On 20 May 2020, the Supreme Court handed-down judgment in Cardtronics UK Ltd and others v Sykes and others  UKSC 21: a long-running dispute between retailers and the Valuation Office Agency over whether ATMs (cash machines) either inside or outside retail stores should be subject to an additional liability for business rates. The ATMs are generally run by Banks connected with the retailers. An additional rates bill for the ATMs didn’t reduce the bill for the stores themselves so the retailers were effectively being hit twice for the same space.
The Court unanimously upheld the judgment of the Court of Appeal that there should be no additional business rates liability for such ATMs.
For retailers this is a huge win. The judgment notes approximately 34,000 other appeals had been on-hold pending the Supreme Court’s decision. It has been reported that retailers could be due a rebate of hundreds of millions of pounds after the Valuation Office Agency had initially altered the ratings list to create additional entries for the areas on which the ATMs were situated (known as hereditaments) and invoiced for additional business rates for those hereditaments.
What was appealed?
The Valuation Officers decided firstly that such ATMs were separate hereditaments and second that they were in rateable occupation of the Banks which ran them. As such they were liable for business rates in addition to the rates payable in relation to the host stores.
The ATMs were classified into four categories:
- External ATMs – fixed machines with an opening in external walls, available 24 hours a day accessible by the general public;
- Internal ATMs – only available for use within the stores during opening hours;
- Convenience store ATMs – similar to external ATMs, but taking up more overall floor space in smaller convenience stores, with greater interference with the stores’ operations; and
- Moveable ATMs – machines which can be unbolted and moved without difficulty.
The Valuation Tribunal at first instance held that all the ATMs were in separate rateable occupation by the ATM operators. This decision was upheld by the Upper Tribunal (Lands Chamber), in relation to the External ATMs but overturned in relation to the Internal ATMs. On appeal, the Court of Appeal decided that none of the four categories of ATMs were separately rateable.
The Valuation Officers appealed that decision to the Supreme Court.
What did the Supreme Court decide?
The Court considered two main questions:
- Whether the ATM sites were separate hereditaments from the stores for rating purposes?
The Court considered the established definition of a hereditament as “a self-contained piece of property (i.e. property all parts of which are physically accessible from all other parts, without having to go onto other property)”.
Having done so, it endorsed the judgments of the Upper Tribunal and Court of Appeal that External, Internal and Convenience Store ATMs formed separate hereditaments, whilst moveable ATMs did not.
- Whether the retailers or the ATM operator companies are in rateable occupation?
The Court found that the retailers had retained occupation of the stores and in each case it decided, the retailer was the rateable occupier. Even though the retailers had conferred rights to use the ATM sites on the ATM operators, the ATMs advanced the general business purposes of the retailers.
The Court commented that the Upper Tribunal had been entitled to find that both retailers and ATM operators derived a direct benefit from the ATMs and “shared the economic fruits of the activity for which the space was used”, to support its conclusion that internal ATMs remained in the primary occupation of the retailers.
The Court also confirmed that there was no relevant difference between external and internal ATMs for the purposes of establishing who was in rateable occupation. Whilst an external ATM is available to a wider market at all times, it is no less part of the retailer’s premises.
What are the effects of the judgement?
The Court’s decision is a victory for retailers, who will not be subject to an additional liability for the ATMs and who can reportedly look forward to a substantial rebate in overpaid business rates. This will be particularly welcome in the increasingly challenging retail climate, exacerbated by the COVID-19 pandemic.
The decision should also help preserve the wider availability of ATMs at stores, which should benefit the general public after it had suspected that an additional liability for business rates could lead to many of the ATMs removal.
In a wider context it may be worth retailers considering how far the principle can be extended outside the scope of ATMs. Are there other structures or freestanding fixtures incorporated within their premises that are currently subject to a separate ratings liability? If so, it would be worth investigating whether by analogy there should be a separate ratings liability for these hereditaments.
For contracting parties and practitioners, whilst the decision offers some clarity on how such a situation is to be assessed, it remains good practice to ensure that the contract expressly provides for which party will bear liability for non-domestic rates, in the event they are found to be payable.