Rating Manual section 3: valuation principles

Part 4: appendix 6 - hereditaments with restricted access

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

1. Introduction

The 2007 budget changes to Empty Property Rate liability have created a variety of issues for Valuation Officers [VOs] to consider whilst maintaining local rating lists accurately in accordance with the statutory basis.

However, it is not the role of the VO to engage in discussions about the outcome of potential avoidance devices.

In ‘restricted access’ cases, it is argued that a hereditament has been divided so that part of it is left with no, or very limited, access allegedly because there is no right of access (either legally or physically) through the other hereditament. It is effectively landlocked and the rateable value should be greatly reduced or nil, or the assessment should be deleted.

2. Issues arising

Commonly two scenarios have developed where a nil value or deletion is sought using this argument:

1) Access is physically available - but allegedly denied by the separate occupation of parts of what was the former hereditament.

Particular examples include:

  • warehouses/factories where the only access is across the front concrete parking/storage area and this has been let to a third party, but with no right of access reserved to the vacant warehouse/factory building behind
  • an advertising hoarding erected across the frontage, including the door of a vacant shop in a shopping mall, with the advertising right subsequently let
  • advertising hoardings erected around a vacant car showroom obscuring it, but not preventing vehicular access
  • the letting of the front offices together with car parking of an industrial unit where the letting expressly excludes the industrial part, which is left vacant with only a very limited access or even no access at all

2) Access is physically prevented - for example by building walls, or demolishing stairs, to seal off part.

Particular examples include:

  • A first floor office divided by a stud partition leaving part with no access whatsoever
  • A warehouse divided by a block wall, possibly not to full height, but leaving no access at ground level to the remaining area
  • an old, vacant ‘Woolworth’ type shop on 3 floors. The ground floor is re-let (but not the first or second floors) and the stairs are removed to enlarge or maximise the ground floor shop area, thus leaving no form of access to the upper floors

3. Basic principles

Fundamentally, rating is a tax on the occupation of land. So if land is occupied, providing its use is not exempt or domestic, it will be rateable and will usually form a separate hereditament based on that occupation.

Thus, where a landlord lets part of an existing hereditament, with or without the intent to deny access to the remainder, the occupation by the new lessee will form a new hereditament and the remainder will form a separate hereditament that is invariably empty.

Ordinary common sense suggests that a landlord will not let part of a property where the effect of that letting damages the value of the remaining part, or renders it valueless. However, in a recessionary market, owners or landlords may make the judgement that letting only part of their property and leaving part empty, and without access, is to be preferred to leaving the whole property vacant. Hence, even though some landlords may appear to have acted irrationally or made an unwise letting, the consequences on the ground have to be taken into account when valuing for rating.

4. Identification of the hereditament

In both the circumstances described above, the first question to be answered is this:

Has a new hereditament come into existence?

This can answered by following the principles set out in Rating Manual Section 3 - Valuation Principles Part 1- Occupation and the Hereditament: Part A - The Hereditament.

Each case must be decided on its own particular facts and care should be taken to establish them. If the facts indicate there is a new separate rateable occupation, then a separate hereditament will normally result.

However, if parts of a property are simply removed to prevent access to the remainder of the same hereditament, such as staircases to upper floors, then the repair assumptions in Schedule 2(1) LGFA 1988 will need to be considered.

Alternatively, sometimes works are carried out to physically seal off part of an existing hereditament so that there is no way into it. It is unlikely that the mere sealing off of part of a hereditament on its own will cause it to cease to be part of the existing hereditament (in particular when considering the repair assumptions).

Where separate occupation of the part with access occurs, e.g. because it is let, then this will normally establish a separate, and smaller, hereditament, without the ‘landlocked’ piece.

Following the separate occupation, the landlocked part will often require works to provide access to it before being capable of occupation. It will not be a hereditament until access is constructed or a completion notice is served which deems the works to provide access to be complete.

Remember: A valid completion notice may not be capable of being served if the works required are outside that hereditament.

5. Practical considerations

In considering any case where it is alleged a hereditament should be divided and that the value of one or more of the new hereditaments has been damaged or destroyed by a loss of access, the following points should be resolved:

1. Who is really in paramount occupation?

This is the important test, set out in Westminster City Council v Southern Railway [1936] and explained in Rating Manual section 3 Valuation Principles Part 1 Occupation and the Hereditament - Part A para 6.4.

