[2024] UKUT 264 (LC)

Non-domestic rates are a tax on individual units of property, referred to as hereditaments. Valuation officers are required to prepare and maintain a local valuation list showing each hereditament in the area of the billing authority to which the list relates.

Section 64(1) of the Local Government Finance Act 1988 (“the 1988 Act”) defines a hereditament by adopting the explanation of that expression, such as it is, in section 115(1) of the General Rate Act 1967 (“the 1967 Act”) i.e. that a hereditament is “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.” Whether a property falls to be shown as a separate item in the valuation list is determined by applying principles developed by judges through the cases.

The leading authority on the identification of a hereditament is the decision of the Supreme Court in Woolway v Mazars [2015] UKSC 53 which concerned the proper treatment of geographically distinct units with a common occupier (which is not an issue in this appeal). Lord Sumption JSC (at [12]), identified the primary test as “based on visual or cartographic unity” and as “geographical”, (i.e. “whether the premises said to be a hereditament constitute a single unit on a plan”, at [6]). Lord Neuberger PSC also explained, at [47], that: “Normally at any rate … a hereditament is a self-contained piece of property (i.e. 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.”

It is unnecessary to refer in any greater detail to the principles by which a hereditament is identified, as it is agreed that the Rooms occupied by individual Members are capable of being separate hereditaments. Someone entering one of the Rooms and closing the door would find themselves in a self-contained space which could be depicted on a plan. The appeal turns on a different issue, namely the identity of the person who, in law, is the occupier of those Rooms. Viewed as a whole, the Appeal Premises are also self-contained (all parts being accessible without leaving the premises). If, for rating purposes, they are occupied by the same person, it is not disputed that the Appeal Premises would also be capable of being a separate hereditament.

Non-domestic rates are payable by the occupier of a hereditament (section 43(1), 1988 Act). In a further unhelpful co-option of historic judge-made principles, section 65(2), 1988 Act explains that whether a hereditament is occupied, and who is the occupier, is to be determined by reference to the rules which would have applied when the 1967 Act was in force. Those rules were summarised by Tucker LJ in John Laing & Sons Ltd v Kingswood Assessment Committee [1949] 1 KB 344, 350:

“… there are four necessary ingredients in rateable occupation …. First, there must be actual occupation; secondly, that it must be exclusive for the particular purposes of the possessor; thirdly, that the possession must be of some value or benefit to the possessor; and, fourthly, the possession must not be for too transient a period.”

In this appeal it is agreed that if, in law, Members of Chambers are in possession of their Rooms, that possession is of value to them and is not transient.

The requirement that, to be rateable, the relevant occupation must be “exclusive for the particular purposes of the possessor,” does not require that the rateable occupier be the only occupier. Two situations may be distinguished, as the following passage from the speech of Lord Diplock in Northern Ireland Commissioner of Valuation v Fermanagh Protestant Board of Education [1969] 3 All E.R. 352, 364, illustrates:

“Parliament cannot have intended to impose separate and independent liabilities to pay the rate for the same hereditament on more than one person except where their legal right of occupation is a joint right, as in the case of joint tenants. In English law, therefore, although there may be a joint occupation of a single hereditament there cannot be rateable occupation by more than one occupier whose use of the premises is made under separate and several legal (or equitable) rights.”

Thus, occupation of a single hereditament by two or more individuals having joint rights will be treated as rateable occupation by them all, whereas if occupation is by more than one person having separate legal or equitable rights it is necessary to determine which of them is the rateable occupier. These situations are distinct from cases where different parts of a building are let separately to different occupiers, each of whom will be the rateable occupier of their own hereditament (as in Allchurch v Assessment Committee and Guardians of Hendon Union [1891] 2 QB 436).

Where more than one person is in actual occupation of a single hereditament (where their occupancy is separate rather than joint), the rateable occupier will be the person whose occupation of the hereditament is ‘paramount.’ This approach to cases of concurrent occupation was clearly identified by Lord Herschell LC in Holywell Union Assessment Committee v Halkyn District Mines Drainage Co [1895] AC 117, 126:

“Where a person already in possession has given to another possession of a part of his premises, if that possession be not exclusive he does not cease to be liable to the rate, nor does the other become so. A familiar illustration of this occurs in the case of a landlord and his lodger. Both are, in a sense, in occupation, but the occupation of the landlord is paramount, that of the lodger subordinate.”

Lord Davey made the same point at page 133:

“It is clear that exclusive occupation does not mean that nobody else has any right in the premises. The familiar case of landlord and lodger is an illustration. The cases show that if a person has only a subordinate occupation, subject at all times to the control and regulation of another, then that person has no occupation, in the strict sense, for the purpose of rating, but the rateable occupation remains in the other who has the right of regulation and control.”

