Can a person be liable for national non-domestic rates (‘Business Rates’) for a hereditament, if that person does not exclusively occupy the entire hereditament because there are separate occupiers of some other parts of the hereditament?[1] Or to put it another way: is anyone in rateable occupation of the whole hereditament and so liable to pay Business Rates for the whole hereditament, where nobody is in exclusive occupation of the whole of the hereditment, because parts of the hereditament are occupied by separate (non-joint) occupiers?

This was the issue under consideration in Atos IT Services Ltd v Fylde BC [2020] EWHC 647 (QB) (‘Atos v Fylde’) before Saini J. Note this article considers initial liability for Business Rates; it takes no account of any potential entitlement to Business Rates reliefs.

The Underlying Claim

In Atos v Fylde, an alleged ratepayer, Atos, paid about £164,000 to Fylde BC (the ‘Billing Authority’) under protest in respect to Business Rates allegedly due for the period 7.10.16 to 31.3.17 (the ‘Relevant Period’) in respect to a property called ‘Serco House’. Atos then issued proceedings in the County Court seeking an order that the Billing Authority do repay to Atos the £164,000 (the ‘Disputed Sum’) because it was never due. In the County Court proceedings, the Billing Authority applied for an order that Atos' claim for the Disputed Sum be struck out, or alternatively, that judgment be entered on it summarily, dismissing Atos' claim. The Billing Authority's application for strike out/summary judgment was dismissed, and the Billing Authority appealed. The appeal came before Saini J. 

Parts of Hereditament Property Sublet/Suboccupied by others
In Atos v Fylde, it was not in dispute that, from the start of the Relevant Period: (1) the alleged ratepayer Atos held a lease of Serco House and that “Serco House” was listed as a single hereditament (referred to as the 'Main Hereditament') in the local valuation list; and crucially (2) ’[v]arious parts of Serco House were let to, and occupied by, subtenants throughout the Relevant Period'[2]; and that ‘It is common ground that these parts are not occupied by Atos.’ (paragraph 17).

The Parties' Principal Contentions 
The alleged ratepayer Atos contended that, because some parts of Serco House were sublet and occupied by other persons (the ‘Subtenant/Suboccupiers’) throughout the Relevant Period, the alleged ratepayer ‘…was not in exclusive occupation of the hereditament shown in the list for that period, and therefore not in rateable occupation of it’ (paragraph 4). The Billing Authority disputed that merely because parts of Serco House had been sublet/suboccupied, that meant that Atos was not liable for the Business Rates on the (whole) hereditament. The Billing Authority argued that any complaint thereby arising, could be remedied by the alleged ratepayer Atos seeking ‘…an amendment of the description of the hereditament in the rating list…’ (paragraph 5) but that, in effect, until the alleged ratepayer availed himself of that remedy ‘… the Council was obliged in law to collect the Disputed Sum’ (paragraph 5).

Analysis
Saini J commenced his analysis by reviewing[3], at paragraphs 21 to 32: (1) the basic statutory framework within the Local Government Finance Act 1988 (‘LGFA 1988’); (2) the local non-domestic rating list (‘local rating list’); (3) the role of billing authorities in administering the collection of Business Rates; (4) the ‘hereditament’ being the unit of taxable property; (5) a rateable value attributed to each hereditament; and (6) the ability to challenge the contents of the local rating list by making a ‘proposal’. 

Saini J then turned to section 43 of the LGFA 1988 and how it imposes liability for Business Rates. At paragraphs 32 and 33, Saini J said:

‘The legal liability to pay rates is imposed by S43 LGFA 1988 … That provision, and its application, is at the core of the appeal. It provides as follows:

"(1) A person (the ratepayer) shall as regards a hereditament be subject to a non-domestic rate in respect of a chargeable financial year if the following conditions are fulfilled in respect of any day in the year—

(a) on the day the ratepayer is in occupation of all or part of the hereditament, and

(b) the hereditament is shown for the day in a local non-domestic rating list in force for the year."

S64 defines "hereditament" by reference to the definition set out in section 115(1) of the General Rate Act 1967: "… 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.”'