Where there are two possible occupiers, the test is: whose purpose is most being achieved?

If the purported occupier’s purpose is subordinate to the owner’s, then it is the owner who is in occupation of the ‘occupied part.’

Is the owner attempting to give the appearance of occupation by a third party whilst carefully guarding the substance of control personally?

2. Is the document purporting to create the separate hereditament (the lease, licence or letter) a sham?

There are two types of sham:

  • A document which looks genuine, but externally the parties have agreed otherwise

  • A document which is not what it is expressed to be, e.g. it is called a lease but is legally actually a licence. The alleged occupation may then be seen as merely the actions of the owner, rather than the ratable occupation by a purported tenant/licensee

If there is any doubt or question about the status of the document, the matter should be referred to the Technical Adviser for advice.

If the document is a sham then it can be disregarded. The alleged occupation may then be seen as on behalf of the owner, rather than rateable occupation by the purported tenant/licensee.

3. Is the purported occupier a separate legal person from the owner or, if the purported occupier is a separate legal person, is the situation one where it is appropriate to ‘lift the corporate veil’?

Rating Manual section 3 Valuation Principles Part 1 Occupation and the Hereditament - Part A para 6.4 explains the concept and advises that only rarely can this be done. An exception is where the two companies share the same directors etc and, whilst the two companies are separate legal entities, this is true in law only, not reality.

4. Is it possible for an implied reservation of an easement of access to be made?

This may be possible when the agreement is silent on access. But, if the agreement specifically says there is no access, then an easement cannot be implied.

However, if an easement of access can be implied, then the question goes to valuation and not to whether there can be beneficial occupation at all.

5. Where it is accepted that there are two hereditaments, is it reasonable to have regard to the bid that might be made by:

  • A single hypothetical tenant for both parts or, in the alternative,
  • the landlord of the landlocked portion to secure access through the let portion?

For example, where the upper parts of a shop are rendered physically inaccessible by the removal of stairs, it is unlikely anyone would wish to rent both parts together because it would appear the value of the ground floor on its own is equal to, or exceeds, that of the two parts together. Bear in mind that this value judgment must be made in relation to the market as it existed at the AVD, and this may be different from the time the parts were separated.

Where the let off part, as an apportionment of the whole, represents only a small part of the total value the situation is rather different. Applying the ‘Principle of Reality’, it seems reasonable to envisage an overbid being made for the smaller portion to secure it. Clearly the letting will damage the value of the landlocked portion but certainly not render it of no value at all. This bid might be by landlord or prospective tenant. The hypothetical landlord might clear the way and this would occur in advance of the hypothetical tenancy starting.

This would be rather like the assumption made when looking at disrepair that the hypothetical landlord is deemed to do the work in advance of the letting, or regularising planning permission as referred to in S&P Jackson (Manchester) v Hill (1980) RA 195.

6. Two summaries of decisions by the Valuation Tribunal on the broad principle of restricted access are set out at the end of this Appendix.


What constitutes the hereditament is an essential question to decide before undertaking a valuation.

When establishing the extent of the hereditament, it should not be forgotten that the reason the owner has undertaken the change or the letting may well be a reflection of the rental value of the premises, rather than simply a device to avoid rates.

The removal of a staircase to the upper floors of shop premises, and the subsequent letting of the shop only, may well have been because the landlord judged the letting value of the upper parts to be low and outweighed by the greater value of the space previously occupied by the staircase.

In such a case, it is likely the total RV of the ground floor only hereditament would be equal to, or even in excess of, when the upper parts were included. Of course these matters of valuation need to be decided in terms of AVD values and attitudes and that position may be different to when the actual owner made the decision.


This is a complex and developing area of rating:

  • on one side, there will be situations of completely genuine lettings or sub-lettings
  • on the other will be found poorly constructed, very obvious, avoidance devices which do not result in a separate hereditament

Hence each case needs to be carefully considered, with a detailed record of the thought processes retained to enable the VOs decision to be explained.

VOs need to be ready to take cases to VT when it does appear separate assessment is not appropriate.

