business park with one hundred car parking spaces in a car park located to the front of the building. One company occupies the offices and the car park.



As there is one occupier and the office building and its associated car park pass the contiguity condition, this example should be treated as one hereditament.


A two-storey office building on a business park with one hundred car parking spaces in a car park located to the front of the building. One company occupies the ground floor and a separate company occupies the first floor. Each company has 50 clearly marked car spaces. The company on the ground floor has 50 car parking spaces to one side of the car park and the company on the first floor has 50 car spaces on the other side of the car park.



Taking the office building first as there are two different occupiers there will be two hereditaments. If the 50 car spaces which are occupied by the ground floor office occupier are contiguous to the ground floor of the building and each other, then the 50 car spaces can be included within the ground floor office hereditament. If the 50 car spaces are not contiguous to the ground floor of the office building then the car spaces will not form part of the ground floor hereditament.
The first floor occupier and their car spaces will not form one hereditament as they are not contiguous to each other. The 50 car spaces allocated to the first floor occupier should form their own separate hereditament and be included within the Rating List.


A five-storey office building with an attached 100 space car park located within the basement. Each floor of the office building is occupied separately and they each have 20 spaces allocated to them within their leases. The 20 spaces are clearly marked and allocated and are all in groups of 20 which are contiguous to each other.



Each of the five separate floors within the office building will form its own separate hereditament. It is likely that the 20 car spaces allocated to the ground floor occupier will be included with the ground floor hereditament, dependent on the layout of the basement car park. The other groups of car parking will each form separate hereditaments each of 20 spaces as they will not be contiguous to the offices in the upper floors of the building.


A five-storey office building with an attached 100 space car park located within the basement. Each floor of the office building is occupied separately and has 20 car spaces allocated to them within their lease. None of the 100 car parking spaces are directly allocated to any particular occupier.

5 (or 6)


Each of the five separate floors within the office building will form its own separate hereditament. In this situation the value of the car park is exhausted by the mutual rights of the individual floor occupiers and should either be ignored or given a nominal value as a separate hereditament.  The floor assessments will reflect the value of the non-dedicated parking, albeit with no mention in the description as the spaces do not form part of the office hereditaments.





Industrial Buildings




A terraced row of eight industrial units which front onto a shared yard. There are six separate companies occupying the units with one company occupying three units in a row. There is no internal access between any of the units.



The five companies which each occupy one unit all occupy one separate hereditament each. The company which occupies three separate units will be treated as occupying one hereditament as the three units in a row pass the contiguity condition and are in the same occupation.


Four industrial units with two on one side of a road and two on the other. Company A occupies two units which are on opposite sides of the road. Company A carries out a continuous manufacturing process with a lot of movement between their two units of people and fork lift trucks carrying materials. The other two units are separately occupied.



The two separately occupied units should be treated as two separate hereditaments. The two units situated across the road from each other in the same occupation are not contiguous and do not appear to pass the ‘necessary for effectual enjoyment’ test, which comes from the Supreme Court decision of Woolway v Mazars, and therefore cannot be treated as one hereditament.





Retail Property




Two adjacent shops units with no intercommunication in the same occupation




The two shops pass the contiguity condition and are occupied by the same company.


Two shop units in a shopping centre with no internal communication although one is located directly on top of the other and are in the same occupation.



The two shop units pass the contiguity condition and are occupied by the same company. There is still a need to consider the ‘corporate veil’ where the occupiers are parts of a larger single company.










There will be numerous situations where properties occupied by the same ratepayer are not contiguous but are linked in a variety of ways, including service pipelines, cables, etc. The status of pipelines in particular has been subject to litigation, most recently in Jamieson (VO) v. Eon. Of course all these decisions pre-date Woolway, but taken together they suggest that as a general rule the simple fact of such physical linkage does not of itself create a single hereditament. It seems likely that Woolway does not change this - however, the degree and nature of such connections may have significance purely as an indicator of the separate lettability (or otherwise) of each element under consideration. Hence in any given circumstance it is not the fact that elements are linked by (say) pipes that is important – rather that the nature of this connection is one indicator as to whether the elements are part of an indivisible occupation, and thus whether one could realistically be let without the other(s).

Where ratepayers or their agents contend for a single assessment by reason of connection by pipeline, service pipes/cables, private road or any other linkage, advice should be sought from the Technical Advisor and (if necessary) the designated NSU subject matter expert.

