[2024] UKUT 351 (LC)

Rates are a tax on the occupation or ownership of hereditaments shown in either a local rating list or a central rating list. Provision is made for both types of list by Part 3 of the Local Government Finance Act 1988 (the 1988 Act) and regulations made under it.

Section 41, 1988 Act is the first of a group of sections dealing with local rating and provides for the compilation of local rating lists for each billing authority. These lists are required to show each non-domestic hereditament in the authority’s area which satisfies certain conditions, one of which is that the hereditament is not shown in a central non-domestic rating list (section 42(1)).

Central rating is dealt with by sections 52 to 54, 1988 Act and by regulations. Central lists are intended to secure “the central rating en bloc of certain hereditaments” (section 53(1), 1988 Act). The Central Rating List (England) Regulations 2005 designate Network Rail as the occupier of hereditaments described in regulation 6 which are to be treated as one hereditament. The rateable value of those hereditaments as a whole is required by section 53(3), 1988 Act, to be shown in the central list. We will come back to regulation 6 shortly.

We were helpfully referred both to the modern law and to the historic treatment of advertising sites and railway hereditaments, which assists in understanding the purpose of the current provisions. We will begin with the current position regarding advertising hereditaments, then with the current treatment of railway hereditaments in the central list, before referring to the evolution of the statutory scheme.

Provisions for the interpretation of Part 3 of the 1988 Act are contained in sections 64 to 67. These deal first with hereditaments. The relevant parts of section 64 are the following:

Section 64(1), (2) and (2A) therefore identify or define three forms of hereditament. The third form, in section 64(2A), is not relevant to these appeals and we note only that like section 64(2) with which we are concerned, it is introduced by the words “in addition”.

The first form of hereditament, described in section 64(1), might be referred to as the standard or conventional form, and most hereditaments are in this category. Section 115 of the General Rate Act 1967 provided that “hereditament” meant “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.” By importing that rather uninformative definition, section 64(1) incorporated the whole body of case law which had developed in the four centuries preceding the 1967 Act to identify the thing which was to be rated.

The second and third forms of hereditament are in addition to the standard form; whether their existence is governed by the same rules, or whether they are additional forms of hereditament which exist independently of those rules is the essence of the issue we have to decide in these appeals.

The second form, in section 64(2), is the advertising hereditament. It is a right in respect of land, rather than itself being land, and is sometimes therefore referred to as an “incorporeal hereditament”. In relation to that form subsection (11) provides clarification that “land” includes structures on which advertisements might be expected to be displayed. Subsection (2) distinguishes between the occupation of land and the enjoyment of a right to display advertisements; land may be occupied by one person (or be unoccupied) while another person has the right to display advertisements on it. A right to use land (including a wall, hoarding or other structure erected on land) is designated a hereditament if it is “let out or reserved” to any person other than the occupier, or, if the land is not occupied, if it is let out or reserved to any person other than the owner of the land.

Rates were originally a tax only on the occupation of land and it was the occupier who was rateable in respect of the land, but they now also apply to the ownership of land which is unoccupied. Section 65, 1988 Act explains who owners and occupiers are, as follows:

It can be seen that, so far as occupation is concerned, section 65 follows the pattern of section 64. First, by section 65(2), it imports the pre-1967 case law on occupation and the identification of the occupier, including Westminster City Council v Southern Railway Co Ltd [1936] AC 511, the leading authority on the ingredients of rateable occupation and the identification of the rateable occupier where more than one person is in actual occupation. That body of law is then made subject to the provisions which follow in the remainder of the section. Those provisions include, at subsections (8) and (8A), two dealing specifically with advertising hereditaments. The first provides that a right which falls within section 64(2) is to be “treated as occupied” by the person entitled to the right. The second has the effect that where a hereditament is not occupied but is used for exhibiting advertisements or for a structure so used, but section 64(2) does not apply, it is “treated as occupied” either by the person permitting the use, if they can be ascertained, or by the owner.

Section 65(8) and (8A) are deeming provisions. Whether or not an advertising right is a separate hereditament, they ensure that the requirement of occupation is satisfied and identify the occupier, including in circumstances where, under the pre-1967 rules imported by section 65(2), either no person or some different person might have been found to be in rateable occupation of the right. The deeming provisions also overcome the awkwardness which arises when the language of occupation is applied to a right, rather than to land. That awkwardness was considered in O’Brien v Secker (VO) [1996] RA 409, in which an advertising contractor argued that a right of exhibiting advertisements could not be rated. That argument was explained, and answered, by Schiemann LJ at 414:

“[T]he right with which we are here concerned is an incorporeal hereditament. The appellant says that since it is incorporeal it has no body and, if it has no body, it cannot have a place; and, if there is no place, it cannot be occupied. One can see, as a matter of use of the English language, a certain attraction in that argument. So far as occupation is concerned, his argument falls foul of section 65(8), which seems to me to be in perfectly clear terms. That section provides that the person who is the beneficiary of such a right is treated for rating purposes as though he were an occupier, since the whole rating depends on the concept of occupation. What has happened in this particular advertising field is that, by a series of parliamentary fictions, the concept of occupation has been extended to something for which it was not designed; but that it has been so extended I have no doubt.”

