The Valuation Office Agency (VOA) recently announced a change to
the way in which commercial property will be valued for business
rates purposes where a business is in occupation of two or more
separate spaces within a building. This change is likely to result
in a business rates increase for affected businesses and will be
How do business rates work?
Business rates are a property tax which is assessed on the basis
of the number of property units which a business occupies. Where
premises are assessed as a single unit, quantum allowances are
available. This can significantly reduce the overall rates
liability. Businesses are therefore keen to have their premises
assessed as a single unit whenever possible.
The decision in Mazars v Woolway
Mazars occupied the second and sixth floors of an eight-storey
tower block. They argued that these two floors should be treated as
a single rateable unit for business rates purposes. The VOA
contended that, as the floors were not contiguous, they should be
treated as two separate rateable units.
Overturning the decisions of the Upper Tribunal and the Court of
Appeal, the Supreme Court agreed with the VOA that the two floors
should be rated separately. In obiter comments the President of the
Supreme Court stated that "where premises consist of two
self-contained pieces of property" it would require
"exceptional facts before they could be treated as a single
hereditament". The effect of this is that wherever separate
floors are capable of separate occupation and the occupier needs to
travel over communal areas to reach another floor, these floors
should be rated separately.
What are the practical implications of this decision?
It is clear from the decision in Mazars v Woolway that where a
tenant has a lease of non-adjacent floors in a building, these will
be rated separately.
A far more common arrangement is where a tenant takes a lease of
several adjacent floors of a building, with the access between
these floors being over communal stairs and lifts. For business
rates purposes the VOA has previously valued all of the adjoining
floors held by a single tenant as one property.
However, the VOA has now stated that, in light of the decision
in Mazars v Woolway, it will treat different areas of the same
building, where these are connected only through communal areas, as
separate premises for business rates valuation purposes. This also
applies to unconnected adjacent units, for example two neighbouring
warehouses on an estate where access between them is over a
The following diagrams illustrate how this is expected to be
applied in practice:
If a building has a single occupier it is treated as a single
property for business rates purposes, even if the property is let
on multiple leases of separate floors.
However, where a building has an owner/occupier who lets out one
floor to a tenant (and the owner/occupier gets between the floors
he has retained using stairs and lifts which are now used
communally with the tenant) each floor is treated as a separate
property for business rates purposes.
If a building has two or more occupiers, and their access
between floors is over communal areas only, each floor is treated
as a separate property for business rates purposes.
However, where an occupier is able to access its other floors
through a private staircase or lift, these floors are treated as a
single property for business rates purposes.
What may this mean for your business?
If your business occupies multiple areas within a building,
which can only be accessed through communal parts of the property,
you will now be issued with a separate bill for each of the
separate areas. As each area will have been valued as a separate
unit this will almost certainly result in an overall increase in
the amount payable. For occupiers of a large number of floors
within a building this increase could be very significant.
This increase is being backdated to 1 April 2015 in England (and
1 April 2010 in Wales) so there may also be an increase to rates
which have already been paid.
No action need be taken by businesses until they are contacted
by the VOA; however, consideration should be given now to the
potential financial impact as you may need to find the funds to pay
a large additional bill.
In future businesses should be aware of the new VOA practice
when taking a lease of multiple floors, with thought being given as
to whether private access between the floors can be achieved.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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