Introduction

In the landmark case of Berry (VO) v. Iceland Foods Ltd ([2015] RA 201), the Upper Tribunal (Lands Chamber) addressed the intricacies of determining the rateable value of plant and machinery within non-domestic hereditaments. The dispute centered around whether an air handling system installed by Iceland Foods Limited in its Liverpool retail warehouse should be considered rateable under the Valuation for Rating (Plant and Machinery) (England) Regulations 2000. The appellant, Jane A Berry (Valuation Officer), challenged the Valuation Tribunal for England's (VTE) decision to exclude the air handling unit from the rateable value on the grounds that it was used mainly as part of trade processes.

The key issues revolved around the interpretation of "trade processes" within the regulatory framework and the appropriate valuation methods for specialized equipment. The parties involved included the Valuation Officer representing the appellant and representatives from Iceland Foods Ltd as the respondent.

Summary of the Judgment

The Upper Tribunal reviewed the VTE's decision to exclude the air handling system from the rateable value, ultimately allowing the appeal and determining that the system should be included. The Tribunal examined whether the air handling unit was used mainly or exclusively as part of Iceland's trade processes, as defined under the relevant regulations. After analyzing expert testimonies, statutory provisions, and precedent cases, the Tribunal concluded that the air handling system was not solely used in connection with trade processes and thus remained rateable. Consequently, the rateable value for the Liverpool warehouse was adjusted to £104,000, reflecting the inclusion of the air handling system.

Analysis

Precedents Cited

The judgment referenced several key cases to interpret the scope of "trade processes" and the rateability of plant and machinery. Notably:

• Union Cold Storage Co Ltd v Southwark Assessment Committee (1932): Dealt with insulation materials in cold storage and their classification under plant and machinery.
• Ellerker v Union Cold Storage Co Ltd [1939]: Clarified processes involved in cold storage operations for taxation purposes.
• Hays v Raley (VO) [1986]: Held that fire-fighting equipment installed for document preservation was not rateable as it wasn't part of the building's services.
• Dorothy Perkins Retail Ltd v Casey (VO) [1994] and Edma (Jewellers) Ltd v Moore (VO) [1975]: Influenced valuation approaches for tenant improvements and specialized equipment.

The Tribunal critically assessed these precedents, particularly noting that previous cases like Hays v Raley had approached the concept of "trade processes" in a fragmented manner, which was deemed unreliable for the current context.

Legal Reasoning

Central to the Tribunal's reasoning was the interpretation of "trade processes" within the Valuation for Rating (Plant and Machinery) (England) Regulations 2000. The Tribunal emphasized that "trade processes" should be understood as a composite, coherent concept, encompassing activities that bring about a transition from one state or condition to another, typically involving some form of skill applied to tangible objects.

The air handling system in question was designed to manage the heat generated by Iceland's integral refrigerated cabinets, essential for preserving their stock. However, the Tribunal determined that maintaining ambient temperatures for customer comfort and equipment functionality did not constitute a "trade process." The system's primary function was deemed supportive rather than integral to the core trading activities.

Regarding valuation, the Tribunal evaluated the methodologies proposed by both parties. The Valuation Officer's approach involved amortizing the cost of the air handling system using an investment yield, which was criticized for its inappropriateness in reflecting the system's actual value within the premises. Conversely, the respondent's (Iceland's) expert proposed using the contractors' basis with a statutory decapitalization rate, avoiding double-counting of standard features already accounted for in the base rate.

The Tribunal favored the respondent's valuation method, rejecting the VO's yield-based approach for its unrealistic assumptions and lack of alignment with statutory requirements. Additionally, they addressed the issue of double-counting by attributing a reduced capital cost to the air handling system, ensuring a fair and accurate rateable value without overlapping valuations of standard facility features.

Impact

This judgment has significant implications for the valuation of specialized plant and machinery within non-domestic properties. It clarifies that equipment solely supporting trading activities, without being integral to "trade processes" as defined by regulatory standards, remains rateable. Furthermore, the Tribunal's preference for the contractors' basis with a statutory decapitalization rate sets a clearer precedent for future valuations, emphasizing the importance of avoiding double-counting and ensuring valuation methods align with statutory provisions.

Businesses operating specialized equipment within their premises must be mindful of how such equipment's primary functions align with definitions of trade processes to determine rateability accurately. Additionally, valuation officers and practitioners will reference this judgment to refine their approaches, ensuring compliance with regulatory frameworks and judicial expectations.

Complex Concepts Simplified

Rateable Value

The rateable value is the amount at which a property is assessed for business rates (a local tax). It is determined based on the property's potential annual rental value.

Non-Domestic Hereditament

A non-domestic hereditament refers to property used for business purposes, excluding residential properties.

Plant and Machinery

This term encompasses the equipment and installations within a property used to supply services such as heating, cooling, and ventilation.

Trade Processes

Trade processes involve activities that transform goods or services, requiring specific skills and resulting in a tangible change or output.

Contractors' Basis

A valuation method that calculates the rateable value based on the notional cost of constructing or providing a property or its parts.

Statutory Decapitalization Rate

A percentage rate prescribed by law used to convert the capital cost of an asset into an equivalent annual charge for valuation purposes.

Conclusion

The Berry v. Iceland Foods Ltd judgment serves as a pivotal reference in the realm of property valuation for business rates, particularly concerning the rateability of specialized plant and machinery. By delineating the boundaries of what constitutes "trade processes," the Tribunal provided clarity on the inclusion of supportive equipment in rateable values. The emphasis on appropriate valuation methodologies, avoiding double-counting, and adhering to statutory frameworks underscores the judiciary's role in ensuring fair and accurate property valuations. Stakeholders, including property owners, valuation officers, and legal practitioners, must assimilate the insights from this case to navigate future assessments effectively and compliantly.