With businesses looking to diversify and consumer outlets looking to broaden their offering, hereditaments within hereditaments continue to increase in number. Whether its an ATM within a supermarket, a deli counter operated by a third party within a supermarket, or a coffee cart within a train station, the issue for billing authorities remains the same: where a new hereditament is created by the Valuation Office Agency, who is the correct ratepayer?

Earlier this year, the Supreme Court handed down its Judgment in Cardtronics UK Ltd and others v Sykes and others (Valuation Officers) [2020] UKSC 21. The case itself concerned ATM machines at supermarkets and convenience stores which could broadly be divided into four categories:

1 External ATMs built into the external walls of stores and able to be used 24 hours a day without entering the store;

2 Internal ATMs accessible only from within stores during their opening hours;

3 Convenience Store ATMs which were similar to external ATMs save that they were treated separately owing to the proportion of the floor space they took up within much smaller convenience stores;

4 Movable ATMs which were located within stores but able to be moved to different locations without difficulty.

The Supreme Court considered two points on appeal: (1) Should the ATMs be rated as separate hereditaments and, if so, (2) was it the store or the ATM operator that was the ratepayer.

On the first question, it was found that with the exception of movable ATMs, all ATMs could properly be defined as a separate hereditament. The exception for the movable ATMs was as a result of a finding by the Upper Tribunal that the essential qualities of that type of machine were impermanence and mobility. For the remainder of the ATMs, it was found at first instance and upheld that there would be no difficulty in defining the boundaries of the hereditaments so as to satisfy the geographic test of self-containment. The other key features were seen as an apparently permanent location which differed from the generality of the surrounding hereditament, intended for a particular purpose.

In applying this to cases, Councils should ask the question as to whether the potential hereditament is fixed or moveable. If inherently moveable, such as a cart, trolley or vehicle, it is unlikely to constitute a hereditament. If permanent, the Council should then consider the degree to which the space can have its boundary defined and to which it differs by purpose to its surroundings. Should the argument be raised, the Council should be prepared to refer the matter to the VOA to ensure the hereditament is properly created before undertaking any collection or enforcement proceedings.

Once satisfied as to the existence of a hereditament, the Council can then turn its attention to the second question. In Cardtronics, the Upper Tribunal found that only the internal ATMs were in the occupation of stores whilst the external ATMs were in the occupation of the banks or operators. This distinction was rejected by the Court of Appeal, with whom the Supreme Court agreed. The final decision was therefore that all ATMs were in the occupation of the stores.

It is of more benefit to Councils to look at the reasoning for the conclusion than the conclusion itself. The starting point was taken to be that where the store had given possession of part of its premises to another, if the possession was not exclusive [for its purpose] it does not cease to be liable for the rate. Particular weight was placed on the lodger principle; “The lodging house has always been treated as a single hereditament in the occupation of the landlord, even though his control of the premises does not interfere with, but rather supports, the enjoyment by the lodgers of their own rooms for their own purposes. [46]”

It is this commonality of purpose, along with the degree of control exercised by virtue of the contractual arrangements for situating the ATMs, which proved central. The questions to be asked now seem to be; (1) how much control does the store retain over the use and operation of the hereditament within its hereditament and (2) does the store share in the benefit of the hereditament within its hereditament, and to what extent.

A supermarket which engages a third party to operate a counter service with strict terms of operation in place and where the supermarket shares in the profit, appears likely to remain the ratepayer in respect of the counter. Conversely, a railway station which rents a retail space to a fragrance company but imposes no strict operational terms and takes only the rent (as distinct from a share of revenue or profit) is unlikely to remain the ratepayer of the retail space.

How much control and how direct the benefit now appear the key considerations.

Alex Worthington September 2020