[2024] UKUT 351 (LC)

We begin by considering section 64, 1988 Act. As we have already explained, section 64(1) adopts and incorporates the whole of the body of case law developed over centuries before the enactment of the 1967 Act to explain what a hereditament is. The definition which it co-opted, taken from section 115, 1967 Act was, in itself, uninformative but its effect was readily understood (‘" 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’). That definition was already wide enough to include advertising hereditaments (or “advertising stations” as they were referred to in section 28(1), 1967 Act) yet it was thought appropriate by Parliament to deal additionally in section 64(2) with advertising rights as a specific form of hereditament.

The structure of sections 64(1) and (2) supports the VO’s submission that advertising rights were intended to be the subject of their own self-contained regime. So too do the opening words of subsection (2), “in addition”, which indicate that what follows is distinct from and additional to what has gone before.

The same separate treatment is apparent in section 65 concerning occupation. The ordinary judge-made rules used to determine whether a hereditament is occupied and who is the occupier are adopted in section 65(2), but at the same time separate provision is made for advertising hereditaments by section 65(8) which subsection (2) is expressly made subject to by subsection (3). In the case of advertising hereditaments Parliament has chosen not to describe the characteristics of rateable occupation or the features of the rateable occupier, and has not co-opted the pre-existing case law, but instead has short-circuited the usual investigations by simply deeming the occupier of any advertising right which is a hereditament by virtue of section 64(2) to be the person entitled to exercise the right.

The body of law referred to in section 65(2) is plainly not intended to apply directly to advertising hereditaments covered by section 65(8). There is no need to apply the rules which would have been followed under the 1967 Act to determine “who is the occupier” when section 65(8) provides the answer for this category of hereditament. That is consistent with Schiemann LJ’s description of the effect of section 65(8) in O’Brien v Secker (VO):“by a series of parliamentary fictions, the concept of occupation has been extended to something for which it was not designed”.

The object of these statutory fictions is clear. It was explained by Lord Denning in Imperial Tobacco when he described the difficult questions which the 1889 Act had been intended to resolve: is an advertising hereditament to be rated with the land over which it is exercised, or separately from it, and who is in occupation? Sections 64(2) and 65(8) are clearly designed to resolve those questions.

Mr Kolinsky KC acknowledged that advertising hereditaments are a special kind of hereditament, but he submitted that the general principles of rating law still had an important part to play in their treatment. He sought to weave the concepts of paramountcy and landlord control into an interpretation of section 64(2) and specifically in considering what was involved in a hereditament being “let out”.

Mr Kolinsky KC began his careful submissions by suggesting that the concept of a hereditament being let out conveyed the impression of a separation of the right to display advertisements from the occupation of the land. In the context of an operational railway station a letting out had the effect of carving a new hereditament out of the central list. It was necessary to determine what degree or quality of separation was required to achieve that carving out.

In Southern Railway, at page 529, Lord Russell referred to a railway company’s power “to carve out of any station separate premises” by selling or letting land in its ownership. Nevertheless, some care is needed here and we are not persuaded by Mr Kolinsky KC that, when applied to the identification of a hereditament, the metaphor of carving out or separation from the central list is a helpful one. The central list is an amalgamation of individual hereditaments which are treated as if they were one single hereditament, but that does not make them a single hereditament. Mr Kolinsky’s metaphor presupposes that everything within a station is part of Network Rail’s central list hereditament unless it is specifically excluded from it; that is logically consistent with section 42(1), 1988 Act, which excludes a hereditament from the local list if it must be shown in a central list. But it is not a particularly accurate reflection of regulation 6(1) of the 2005 Regulations, which begins by identifying hereditaments which Network Rail occupies and hence, in the case of an advertising hereditament, first requires one to consider sections 65(8) and 64(2). The better approach, we think, is simply to consider the various statutory conditions in the round, as they apply to each putative hereditament, rather than thinking in terms of a separation of part from a larger whole.

The legislation refers in section 64(2), 1988 Act and in regulation 6(4), 2005 Regulations to a “right … let out or reserved to any person other than the occupier” and to “rights so let out as to be capable of separate assessment.” Whether a right is “let out” is therefore critical to its treatment as an advertising hereditament or as an excluded hereditament which cannot appear in a central list.

There is no difficulty in understanding how a right may be “reserved” to a person other than the occupier. Technically, where a lease or transfer of land reserves a right in favour of the landlord or transferor it has the effect that the right is taken back from the land which has been granted or conveyed to the other party; less technically a reservation is simply some right in respect of land which has been saved or excepted from a grant to someone else (see Woodfall, Landlord and Tenant, 5.045). A right may be reserved by a landlord to exhibit advertisements on the side of a building which is let to a tenant, and once the tenant had taken occupation, the right would be reserved to someone other than the occupier.