Connection via Cables, Service Pipes, private roads, etc

In this section, reference to “pipes” concerns conventional service pipework generally found in relation to commercial property. More specialised and substantial pipelines are considered in the next section.

In Butterley Co Ltd v Tasker (VO)[1961 ]1 WLR 300, the Court of Appeal upheld a Lands Tribunal decision that connection between a works and offices via a private estate road of some 150 yards in length did not render these elements contiguous. In his judgement Holroyd LJ was not prepared to say that a private road connection could never give rise to a single unit of assessment – however, in the case several factors indicated to the contrary, including the fact that the road connection was incidental, being part of a wider network of roads criss-crossing the site – also it did not terminate at either works or offices, merely running past each. Additionally the offices had functions which extended far beyond the running of the works – these involved the wider group of Butterley companies.

Holroyd interpreted the LT’s reasoning as being that if the road was rateable it would form part of a separate hereditament comprising the whole private road network on the site – therefore it could not be separated out (there being no evidence of it being devoted to the purpose of providing a link between the works and the offices) to provide the necessary distinct rateable element permitting a geographically-unified assessment. This (Holroyd concluded) was a matter of fact on which the LT were permitted to decide. In his judgement, Harman LJ stated the matter more baldly: “Nobody would suggest that, if a man owns a road and two buildings at each end of it, the buildings are contiguous. They are connected no doubt by the road, but that is another matter.”

In Newbold (VO) v. Bibby& Baron Ltd [1959] 4 RRC 345, the Lands Tribunal considered the case of a factory linked to other land and buildings via a 3-inch steam main and electricity cables passing under a public road. The member held that this did not make the two elements contiguous: “The contiguity, I think, must be in the premises themselves, a mere connection by wires or pipes might result in premises a mile apart being treated as contiguous, which seems to me ridiculous.” This case seems to make it clear that the mere joining by pipes and electricity cables does not make premises contiguous let alone intercommunicating. – see RM4:2:3.3

Connection via Pipelines

Much of the historic litigation in respect of pipelines centred on their rateability – in particular whether the pipeline in question lay outside “relevant premises” and was therefore rateable (see RM5:780:5.1.3-6). Latterly, the focus has been on whether or not a rateable pipeline and the industrial plant to which it is attached form a single hereditament (see RM5:780:5.6).

In Jamieson (VO) v. Eon RA/472011 the President of the Lands Tribunal considered a gas fired power station and a 12km-long gas pipeline, holding that they comprised a single hereditament by virtue of each being essential to the other. Whilst the matter cannot be free from doubt, it is likely that the Supreme Court’s decision in Woolway would not have changed the decision in this case – the pipeline and the power station were contiguous, could be said to “intercommunicate” certainly so far as the transmission of gas was concerned and were not used for separate purposes. (Of course, having been reliant on the Gilbert (VO) v Hickinbottom decision disapproved in Woolway, it seems reasonable to suppose that the President’s reasoning would have been expressed differently. The President was very clear that the Gilbert “functional dependence” test was met – again it seems likely that the “effectively ascertainable character” of each element would lead to the same result under Woolway.)

The question then arises as to whether two properties in the same occupation linked by a pipeline of this nature (and running across land in separate ownership) requires a single assessment. Case law indicates (as discussed in RM5:780:5.1.3-6) that such a pipeline would probably be rateable in any event. In Eon the President took the view that the power station and pipeline could be “ringed around on a map” (per Gilbert) but this was a subsidiary point in his reasoning, holding that if he were wrong in this it would make no difference. In Woolway the Supreme Court (in rejecting Gilbert) determined the primary test remains geographical, being based on ‘visual or cartographic unity’. The Woolway decision emphasises that unity is not simply a question of contiguity, and it seems unlikely that simply interconnection of two distinct premises via a rateable pipeline will, of itself, meet this test.

This leaves the question whether the physical characteristics of such distinct premises means that the Woolway “exception” applies on the ‘Functional Test’ (see RM4:2:3.4). It is in this context that pipeline connection becomes relevant – purely as one indicator (amongst others) as to whether or not the use of one set of premises is necessary to the effectual enjoyment of the other within the meaning of the Woolway decision. Here it must be noted that the courts have strongly emphasised the importance of considering carefully the facts of each case. Whilst the ‘Functional Test’ does have a place it is very much subordinate to the ‘Geographic Test.’ It seems likely even the added fact of connection by a substantial pipeline will be insufficient where it is of any significant length because the two distinct geographic parts will very much lack ‘visual or cartographic unity’ and will fail the ‘Geographic Test.’