Railway hereditaments are not a special form of hereditament in their own right but are within the first category described by section 64(1), 1988 Act. They are distinguished from other hereditaments because, due to the identity of their occupier, they are included in the central list.

The Central Rating List (England) Regulations 2005 (the 2005 Regulations) are made under section 53 of the 1988 Act. By regulation 3 they designate certain named persons or undertakings concerned with transport, communications and utilities and prescribe in relation to them a description of hereditament set out in the Schedule. The designated persons are to be shown in the central rating list together with each relevant hereditament occupied or, if unoccupied, owned by them (regulation 4).

Part 1 of the Schedule to the 2005 Regulations designates Network Rail (amongst others) and prescribes in relation to it the hereditament described in regulation 6(1).

So far as relevant, and after simplifying some complexities arising from the structure of the rail industry, regulation 6 provides as follows:

The effect of regulation 6 is that all hereditaments falling within paragraphs (1)(a) and (1)(b) which satisfy the conditions in paragraph (3) are treated as a single hereditament. This enables Network Rail’s undertaking to be rated “en bloc” and valued “as a whole” as foreshadowed in section 53(1) and (3), 1988 Act; despite the legislation having been expressed using both French and English terms, the rating world prefers Latin and refers to this as a “cumulo” assessment.

Hereditaments within paragraph (1)(a) are those occupied by Network Rail together with any unoccupied hereditaments which it owns. Paragraph (1)(b) is not applicable in this appeal but covers land let or licensed by Network Rail to other railway operators or the British Transport Police and occupied by them.

To be rated as part of Network Rail’s single assessment in the central list, a hereditament must also satisfy the conditions in paragraph (3) of regulation 6. These restrict the assessment to hereditaments used wholly or mainly for “railway purposes” which are not also “excepted hereditaments”, both as defined in paragraph (4).

Railway purposes are defined by reference to the definition of “railway services” in section 82, Railways Act 1993 but also include purposes ancillary to the provision of railway services, including the purpose of exhibiting advertisements. Railway services include “station services” which include permitting another person to use property comprised in a station (section 82(2), 1993 Act). Allowing a third party to occupy a shop in a railway station would be a station service and therefore also a railway service.

Excepted hereditaments cover a variety of premises and rights which are excluded from the central list, notwithstanding that they are used wholly for railway purposes. These include shops, hotels and places of refreshment, but also, by sub-paragraph (c) of regulation 6(4), “premises or rights so let out as to be capable of separate assessment, other than those falling within paragraph (1)(b) or (2)(b)”. The reference here to rights “so let out” carries an echo of the language of section 64(2), 1988 Act, which refers to rights of exhibiting advertisements which are “let out or reserved to any person other than the occupier of the land”.

As far as exhibiting advertisements is concerned, it was not suggested in argument that in order to be ancillary to the purpose of providing railway services some connection was required between the advertisement being exhibited and the wider railway enterprise (such as, for example, an advertisement for railcards). We will therefore assume that general commercial advertising is capable of being ancillary to the provision of railway services and that the purpose of providing it is capable of being a railway purpose. As was pointed out in the evidence, advertisements are commonplace at railway stations, so this is at least a possible construction of railway purposes in paragraph 6(4).

The treatment of advertising sites for the purpose of rating had historically given rise to great difficulty, as the long title to the Advertising Stations (Rating) Act 1889 acknowledged (“whereas difficulties have arisen in relation to the assessment to poor and other rates of land used for exhibition of advertisements and it is expedient to remove the same”). In his dissenting speech in Imperial Tobacco Company (of Great Britain and Ireland) Ltd v Pierson (VO) [1961] AC 463, at page 478, Lord Denning reminded the House of Lords of those historic difficulties:

“[T]he difficulty was to say: Who was liable to pay the rates on it? Who was in occupation? Was it the advertising contractor who erected it or the occupier of the land who permitted him to put it up? In 1889 Parliament resolved this difficulty by declaring that the occupier of the land was liable to pay rates on the whole hereditament, both the land and the structure as well.”

Under the 1889 Act where land was unoccupied except for the exhibition of advertisements the person who permitted that use (or the owner if that person could not be found) was liable to pay the rate. If an occupied hereditament was used for advertisements the rateable value of the hereditament was increased to reflect the value of the use, and the rate was paid by the occupier. In no case was the advertising contractor liable to pay the rate.