As for “let out”, the phrase “let out so as to be capable of separate assessment” has been used in rating legislation since the Railways (Rating for Valuation) Act 1930. We have not been shown any early examples of its use and in Southern Railway,at page 527, Lord Russell said that the statutory language raised “essentially new questions”.

The relatively few cases which have previously considered the treatment of advertising hereditaments do not shed light on the meaning of the expression “let out”. The Lands Tribunal’s decision in Peak (VO) v Henlys (Bournemouth) Ltd (1959) 52 RIT 305 concerned advertising hoardings which had been attached to the walls of a tenanted building without the landlord having reserved the right to do so and apparently without the consent of the tenant. In those circumstances the Tribunal was not prepared to infer a letting out or find an implied reservation. There was no consideration of letting out in Imperial Tobacco nor in O’Brien v Secker (VO).

Some consideration was given to the meaning of “let out so as to be capable of separate assessment” in Case (VO) v British Railways Board [1972] RA 96, which did not concern advertising rights but rather the occupation of purpose built social club premises constructed adjoining a station and used by the members of a railway staff association. The question under section 86 of the Local Government Act 1948 was whether the staff association or the Board was in rateable occupation of the premises, which turned on whether they had been so let out to the association so as to be capable of separate assessment.

Reasoned judgments were given in Case by Russell LJ and Buckley LJ, and Phillimore LJ agreed with both. At page 104 Russell LJ said that he saw “no magic in the rather curious phrase ‘so let out’ etc”. Buckley LJ thought that the words “so let out as to be capable of separate assessment” and specifically the expression “so let out” were “somewhat odd” and therefore more difficult (page 114). In Scotland it had been held to import a grant of some kind, although a formal lease was not required. Buckley LJ appeared to doubt that requirement in view of the approach towards rateable occupation under general rating law; he considered that it was not necessary to decide whether a grant was necessary because there was undoubtedly a “contractual arrangement amounting, in equity, to a grant of a right of occupation”. He went on:

“Letting out for the purposes of the provision must, in my judgment, at least involve this, that the ratepayers who, but for the letting out, would be in occupation of the hereditament or be entitled to occupy it for their own purposes, have permitted some other body to occupy it for purposes other than those of the ratepayer. Only in these circumstances, it seems to me, could the letting out result in the hereditament being capable of separate assessment.”

Case was a decision under section 86, 1948 Act, which concerned only physical premises capable of being occupied as a dwelling-house, hotel, place of public refreshment or so let out as to be capable of separate assessment. It was not concerned with incorporeal rights, such as a right to display advertisements. There was no doubt that the club premises were physically capable of separate assessment (as Russell LJ observed at page 104) and the question turned on occupation and therefore had to be answered by a conventional Southern Railway inquiry into which occupation was paramount. Despite the similarity in language, we do not find it especially helpful in relation to the proper interpretation of section 64(2), 1988 Act. It provides no support for Mr Kolinsky KC’s submission that “let out” in section 64(2) must be understood as in the light of the principles of paramountcy and landlord-control.

Section 64(2) refers only to a right “let out” and not to a right “let out so as to be capable of separate assessment”, as in regulation 6(4). The question whether land or a right over land is capable of separate assessment depends on a close consideration of the facts and on the application of the general law, including the principles of rateable occupation, as the Southern Railway case and the others we have referred to show. But in the case of advertising, section 64(2) itself deems a right which has been let out to be a hereditament and section 65(8) identifies the rateable occupier. The additional words “so as to be capable of separate assessment” would therefore have been redundant because the Act has already supplied the features which render a hereditament capable of separate assessment. As a matter of construction, the absence of those words from section 64(2), in a context (advertising) in which the consequences of joint occupation and the problem of identifying the rateable occupier had previously been acute, is an indication that Parliament did not intend the usual paramountcy inquiry to be necessary.

Although read in isolation the word “let” might suggest a letting or demise and therefore the creation of an interest in land, “let out” is not a term of art. Rating is primarily concerned with occupation rather than with the relationship or tenure to which the occupation is referable. As Lord Russell explained in Southern Railway, at page 533: “the crucial question must always be what in fact is the occupation in respect of which someone is alleged to be rateable, and it is immaterial whether the title to occupy is attributable to a lease, a licence, or an easement”.

The same flexible approach ought logically to be applied to the question of whether land or a right have been “let out”; the words do not denote a letting or a grant in a technical or proprietary sense, but some transfer or conferral of the right in question by the person entitled to it to some other person to use for their own purposes. Practicality might suggest that some degree of longevity and exclusivity is likely to be required in that arrangement, and that a right of a “fleeting nature” (as Lord Russell characterised that of a lodger) would not be sufficient to create a separate hereditament. But the Agreement we are concerned with was initially for five years and there is no need in this appeal to consider where, at the margin, a short term advertising right would meet the requirement of having been let out.

