Business rates in multi-occupied properties

Following the announcement in the 2017 Autumn Budget that the Government would legislate to reinstate the relevant elements of the Valuation Office Agency’s (VOA’s) practice prior to the decision of the Supreme Court in Woolway, DCLG launched a consultation on business rates in multi-occupied properties.

Given that the Government had already committed to making the change, the scope of the consultation was limited to two issues:

  • how the Government should capture this policy intention in legislation, and
  • how this policy intention should then be implemented

**UPDATE: The Government has published its consultation response**

Consultation responses were largely in favour of the Government’s approach to reinstating the practice of the VOA, subject to certain amendments, which the Government has accepted. As such, the Bill will be updated to ensure that unoccupied properties are also covered and that it is clear that spaces in walls or ceilings do not prevent two properties in the same occupation from being considered contiguous. The Government will also clarify the wording in the Bill regarding vertically contiguous properties – namely that these exist where hereditaments are on consecutive storeys of a building and one is in part directly above the other.

The majority of respondents agreed with the Government that backdated changes to the 2010 rating list, to reinstate the previous practice of the Valuation Office Agency, should only be made as a result of a proposal from the ratepayer. This will therefore be delivered through secondary legislation under existing powers and the Government will consider the regulations in draft with rating practitioners before proceeding.

The Government will also be proceeding with its proposal to make it possible for ratepayers to be able to make a prioritised “check” of their rateable value on the 2017 rating list to apply the new legislation to their assessment. It also recognises the need to ensure that small businesses can access and effectively use this new appeals system.

Subject to Parliamentary approval of the Draft Bill, those businesses that have been directly impacted by the Supreme Court judgment will be able to ask the VOA to recalculate valuations based on previous practice. They will then be able to have their bills recalculated if they so choose – and backdated. This will include those businesses that lost small business rate relief.

Background

In Woolway (VO) v Mazars [2015] UKSC 53, the Supreme Court ruled that non-contiguous floors within the same office block could not be regarded as the same hereditament for the purpose of assessing and paying business rates. The VOA’s previous approach to the meaning of ‘contiguous’ had been to treat two units of property as being contiguous where they were separated by a wall or floor/ceiling. Isolated rooms were regarded as non-contiguous. Two non-contiguous properties separated by common area (such as a common corridor) would still be assessed as a single hereditament where a sufficiently strong functional connection could be shown to exist between the two parts.

In Woolway, the Supreme Court held that the primary test in determining what is a hereditament was the geographical nature of the property and whether those properties would form a single unit on a plan. Lord Neuberger PSC said at [47]:

“Normally at any rate, both as a matter of ordinary legal language and as a matter of judicial observation, a hereditament is a self-contained piece of property (ie property all parts of which are physically accessible from all other parts, without having to go onto other property) and a self-contained piece of property is a single hereditament.”

The result was that the VOA had to change its practice. The general rule is now that two contiguous properties in the same occupation are only assessed as one if they can be considered as a self-contained piece of property. Typically, this will apply if both parts are physically accessible without having to go onto other property or through commons parts (such as a common corridor or stairwell). DCLG says that the ruling has had an adverse effect on some ratepayers, including:

  • increases to the overall rateable value due to the loss of “quantum discount”
  • loss of Small Business Rate Relief for ratepayers who have seen their property split into parts as a result of the decision in Woolway
  • changes to rateable value due to rounding

The ruling was potentially important for small charities and charitable companies because many of them occupy two or three rooms or floors in multi-occupied buildings and not all of them receive 100 per cent business rate relief.

Tell us how you are affected