The 1889 arrangements were unsatisfactory, particularly where the tenant of a house was liable for an increased rate by virtue of an advertisement displayed on the building from which only the landlord and the person entitled to the advertising right benefitted (see Amies: Law of Rating (1965), p.12). The treatment of advertising rights was adjusted by section 56 of the Local Government Act 1948, the object of which, as Lord Denning explained in Imperial Tobacco at page 479 was “to alter the incidence of liability; so as to place the liability for rates directly on the advertising contractor instead of the occupier of the land”. Viscount Simonds, at page 473, also recognised that the treatment of advertising rights by section 56, 1948 Act was “a departure from the usual course of rating law”. That departure or alteration was expressed in terms which closely mirror what are now sections 64(2) and 65(8), 1988 Act, deeming “the right to use any land for the purpose of exhibiting advertisements [which] is let out or reserved to any person other than the occupier of the land” to be “a separate hereditament in the occupation of the person for the time being entitled to the right.” The same approach, using substantially the same language, was taken by section 28(1) of the General Rate Act 1967.

As far as railway hereditaments were concerned, these had originally been assessed on a piecemeal basis by each rating authority in respect of the hereditaments in their area, but this was changed by the Railways (Valuation for Rating) Act 1930 which created a new Railway Assessment Authority. Until the 1988 Act they were excluded from the operation of the general rating statutes with their own separate regime. As far as advertising hereditaments were concerned, section 56, 1948 Act was excluded from application to any land forming part of a railway by section 9(5) and the use of railway land by the statutory operator, the British Transport Commission, was treated as non-rateable. The same exclusion was repeated in section 28(6), 1967 Act. But these exemptions applied only to railway hereditaments and did not apply to premises occupied as a dwelling-house, hotel or place of public refreshment, or to hereditaments “so let out as to be capable of separate assessment”, none of which could be included in a railway hereditament (section 86(1), 1948 Act and section 32(2), 1967 Act). An advertising hereditament which was not part of a railway hereditament because it was “so let out as to be capable of separate assessment” should therefore have been assessed after 1948 under section 56, 1948 Act.

Finally, it is necessary to refer to the principles of rateable occupation and to the decision of the House of Lords in Westminster City Council v Southern Railway to which we have already referred (and from now on will refer to simply as Southern Railway). That case concerned the identification of the rateable occupier of premises at Victoria Station including offices, a bank, kiosks, sites used for storage, movable timber bookstalls, and showcases. The proprietors of the businesses conducted from these premises were held to be in rateable occupation notwithstanding that some were licensees only, that their rights were determinable at the will of the railway company, that there were no boundary walls and the landlord had rights of access and for pipes and cables, that access for the proprietors was through premises belonging to the company (the station) which were kept locked at night, and that their use was subject to the company’s byelaws and operational restrictions.

At page 529-530, Lord Russell made some general observations about rateable occupation, as follows:

“Subject to special enactments, people are rated as occupiers of land, land being understood as including not only the surface of the earth but all strata above or below. The occupier, not the land, is rateable; but, the occupier is rateable in respect of the land which he occupies. Occupation, however, is not synonymous with legal possession: the owner of an empty house has the legal possession, but he is not in rateable occupation. Rateable occupation, however, must include actual possession, and it must have some degree of permanence: a mere temporary holding of land will not constitute rateable occupation. Where there is no rival claimant to the occupancy, no difficulty can arise; but in certain cases there may be a rival occupancy in some person who, to some extent, may have occupancy rights over the premises. The question in every such case must be one of fact - namely, whose position in relation to occupation is paramount, and whose position in relation to occupation is subordinate; but, in my opinion, the question must be considered and answered in regard to the position and rights of the parties in respect of the premises in question, and in regard to the purpose of the occupation of those premises. In other words, in the present case, the question must be, not who is in paramount occupation of the station, within whose confines the premises in question are situate, but who is in paramount occupation of the particular premises in question.

A familiar instance of this competing occupancy is the case of the lodger. It has long been settled on the one hand that, in the case of lodgers in a lodging house, the lodgers are not rateable in respect of their occupancy of their rooms, but that the landlord is the person who is rateable in respect of his occupancy of the entire house. In view of the frequently fleeting nature of the occupancy of a lodger, the convenience of this view, indeed the necessity for it, is obvious; but it purports to be based upon the paramountcy of the landlord's occupation, arising from his control of the front door and his general control over and right of access to the lodgers' rooms for the proper conduct of the lodging house.”

Lord Russell referred to this as the “landlord-control principle”; it still governs situations in which there is more than one candidate for the status of rateable occupier (Cardtronics UK Ltd v Sykes (VO) [2020] UKSC 21, Ludgate House Ltd v Ricketts (VO) [2021] 1 WLR 1750, and Esso Petroleum v Walker (VO) [2013] RA 355 are recent examples).