On first blush, the answer to the issue would appear to be contained in subsection (1)(a) above, in particular, the words ‘…or part of…’ However, this is not the case. Indeed, the Billing Authority in Atos v Fylde did not even attempt to argue that it was. As Saini J said, at paragraph 34:

‘Like the Judge at paragraph 30 of the Judgment, I would observe that (at first blush) one might think that once it is established that a person is in occupation of "part" of the hereditament/unit (as Atos is in this case) that suffices under s43 to establish liability to pay rates for the whole unit. The Appellant [Billing Authority] confirmed to me however that it does not rely upon that argument, so I say no more about it.'

Nature of the Concept of ‘Occupation’
Saini J then moved on to the concept of rateable ‘occupation’ and its 4 component subtests under the common law rules, before focusing on the ‘exclusive’ subtest. At paragraphs 35 to 36, Saini J said:

‘One needs to consider in more detail what is embraced by the concept of "occupation" within s43(1)(a). LGFA 1988 s65(2) provides that: "Whether a hereditament or land is occupied, and who is the occupier, shall be determined by reference to the rules which would have applied for the purposes of the 1967 Act had this Act not been passed (ignoring any express statutory rules such as those in sections 24 and 46A of that Act)". It was common ground before me that the relevant rules are the common law rules to be found in historic case law.

Under those rules, in order to be rateable, the occupation has to satisfy the fourfold test set out in decided cases. So, the occupation must be actual, beneficial, exclusive and not transient: John Laing & Son Ltd v Kingswood AAC [1949] 1 KB 344 at p350, approved in LCC v Wilkins (VO) [1957] AC 362 (HL). In this appeal, it is the requirement that occupation be "exclusive" that is central to the arguments.'

Turning then to the concept of ‘exclusive’ occupation, Saini J said, at paragraphs 37 and 38:

'An aspect of the requirement for exclusive occupation is that two parties cannot be in occupation of one hereditament unless they are jointly occupying the whole.

This principle was identified in Allchurch v Hendon [1891] 2 QB 493 (CA). That case concerned a house with two floors and each floor was let to a separate tenant. Lord Esher MR observed at pp.441-442 (with my underlined emphasis):

"What do each of these people occupy? The one occupies rooms on the ground floor of a house and occupies them separately. It cannot be doubted that occupation is a separate one, because nobody else has any right to interfere with his occupation of that part. The other occupies another part of the house, and his occupation is a separate occupation, and nobody has a right to interfere with it. Therefore you have each of them occupying a separate part of something, whether it is a separate part of a house signifies not. If it were a field it would be a separate occupation of a part of a field. They are to be rated in respect of their occupation. How can each of them be rated as the occupier of something into which he has no right to go, in respect of which he has no beneficial right at all, in fact, in respect of something with which he has nothing to do, and with which if he attempts to do anything he is a trespasser? The occupation is as clearly separate as can be. It is a misuse of terms - not only a misuse but an untrue use of terms - to say that they jointly occupy this house.”' 

Saini J then considered extracts from the cases of (1) NICV v Fermanagh Protestant Board of Education [1969] 1 WLR 1708 (HL); (2) In re Briant Colour Printing Co. Ltd [1977] 1 WLR 942 (CA); and (3) Verrall v Hackney LBC [1983] QB 445 (CA).  The full extracts are contained in a footnote[4], but the key extracts are:

1. Lord Diplock in NICV v Fermanagh Protestant Board of Education [1969] 1 WLR 1708 (HL), said, at 1728:

‘Parliament cannot have intended to impose separate and independent liabilities to pay the rates for the same hereditament upon 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.’

2. Buckley LJ in In re Briant Colour Printing Co. Ltd [1977] 1 WLR 942 (CA) said, at 952-953:

"There cannot, I think, be two occupiers for rating purposes at one time of one hereditament. If a state of affairs arises in which two persons are in occupation of what is listed as one hereditament for rating purposes, each entitled to exclusive use for a particular purpose, the list must be amended to show two hereditaments in order to enable the rating authority to assess both occupiers."

