Cardtronics UK Ltd v. Sykes: Defining Hereditaments and Rateable Occupation of ATMs

Introduction

The Supreme Court case of Cardtronics UK Ltd and others v. Sykes and others (Valuation Officers) ([2020] UKSC 21) addressed critical issues concerning the rating treatment of Automated Teller Machines (ATMs) situated within supermarkets and shops. The primary focus was whether these ATM sites could be identified as separate hereditaments from the parent stores and, if so, who held rateable occupation—the retailers or the banking entities operating the ATMs.

Summary of the Judgment

The Supreme Court upheld the decision of the Court of Appeal, which favored the retailers' position that internal ATMs (accessible only during store hours and from within the store) remained in the rateable occupation of the retailers. Conversely, external ATMs (accessible to the general public at all times) were deemed separate hereditaments and placed in the rateable occupation of the banks operating them. The judgment emphasized the nuanced application of longstanding legal principles to modern commercial arrangements, ensuring consistency and fairness in property rating practices.

Analysis

Precedents Cited

The judgment extensively referenced key cases that have shaped the understanding of hereditaments and rateable occupation:

Halkyn District Mines Drainage Co [1895] AC 117: Established the principles of concurrent occupation and the distinction between paramount and subordinate occupiers.
Westminster Council v Southern Railway Co [1936] AC 511: Clarified the criteria for separate hereditaments, emphasizing control and purpose of occupation.
Woolway (Valuation Officer) v Mazars LLP [2015] UKSC 53: Provided authoritative guidance on identifying hereditaments, particularly regarding self-contained properties.
Kennet District Council v British Telecommunications [1983] RA 43: Addressed rateable occupation in the context of non-rateable plant and machinery.
Bank of Ireland [2010] CSIH 91: Demonstrated the application of ciblade principles to ATMs within specific commercial settings.

These precedents collectively informed the Supreme Court's approach, ensuring that the judgment was grounded in established legal doctrine while adapting to contemporary commercial practices.

Legal Reasoning

The Court's analysis revolved around two pivotal questions:

Whether the ATM sites could be identified as separate hereditaments from the host stores.
If so, determining who held rateable occupation of these hereditaments.

Identifying Hereditaments: The Court examined whether the physical and functional characteristics of the ATM sites warranted their classification as separate hereditaments. Factors such as exclusivity, permanence, and the distinct purpose of the ATM sites were crucial. The judgment differentiated between internal and external ATMs based on their accessibility and intended user base.

Determining Rateable Occupation: Applying principles from Halkyn and Southern Railway, the Court assessed whether the occupation of the store or the bank was paramount. The inherent purpose of the occupation, the degree of control, and the mutual benefits derived by both parties were evaluated. The judgment concluded that internal ATMs remained under the store's occupation due to their integration into the store's business activities, whereas external ATMs, being accessible to the broader public and functionally distinct, were treated as separate entities under the bank's occupation.

Impact

This landmark judgment has profound implications for property rating practices, particularly in the context of modern retail arrangements involving shared spaces and facilities:

Clarity in Hereditament Identification: Provides a clearer framework for identifying separate hereditaments, aiding both property owners and valuation officers in consistent application.
Rateable Occupation Determination: Clarifies the criteria for assessing rateable occupation in shared commercial spaces, balancing control, purpose, and mutual economic benefits.
Financial Implications: Given the number of ATMs across the UK, the decision affects a substantial volume of rating assessments, potentially leading to significant financial impacts on both retailers and banks.
Guidance for Future Cases: Sets a precedent for handling similar cases involving shared facilities and commercial equipment within leased or owned properties.

Complex Concepts Simplified

Hereditament

A hereditament refers to a property unit that is liable to be taxed or rated. It encompasses any property that can be owned, rented, or used, and is typically defined individually in valuation lists for tax purposes.

Rateable Occupation

Rateable occupation determines who is liable to pay business rates on a property. It involves assessing who occupies the property exclusively for business purposes and who derives economic benefits from that occupation.

Paramount and Subordinate Occupation

Paramount occupation refers to the primary occupier of a property who holds exclusive rights and control for specific purposes, making them liable for ratings. Subordinate occupation involves secondary occupiers who share the space but do not hold exclusive control, thus not being liable for separate ratings.

Non-Rateable Plant and Machinery

This refers to items installed within a property that are excluded from valuation for rating purposes. These are typically items like certain types of equipment or machinery, which do not constitute a separate hereditament.

Conclusion

The Supreme Court's decision in Cardtronics UK Ltd v. Sykes underscores the importance of contextual analysis in property rating cases. By meticulously examining the physical setup, the purpose behind occupying specific sites, and the interplay between different occupiers, the Court ensured a fair assessment aligned with established legal principles. This judgment not only resolves the immediate disputes surrounding the rating of ATMs in retail environments but also provides a robust framework for addressing similar challenges in an evolving commercial landscape.

Appendix - Rateable Occupation

The Upper Tribunal's Approach

The Upper Tribunal analyzed rateable occupation by considering the mutual benefits derived by both retailers and banks from the ATM sites. They highlighted that:

Both parties derive direct benefits from the ATM's operation.
The occupation is not competitive but complementary, with mutual economic advantages.
Physical and contractual arrangements do not significantly interfere with either party's use of the site.

For external ATMs, the Upper Tribunal concluded that the bank held paramount occupation due to the machine’s broader public accessibility and distinct purpose. However, for internal ATMs, the store retained paramount occupation as the ATM was integrated into the store's primary business activities.

The Court of Appeal's View

The Court of Appeal supported the retailers' stance, emphasizing that:

The store retained control over the ATM sites, especially internal ones.
The mutual benefits derived from the ATM's presence aligned the purposes of both occupiers.
There was no significant interference or rivalry in occupation as posited by the Valuation Officers.

They critiqued the Upper Tribunal's differentiation between internal and external ATMs, arguing that the fundamental principles of control and mutual benefit should uniformly support the retailer's continued rateable occupation of ATM sites.