Peter Robin Woolway (Valuation Officer) v Mazars Llp

Hearing date : 14 February 2013

This is an appeal against a decision of the Upper Tribunal (Lands Chamber) [2012] UKUT 165(LC), Mr George Bartlett QC, President, dated 11 June 2012. The President allowed in part an appeal by Mr Peter Robin Woolway (Valuation Officer) ("the appellant") against a decision of the Valuation Tribunal for England ("VTE") in relation to the rateable value of premises occupied by Mazars LLP ("the respondents") The President held:

"The rateable value of the hereditament (Levels 2 and 6, Tower Bridge House, St Katherine's Way, London E1W 1AA) must be entered at £1,205,000."

It is the finding that the premises should be entered in the 2005 rating list as a single hereditament with effect from 26 November 2017 that is the point of contention.

The appellant's claim is that each level or floor is a separate unit of property and should be entered as a separate hereditament. Permission to appeal was granted by the President who observed that "the question of the identification of hereditaments in a modern office block is of wide importance". The partial success of the appeal to the Upper Tribunal was in excluding from the rateable value the end allowance of 5% which the VTE had granted as a result of the floors being separated. There is no cross-appeal against that finding.

The facts were set out by the President:

"2. Tower Bridge House is a modern 8-storey office building, which was completed in 2005. Although in Tower Hamlets it is on the opposite side of the road from the Tower of London and thus effectively serves a City of London office function. In plan form it is in the shape of an extended "U". The open space between the three inner sides of the building consists of a glass covered atrium with a central lift shaft housing six high speed lifts that serve six floors of the building. On the first floor there is a common reception area that provides security for the entire building. On the ground floor there are restaurants and there are seven floors of offices above. The solicitors Reynolds Porter Chamberlain have offices on levels 1, 3, 4 and 5, the accountants Mazar LLP on levels 2 and 6, which are the subject of the present appeals, and there are two occupiers of space on level 7. The floorplate of levels 2 to 6 is about 2,400 sq m net, although there are small differences between levels. Mazar hold the two floors under separate leases dated 24 June 2007. Each is for a 15 year term with effect from May 2007. The rent for level 2 was £1,008,422.50 per annum and the rent for level 6 was £1,053,010 per annum, and there are five yearly reviews.

3. In the 2005 rating list there were separate entries for the Reynolds Porter Chamberlain offices on level 1, for each of the levels occupied by Mazar and for each of the two occupancies on level 7. Levels 3, 4 and 5 were entered as a single hereditament. A rate of £250 per sq m was applied to all levels, but the hereditament consisting of levels 3, 4 and 5 was accorded an end allowance for size of 6.25%. Level 2 was entered at £600,000 with effect from 24 August 2006 and level 6 at £605,000 with effect from 26 November 2007. On 10 February 2010 Paul Rabbette Ltd made a proposal on behalf of the ratepayer [the respondents] to merge the two entries with effect from 26 November 2007. It was this proposal that was the subject of the appeal before the VTE.

The ratepayer's case before the VTE was that, although the levels occupied by them were separated, there was a functional dependency between them and they therefore ought to be entered as a single hereditament with effect from 26 November 2007 when they had begun to occupy the two floors…"

The appellant, who has great experience of rating valuation, gave evidence that:

"… Although the accommodation was on two floors separated from each other by intervening floors the lift service was fast enough to negate the problem of separation. It was not materially different from the logistical challenges faced by Reynolds Porter Chamberlain with their occupation of levels 1, 3, 4 and 5."

The respondents have not appeared and not have been represented either before the Upper Tribunal or before this court. Because of the importance of the issue involved, and at the request of the President, counsel Mr David Forsdick has been appointed by the Attorney General as advocate to the court and has made both written and oral submissions to assist the court to see both sides of the issue and to test the appellant's case.

Judgments below

In his judgment, the President cited extracts from the judgment of the VTE. The Panel had held that the Tower Bridge House development was contained within a single curtilage which contained the two floor levels. The test of what is "functionally essential" should be adapted to reflect the modern era of service industries. The Panel found that there is "a link between the floors which is essential to the efficiency of the working of Mazars' overall service-provision business." The function carried out at the two levels was "sufficiently integrated that they are essential to the effective business as a whole." The accommodation provided by the two floor levels "was essential to the efficient operation and functioning of the business operated by the company." The Panel's conclusion was that there is "a sufficient degree of propinquity and an essential functional link between the two floors. Thus, the Panel also finds that on the ground the appeal premises are a single hereditament."

Before referring to submissions and authority, I set out the findings of the President. He held, at paragraph 20, that: "in identifying hereditaments within a modern office building the concept of the curtilage has no useful part to play." Referring to the finding of the VTE that there was "an essential functional link", he stated that he did not think "that an essential connection should be treated as a criterion in the present case." A detailed enquiry into the functional relationship between parts of a building in the same occupation is "positively undesirable". However, the President added:

"The fact that the floors of office premises are in the same occupation for the purposes of the occupying firm is by itself, in my judgment, a significant pointer."

The President attached more importance, at paragraph 21, to "the practical realities of the physical relationship between the floors." He added that the functional relationship is material but there is "no justification for requiring that the functional connection between the parts should be such that each is essential to the other." While capability of floors being let separately was a material consideration in identifying the hereditament, the President stated that it "ought in my view to carry less weight than the facts relating to the physical nature of the premises and the purpose of the ratepayer's occupation."

The President considered the issue of communication between floors of the building through the common parts. He stated that, in such circumstances, treating adjoining floors differently from floors 'separated even by a single floor' was somewhat unreal. Because communication was only through the common parts of the building "contiguity between floors has no practical significance" (paragraph 23). The President added:

"The approach adopted by VOs thus risks producing values that do not fairly reflect the value of the ratepayer's occupation and the relative worth of the different occupancies within the building.

24 … What has to be borne in mind, however, is that unless the hereditament is identified in a way that reasonably and fairly represents the occupier's unit of occupation unfairness may result when the valuation stage is reached."

The President stated his conclusions:

"29. I have referred above to the features of this case which are common to most modern office blocks — the fact that these are floors within a single building; the fact that communication between floors, whether next to each other or not, is through the common parts of the building; the lack of any significant practical difference, from the occupier's point of view, between floors that are next to each other and those that are separated; and the fact that, although each floor is normally the subject of a separate lease, where two or more floors in the same building are let to the same occupier this is normally done through negotiations carried out on an overall basis, albeit that there is a separate lease for each floor. To treat as a single hereditament floors next to each other that are in the same occupation but as separate hereditaments floors in the same occupation that do not adjoin each other does not, in my view, properly reflect the realities of occupation in a modern office block. The proper approach in a case such as this, therefore, in my judgment, is to treat the floors occupied within the building by the same occupier as a single hereditament. Since the occupier will be occupying the floors as offices for the purposes of his business, it is not in my view necessary to...