(3) Sir John Donaldson MR in Verrall v Hackney LBC [1983] QB 445 (CA)('Verrall'), said, at 462:

‘…the second well-established ingredient of the concept of rateable occupation is that the actual occupation or possession must be exclusive for the purpose of the possession. Consideration of this ingredient is important in cases such as the present where there may have been more than one legal person using parts of the premises at times during the period for which rates are sought to be charged. In Ryde on Rating, 13th ed., p. 120 the editors give this warning:

"The occupation of land can be joint, and it is important to distinguish the case of a building in the hands of joint occupiers from that of a building of which the parts are let separately to several persons, each of whom is the occupier of the part let to him, and of that part only … If the whole building is rated, under one entry in the valuation list, and in the rate, as one indivisible rateable hereditament, no one tenant is liable for the rate on the whole, because he is not the occupier of the whole, nor can he be compelled to pay the rate on the part which he occupies, because there is nothing in the rate, or in the valuation list on which it is based, to show what is the value of that part.” [bold added]

It can be interjected here that this Ryde on Rating quote distills the position succinctly. Indeed, Saini J, at paragraph 62, approved as accurate a very similar passage appearing in, seemingly, a more recent Ryde on Rating[5].

Saini J then said, as to Verrall, at paragraphs 45 and 46:

‘…the defendant was found not liable to pay the rates on the basis that he was not in rateable occupation. In my judgment, an aspect of the ratio of the case was that it is necessary to find one occupier or a number of joint occupiers of the relevant hereditament before there can be rateable occupation, and therefore, before any liability to rates can arise.’

In other words, "occupation" of a part of the hereditament when other parts are occupied by other parties does not give rise to rateable occupation of the hereditament.’ [bold added where words in original are in italics] 

Saini J noted that Pill LJ sitting in the Divisional Court (Pill LJ and Keene J) in Ford v Burnley [1995] RA 205; (1996) 160 JP 540 had said that the ‘…general principle as stated in Verrall is still the law…’(212)[6]

Turning briefly[7]to Ford v Burnley, this case confirms Verrall as setting down the law in this area.

Keene J in Ford v Burnley noted that the Justices had found ‘…that the [alleged ratepayer] was the occupier of part of the hereditament and it was that, together with the 1990 regulations, which seemed to have been construed by the Justices as making the appellant liable to pay non-domestic rates for the whole hereditament.' before remarking 'That cannot be right’. Criticising the Justices approach, Keene J:

(1) found that the 1990 regulations (the Non-domestic Rating (Collection and Enforcement) (Miscellaneous Provisions) Regulations 1990 SI 1990/145) only applies to cases of joint occupation. They do not affect the preceding question of how occupation is to be determined, and so are not relevant; and

(2) said, at 212, that ‘Joint occupation is to be distinguished from the separate occupation of distinct parts of a hereditament by a number of persons or bodies’ and ‘…were the Justices approach to be right, a bizarre result would follow. If the occupier of part of a hereditament which was occupied in a number of parts or in a number of floors of a building by various persons could be made liable for the non-domestic rates in respect of the whole hereditament, he would have to bear on the face of it an onerous and excessive burden.’

Returning to Atos v Fylde - Saini J referred to London Borough of Croydon v Maxon System Inc Ltd [1999] RA 286 ('Maxon System’), and the rejection[8] by Jowitt J in Maxon System, of an argument that section 43(1) ‘… had changed the law as stated in Verrall such that part-exclusive occupation was now sufficient to be rateable.’

Summarising his review of the above authorities, Saini J in Atos v Fylde said, at paragraph 55:

‘These authorities seem to me to be clear in establishing that in such a case none of the "occupiers" is (sic) in rateable occupation, because none has exclusive occupation.’

Rejecting the relevance of Manchester Overseers v Headlam (1888) 21 QBD 96
Contrary to the billing authority’s arguments, Saini J held, at paragraph 56, that Manchester Overseers v Headlam (1888) 21 QBD 96 did not assist. 