As far as advertising hereditaments are concerned, the issue of rateable occupation has been dealt with by Parliament in section 65(8). It is not necessary to apply the landlord-control or paramountcy principle to determine who is in occupation of an advertising hereditament. The irony of Mr Kolinsky KC’s approach is that it would reintroduce those same considerations at an earlier stage, in the interpretation of section 64(2) when determining whether rights have been “let out” so that a separate hereditament exists. If Parliament had intended the landlord-control principle to survive in relation to advertising hereditaments it need not have enacted section 65(8) at all.

As a matter of statutory interpretation, focussing on sections 64 and 65, we therefore accept the submission of Miss Ward KC that advertising hereditaments are governed by their own rules which do not depend on or require consideration of any wider rating principles. The advertising rights at the two stations have been “let out” to JC Decaux with the result that they are designated as hereditaments by section 64(2) and are treated as in the occupation of JC Decaux by section 65(8). They cannot therefore be in the occupation of Network Rail and cannot satisfy the requirement of regulation 6(1), 2005 Regulations. They therefore belong in the local lists and not in a central list.

Had we taken the opposite view we would nevertheless have found it difficult to accept that Network Rail had retained paramount control of the advertising rights. Under the 2010 Agreement there is no question of JC Decaux acting as a manager of Network Rail’s advertising business. The relationship created by the contract is a matter of law and the views of members of Network Rail’s staff cannot assist in determining its nature. Subject to the terms of the agreement JC Decaux had complete control of advertising at the stations and it took all of the commercial risks on its own account. Network Rail gave away, in return for a significant minimum fee and a profit share, “the exclusive right to maintain, manage, promote and exploit the sale of Advertising Space”.

It is true that Network Rail retained the right, at its discretion, permanently to withdraw any particular hoarding or display from the Schedule of Advertising Space annexed to the 2010 Agreement, but if it did so it could not then offer that site to anyone else and it would cease to be a commercial advertising site for the remainder of the term. That is akin to a termination of the right in relation to an individual site, rather than a power of relocation such as was found in Ludgate House to be indicative of control having been retained. It is also true that Network Rail had the right for operational reasons and on notice temporarily to suspend the use of any structure or site and to make use of the rights where it required them (such as to display messages to its customers in the event of travel disruption). The former right is not unlike the right of the station operator in Southern Railway to close the station temporarily for any special occasion, to bar staff of its licensees from access to the station and to require them to comply with bylaws. The latter entitlement is used infrequently in relation to individual sites (and only then for digital sites) and we do not consider that it detracts from JC Decaux’s control of the sites. In Case, the club premises were required to be made available to the Board for its purposes “as and when required”. In neither Case nor Southern Railway were very similar rights to interfere in the licensees’ use of the premises sufficient to prevent the licensee from being in rateable occupation.

Finally, it was impressed on us by Mr Ian Tanner of Tanner Rose, Chartered Surveyors, an advisor to Network Rail and other rail operators on rating matters, that the approach adopted by the Valuation Officer to the sites in this appeal was a complete change from the long standing practice of the Valuation Office Agency. In his experience, since at least 1990, advertising sites on railway operational premises have always formed part of the central rating list.

On the same theme we were referred to the VOA’s own Rating Manual which does indeed advise Valuation Officers that advertising rights should be treated as part of the central list hereditaments of rail operators including Network Rail. We were informed however that no copy of the 2010 Agreement had been made available to the VOA by Network Rail until it was disclosed in these proceedings; the advice in the Rating Manual also appears to predate the 2018 Agreement. Whether or not the authors of the Rating Manual had seen the relevant agreements, the inference from the way their advice is expressed is that they accept the characterisation of the agreements by Network Rail as arrangements under which advertising rights are managed on its behalf by contractors. The witnesses called on behalf of Network Rail also characterised the agreements in that way. Neither the Rating Manual nor the subjective understanding of the effect of complex commercial documents by members of Network Rail’s staff can change the meaning of the 2010 Agreement. For the reasons we have given we are satisfied that it created separate hereditaments which, in law, are treated as occupied by JC Decaux.

It was also suggested by Mr Kolinsky KC that the Valuation Officer’s approach to the two sites with which these appeals are concerned would, if replicated across the 18 stations subject to the same Agreements, cause chaos by requiring numerous separate hereditaments to be entered in the list. That is not a relevant consideration when it comes to applying the law as Parliament has made it. Nor can our decision be influenced by the suggestion that Network Rail may be taxed twice in relation to these two sites and potentially others, originally in the central list and now in local lists. In any event, Network Rail is not the occupier of the advertising hereditaments and any liability it may have is under indemnities it has extended to JC Decaux as part of their commercial agreement.