The House of Lords confirmed ‘paramount occupation’ as the guiding principle in Westminster Council v Southern Railway Company Ltd [1936] AC 511. Lord Russell emphasised that the issue is one of fact, and focussed attention on the putative hereditament (in that case kiosks and stalls in Victoria Station) when considering which occupier is paramount (at p.529):

“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 which the premises in question are situate, but who is in paramount occupation of the particular premises in question.”

This approach to selecting the rateable occupier has been considered in the Supreme Court and the Court of Appeal on several occasions, most recently in Cardtronics UK Ltd v Sykes [2020] UKSC 21 and in Ludgate House Ltd v Ricketts [2020] EWCA Civ 1637.

Cardtronics concerned the identification of the rateable occupiers of ATM sites in supermarkets where the ATM was operated by a bank within the supermarket corporate structure. Lord Carnwath JSC, with whom the other members of the Supreme Court agreed, relied at [46], on Lord Herschell’s illustration of the applicable principle in Holywell Union by reference to the example of a landlord and a lodger, where the landlord occupies the whole of the premises for the purpose of his business of letting lodgings. This Tribunal had been satisfied on the evidence that the retailers retained occupation of the ATM sites, notwithstanding the rights they had conferred on the banks which substantially restricted their own use of those sites, but having done so because the presence of the ATMs furthered their own business purposes. Both parties therefore derived a direct benefit from the use of the site for the same purpose and shared the economic fruits of the activity for which the space was used. That finding was sufficient, Lord Carnwath concluded, to support the conclusion that the sites remained in the occupation of the retailers.

Ludgate House concerned the occupation of a disused office building awaiting demolition by property guardians, allowed in by a security company which had contracted with the building owner. At [40], Lewison LJ identified a number of points from the passage from Lord Russell’s speech in Southern Railway which we have quoted in full above.These included that rateable occupation depends on “the position and rights of the parties in respect of the premises in question” and that consideration must be given to “the purpose of the occupation of those premises”. He later explained, at [71] and at [76], that it is necessary to consider the purpose of both parties. Where that purpose was “complementary and mutually reinforcing”, as in the case of guardians who, by occupying the building, facilitated the security company’s operation of providing property guardianship services to the building owner, the exercise of “general control” was the critical factor in establishing who is in rateable occupation. The owner retained the right to require the guardians to move within the building or to vacate the premises without notice and had general control. It, rather than the guardians, remained in occupation of the whole building, including the individual rooms occupied by the guardians.

It is also relevant to mention the treatment for rating purposes of unincorporated associations; it appears to have been common ground before the Valuation Tribunal that Chambers is such an association but that became contentious in the course of the appeal. An unincorporated association is a group of individuals who have come together to carry out a mutual purpose (not being a business purpose) but which has no separate legal identity distinct from the individuals who comprise its membership. An unincorporated association is distinguished from a partnership in that partners carry on business together with a view to profit.

The proper treatment of occupation in connection with the activities of an unincorporated association depends on the facts. Generally, membership of an unincorporated association will not be enough to render the members rateable occupiers. That is illustrated by the decision of the Court of Appeal in Verrall v Hackney London Borough Council [1983] QB 445, which concerned the occupation of a building as the headquarters of the National Front, an unincorporated association. Different parts of the premises were occupied by different legal entities and individuals connected to the National Front but the Magistrate who was asked to issue a distress warrant for unpaid rates was unable to conclude that any one of them occupied the whole. He determined instead that the paramount occupier was the National Front itself and issued a distress warrant against one individual who had a leading role in the organisation. That conclusion was reversed by the Court of Appeal. May LJ explained that an unincorporated association could not occupy anything, “because it was a nonentity”, before continuing, at page 461:

“Most unincorporated associations, such as clubs or charities, have trustees, or a committee, legal persons with funds available to pay the rates which it is recognised will have to be paid. It is these persons who, as a matter of law, usually occupy the relevant premises which are used for the purposes of their club or charity and are liable as such occupiers for the general rates. In our opinion, however, the unincorporated association which, speaking loosely, they run, can never be the occupier of those or any premises.”

Verrall, the prominent member of the National Front who had been named in the warrant was not himself the occupier or one of a number of joint occupiers of the single hereditament comprising the whole building and the summons against him therefore had to be dismissed.

Mr Trompeter KC suggested that it was not correct to characterise Chambers as an unincorporated association as it is an association for business purposes (though not a partnership, because its Members carry on separate businesses). That may technically be correct but as an unincorporated association cannot in any event be in rateable occupation, we do not think it matters. Of more significance is the formal legal structure adopted by Chambers to hold property on behalf of its Members and the rights enjoyed by Members as a result.