Argument not Barred by Section 55 of the LGFA 1988
Section 55 of the LGFA 1988 provides for: (1) challenges to the contents of the local valuation list, and (2) the secretary of state to make regulations under section 55, detailing how such challenges are to be made. Regulation 23(1) of the 1989 Regulations (not made under section 55) provides that 'any matter which could be the subject of an appeal under Regulations under Section 55 of the Act may not be raised in proceedings under this part'. Accordingly, Regulation 23(1) acts as a bar on questioning the contents of the local valuation list in proceedings concerned with liability for rates.

Does this bar prevent an alleged ratepayer arguing in the Magistrates Court/County Court that he is not in rateable occupation because he is not solely (or jointly) in exclusive occupation of the whole of the hereditament, because there are others occupying parts of the hereditament? Saini J answered this in the negative; the bar in Regulation 23(1) does not prevent this argument being run. An alleged ratepayer disputing that they are liable because they are not in exclusive occupation of the whole of the hereditament, because others are in occupation of parts of the hereditment, is not challenging the current state of the list. As Saini J said, at paragraphs 88 to 89, speaking of the alleged ratepayer Atos’ case before him:

‘Its case in fact relies on the current state of the list. With the list in its current state, Atos has no liability whatsoever, as it was not in exclusive, and therefore rateable, occupation of the Main Hereditament during the Relevant Period.'

Further, at paragraph 90:

‘An alleged ratepayer may contend that he is not in occupation of a hereditament without advancing any challenge to the contents of the list.’

Decision on the facts in Atos v Fylde
On the facts in Atos v Fylde, Saini J held that Atos had not been in rateable occupation and so was not liable for business rates for the (Main) hereditament. 

Saini J said, that Atos’ potential liability for business rates turned on whether the requirements of section 43(1) were satisfied. As to ‘(b) the hereditament is shown for the day in a local non-domestic rating list in force for the year’, this was satisfied. However, as to ‘(a) on the day the ratepayer is in occupation of all or part of the hereditament’, Saini J said, at paragraphs 72 and 73:

‘Atos had a physical presence within the Main Hereditament during the Relevant Period. However, that is not sufficient to constitute "occupation" for the purpose of s43(1)(a) read together with s65(2) of LGFA .

It will be clear from what I have said above that such occupation of the unit had to be exclusive. It is common ground that Atos was not during the Relevant Period in exclusive occupation of the unit, the Main Hereditament, because parts of it were let to, and occupied by, third parties. Therefore, in my judgment, Atos was not in rateable occupation of the Main Hereditament at all.’

Where Part of the Unit is Vacant rather than Occupied by Others
A related question is: Is a person liable for the Business Rates for a hereditament if he only physically occupies part of it, with the other part simply being vacant. This question is different to the main question addressed in Atos v Fylde, because there is no other non-joint occupier to cut across the exclusive occupation of the alleged ratepayer. 

This issue involves returning to the wording in section 43(1)(a) - namely ‘on the day the ratepayer is in occupation of all or part of the hereditament’ - and why this subsection contains the phrase ‘or part of’

In Maxon System, Jowitt J said:

‘What, then, is the rationale for the reference in section 43(1) to a part of a hereditament? Whether there may be other reasons the following seems to me to be one reason. Rates are levied in respect of a year which begins on the 1st April and ends on the 31st March following. Someone who is in occupation for only a part of the year will be liable to pay only a proportionate part of the rates for the year: section 43(2). Suppose an occupier ceased to occupy shortly after the 1st April or entered into occupation shortly before the 31st March in any year but in either case was not in occupation of the whole during that short period but this was only a temporary state of affairs. But for the reference to part in section 43(1) the occupier would escape any liability for rates for that temporary period although the amount involved could be substantial. The combined effects of sections 43(1) and 44A(1) is that the occupier will be liable for an apportioned rate.’

