Unconnected floors in a building can be treated as one unit for ratings purposes, court confirms

In its judgment, the Court of Appeal said that two floors of an office block occupied by accountancy firm Mazars counted as one single 'hereditament' under the rates regime. The firm occupied the second and sixth floors of an eight-storey building. Business rates are charged on individual hereditaments, or units of occupation.

Lord Justice Pill said that, in the context of a modern office block, "contiguity between floors" was of "no practical significance" for the purposes of deciding what was or was not a single hereditament.

"The separated floors in a single tower block legitimately constitute a single hereditament," he said. "As Morris LJ put it [in a previous case] 'it is better to employ a common-sense assessment of the features of the case than to seek to have recourse to some standard formula'."

"[The valuation officer] accepts that floors 3, 4 and 5, occupied by another firm in the same building, are a single hereditament. On the facts found, which are likely to be similar to those in many other office blocks, floors 2 and 6, in the occupation of [Mazars], cannot legitimately be distinguished on practical grounds or in terms of the value of the occupation," he said.

He added that the test for determining what a single hereditament was had to be more "flexible" than a purely physical or geographical test.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories. Premises are assigned a rateable value by the Valuation Office, which is part of HM Revenue and Customs (HMRC). This is used by the local authority to calculate how much the occupier of that property should pay.

The valuation officer in the Mazars case had entered each floor that the business occupied onto the rating list as a separate hereditament, as was the usual practice where floors were not connected. Mazars appealed to the Valuation Tribunal on the grounds that there was a "functional dependency" between the two floors. The Valuation Tribunal agreed, as did the Upper Tribunal (Lands Chamber) on appeal.

The ruling of the Valuation Tribunal, which was endorsed by both the Lands Chamber and the Court of Appeal, stated that the test of what is 'functionally essential' should be "adapted to reflect the modern era of service industries. The tribunal said that there was a "link between the floors which is essential to the efficiency of the working of Mazars' overall service-provision business", and that the work carried out on both floors was "sufficiently integrated that they are essential to the effective business as a whole".

Business rates expert Stuart McCann of Pinsent Masons, the law firm behind Out-Law.com, said that the Court of Appeal had provided "welcome confirmation" of the "common sense approach that non-adjoining floors can be treated as a single hereditament".

"This is clearly good news for occupiers who could reduce their rates liability if they occupy non-adjacent floors in the same building," he said. "They should think seriously about applying for a single listing because of the costs savings potentially available."