Defining Hereditament for Non-Domestic Rating: Insights from Woolway v Mazars [2015] AC 1862: United Kingdom Supreme Court

Introduction

Woolway v. Mazars ([2015] AC 1862) is a landmark decision by the United Kingdom Supreme Court that addresses the complex issue of identifying "hereditaments" for the purpose of non-domestic rating. The case centered around Tower Bridge House, an eight-storey office block in the London Borough of Tower Hamlets, where Mazars, a firm of chartered accountants, occupied non-contiguous storeys within the building. The crux of the dispute was whether these separate storeys should be treated as a single hereditament or as distinct entities for rating purposes.

Summary of the Judgment

The Supreme Court, led by Lord Sumption, deliberated on whether different storeys under common occupation in the same building should be entered as separate hereditaments. The Valuation Tribunal for England had previously merged Mazars' two separate storeys into a single hereditament, a decision upheld by the Upper Tribunal (Lands Chamber) except for a fragmentation allowance. However, the Supreme Court overturned this merger, ruling that the separate storeys should be treated as distinct hereditaments. The judgment emphasized the primacy of geographical considerations over functional connections in determining the boundaries of a hereditament.

Analysis

Precedents Cited

The judgment extensively reviewed historical and contemporary cases to elucidate the principles governing the identification of hereditaments:

Bank of Scotland v Assessor for Edinburgh (1890 & 1891): Established the geographical and functional tests to determine whether premises should be treated as one or multiple hereditaments.
University of Glasgow v Assessor for Glasgow (1952): Reinforced the primacy of the geographical test over functional considerations.
Burn Stewart Distillers plc v Lanarkshire Valuation Joint Board (2001): Clarified that geographical separation typically necessitates separate hereditaments, regardless of functional connections.
Gilbert v S Hickinbottom and Sons Ltd (1956): A pivotal English case that introduced ambiguity by allowing functional integration to override geographical separation in exceptional cases.
Trunkfield (Valuation Officer) v Camden London Borough Council (2011): Highlighted inconsistencies in applying the Gilbert precedent, ultimately supporting the approach taken in Woolway v. Mazars.

The Supreme Court found the Gilbert case to be unsatisfactory and inconsistent with clearer Scottish precedents, advocating for a more principled and geographically grounded approach.

Legal Reasoning

Lord Sumption outlined three primary principles derived from Scottish jurisprudence:

Geographical Test: The primary determinant is whether the premises form a single geographical unit. Contiguity is a strong indicator, but not solely determinative.
Functional Test: Applicable only when geographically distinct premises are functionally interdependent to the extent that separate evaluation would be impractical or meaningless.
Separation and Letting Potential: Whether the premises can be reasonably let or occupied separately. This assesses the practicality and necessity of treating the premises as distinct hereditaments.

The court emphasized that the geographical test should take precedence, and the functional test should only supplement it in limited circumstances. In the present case, the separate floors did not meet the criteria for functional interdependence, as they did not require mutual occupation for their intended use. Thus, they should be treated as separate hereditaments.

Impact

The decision in Woolway v. Mazars has significant implications for non-domestic rating:

Clarity and Consistency: Establishes a clear hierarchy where geographical considerations dominate, reducing reliance on subjective functional assessments.
Valuation Practices: Valuation officers and tribunals must adopt a geographically focused approach when identifying hereditaments, minimizing ambiguities introduced by functional connections.
Precedent for Future Cases: Serves as a guiding authority in similar disputes, promoting uniformity across different cases and jurisdictions.
Alignment with Scottish Law: Harmonizes English and Scottish valuation principles, fostering greater consistency within the UK legal framework.

By rejecting the broad application of the Gilbert precedent, the Supreme Court reinforces a more objective and measurable standard for hereditament identification, enhancing fairness and predictability in rating assessments.

Complex Concepts Simplified

The judgment involved several intricate legal concepts which are clarified as follows:

Hereditament: An archaic legal term referring to any form of real property that can be inherited. In rating, it denotes the unit of property subject to tax, typically a building or part thereof.
Curtilage: The land immediately surrounding a building, considered its integral part. In the context of this case, the concept was deemed inapplicable to modern office buildings.
Geographical Test: A method to determine hereditaments based on physical contiguity and visual or cartographic unity.
Functional Test: An assessment of whether different parts of a property are functionally dependent on each other, warranting their treatment as a single hereditament.
Unum Quid: A Latin term meaning "one thing," used to describe a single hereditament composed of multiple physically connected parts.

Conclusion

Woolway v. Mazars serves as a pivotal judgment in the realm of non-domestic rating, establishing that the geographical characteristics of a property unit are paramount in determining hereditaments. By prioritizing the physical contiguity over functional usage, the Supreme Court has provided clearer guidelines for valuation officers and tribunals, promoting consistency and fairness in rating assessments. This decision aligns English rating law more closely with Scottish principles, mitigating previous ambiguities introduced by the Gilbert case. Stakeholders in property taxation must now adhere to these clarified principles, ensuring that hereditament identification remains grounded in objective geographic criteria rather than subjective functional considerations.

Defining Hereditament for Non-Domestic Rating: Insights from Woolway v Mazars [2015] AC 1862