Saini J in Atos v Fylde explained Jowitt J’s analysis, at paragraphs 52 to 54:

‘…Jowitt J went on to explain that one rationale for the reference to occupation of "part of the hereditament" would relate to a situation whereby the hereditament was physically occupied in part only but was otherwise vacant (pp292-3). That state of affairs can be distinguished from the situation (demonstrated by the facts of Verrall , Ford and Maxon System and indeed the facts before me), where there are different "occupiers" of different parts of a single hereditament.’

Other authorities in this area (i.e single hereditament, part occupied by alleged ratepayer, part empty or void), include Manchester Overseers v Headlam (1888) 21 QBD 96 and Camden LBC v Herwald [1978] 1 QB 626. Saini J explained each, from paragraphs 57 and 59 respectively.

The law is that: a person will be liable for Business Rates for a hereditament as rateably occupying it, where: (a) he only physically occupies part of it; and (b)  the other part is simply empty/vacant/void.

Ancillary to this though, is the power bestowed upon a billing authority, by s.44A of the 1988 Act[9]. That power is a discretion, if certain circumstances exist, to require the VOA valuation officer (for that billing authority area) to apportion the rateable value of a hereditament between: (a) rateably occupied parts; and (b) rateably unoccupied parts, of the hereditament (and to certify the same)(s.44A(1)). Consequently, pursuant to s.44A(7), in relation to any day for which the apportionment applies, s.43 of the 1988 Act has effect as regards the hereditament, as if the subsections s.44A(7) were substituted for s.44(2). That substitution makes 'A' in the business rates formula 'such part of the rateable value shown for the day under section 42(4) ... as regards the hereditament as is assigned by the relevant apportionment to the occupied part of the hereditament.' (s.44A(7)). In other words, rather than 'A' in the formula being the full rateable value (as it appears on the VOA Local Rating List; i.e being '...the rateable value shown for the day under section 42(4) above as regards the hereditament' (s.44(2)), 'A' is the rateable value of the rateable value of the occupied part (only) of the hereditament. The certain circumstances are 'Where a hereditament is shown in a [ billing authority's ] 2local non-domestic rating list and it appears to the authority that part of the hereditament is unoccupied but will remain so for a short time only...' (s.44A(1))

Conclusion 
For liability to be imposed upon a person to pay business rates in respect to occupied land, section 43(1) with section 65(2), requires that that person be in rateable occupation on the chargeable day(s) in question. For occupation to be rateable, it must satisfy the common law fourfold test - the third ingredient of which is ‘…a requirement that occupation…must be exclusive’ (paragraph 77). Saini J said, at paragraph 78:

‘In short, the requirement that occupation be exclusive cannot be met where parts of the hereditament are let and occupied by a third party and Verrall is binding Court of Appeal authority for the proposition that it is necessary to find one occupier or a number of joint occupiers of the relevant hereditament before rateable occupation can arise. Ford and Maxon System are authority for the proposition that this remains the case under LGFA 1988’ [emphasis in original in italics]

Only if there is someone in rateable occupation, is the relevant billing authority obliged to collect rates. The billing authority’s ‘…duty to collect rates only arises when someone is in fact liable to pay those rates.’ (Paragraph 93)

Where, in respect to an occupied hereditament, there is nobody in rateable occupation because no one who occupies has exclusive occupation of the whole of the hereditament, the logical remedy is to subdivide/fragment the hereditament into smaller hereditaments, such that each fragment will have an exclusive occupier and so someone (or if occupied jointly, one set of joint occupiers) in rateable occupation (and so liable for Business Rates). Encapsulating this, Saini J said, at paragraph 85, that where '... rates cannot be collected where there is no exclusive occupier…the remedy for the taxing authorities is obvious: to alter the list so that it is correct.’ Noting, that '...there is no onus on the taxpayer, statutory or otherwise, to maintain the list for them.’ (Paragraph 86) Logically, as Saini J said, at paragraph 89:

‘Were the list to be corrected so that the [hereditament] was modified to show only areas in [alleged ratepayer] occupation, it would have a liability to rates, albeit in a smaller amount than the [original sum sought by the billing authority]…’

SIMON HILL © 2021

BARRISTER

33 BEDFORD ROW

S.HILL@33BEDFORDROW.CO.UK

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.