It may be that, on examination, many cases prove to be shams or where the landlord has really retained control. Nonetheless it remains likely that there will be examples involving genuine leases to third parties of areas of land or buildings or part of buildings which do restrict or prevent access to the rear or upper parts or involve actual and significant use of the land, which will result in a separate assessment. This will leave the landlocked part to go into the local rating list at a low or nil value or, in exceptional circumstances where access is impossible, cease to be shown in the rating list at all.

Such a consequence is inevitable because rating is a tax on occupation, not an apportionment of actual value. So, where VOs, after careful consideration, are satisfied that separate occupation exists, they should not be worried about altering the rating lists to show separate entries as required.

The role of VOs is not to resist any change to a rating list but to ensure accurate maintenance of rating lists in accordance with the law and regulations.

Valuation Tribunal Cases

There have been two notable valuation tribunal cases on this point. In both cases the VO approach was successful:

(1) 149 Regent Crescent, The Trafford Centre, Manchester

Manchester South Valuation Tribunal - 14th July 2009

Appeal Number: 424514432244/113NO5/22

A shop had been stripped by the previous tenant. It had no plastering, flooring, ceiling, electrical wiring, fire protection or other services, although it did have a shop front. The landlords, Peel Holdings, let the frontage to a connected company, Peel Advertising Ltd, to erect a timber advertising hoarding. This they did, obscuring both display window and door, whilst leaving a rear service door as the only access to the shop.

  • The owner’s agent argued there was a separate rateable occupation of the advertising right and the shop would require work beyond rebus to make it capable of beneficial occupation. The agent said it was normal practice where an advertising hoarding is placed over a new un-let shop not to assess the shop but to assess the advertising. The present situation was no different.

  • The VO argued the works to make the shop unit useable came within the normal repairing assumption of RV. As the owners were in paramount control of both shop and advertising right as evidenced by the terms of the licence, this was a case where the corporate veil could be lifted.

  • The VT considered the owners were in paramount control of the whole unit. The mode or category of occupation remained as a shop. The repair work was not major and no structural alteration was required. The VT saw the comparison with a new, never-occupied shop with an advertising hoarding across the frontage as a different situation.

(2) Gamston Airfield, Nottinghamshire

Nottinghamshire Area Tribunal - 14 August 2009

Appeal Number: 301014349165/037NO5/5

A warehouse on an airfield had been un-let for some years. The owners let the concrete hard-standing, turning and parking in front of the warehouse to a company by lease and received a rent. The company purported that it intended to make use of the land to dismantle aircraft in order to recover and resell the parts. At the VT, the only evidence of actual use was presented by the VO, who said a single old aircraft had been sitting on the concrete during her various inspections. The lease did not provide for any access to the warehouse over the concrete.

  • The VO (represented by counsel) did not accept that the lease agreement was genuine. It was possible the agreement was a ‘sham’, i.e. the written document did not represent the true agreement of the parties. Whilst the agreement seemed to show there was no right of access, the reality was that the owners had retained full access rights - signs attached to the warehouse showed it was actually ‘to let’. Even if the agreement was genuine, a right of way by necessity could and should have been implicitly reserved to the owners, giving access.

  • The ratepayers said the lease was a genuine transaction; there was no right of access retained to the warehouse; there could be no easement of necessity and therefore the warehouse was of no value and should be deleted from the list in accordance with the IPP.

  • The VT noted the lease agreement provided for the land to be used as outside storage and not for the stripping of aircraft. There was no evidence that any intensive use of the land had been made - the occupation was slight only and would not have interfered with access to the warehouse. As the occupation was not in accordance with the terms of the lease, there was a question mark over whether the agreement represented the true relationship between the parties to the lease. Whilst there was no reserved right of access, the ratepayers accepted that there would have been no problem about inspecting the warehouse for maintenance or possible letting. The owners, as evidenced by the ‘to let’ board, intended to try and let the warehouse. It was difficult to comprehend a situation where a hypothetical landlord would knowingly carve up his property and effectively devalue his investment by more than 80% - such a scenario fell in the face of commonsense and could not be accepted by the VT. The VT placed greater weight on the facts that were actually happening on the ground as to access etc, rather than to the lease agreement. Consequently the ratepayer’s appeal was dismissed as the VT found the warehouse capable of rateable occupation.