Prosser v Ricketts and single assessment/small business relief

Small Business Rates relief entitles a ratepayer occupying a hereditament with a rateable value of not more than £12,000, to a 100% reduction in their rates bill.  Therefore, for a small business owner, or the occupier of a smaller hereditament, it is a valuable form of relief.

In Prosser v Ricketts a barristers’ Chambers brought an appeal before the Upper Tribunal arguing that the rooms occupied by the individual members of Chambers were not part of a single hereditament but a number of individual hereditaments which qualify for small business rates relief.

The appeal premises

The premises in question were the ground floor and basement of a property in Bedford Row, London.  The ground floor was split between a reception area and seven individual barrister's rooms.  In the basement, there was a seminar room, an ancillary administration room and a room allocated for the use of pupils.

The premises were held under two leases in materially the same terms.  Both leases were granted to four of the members (jointly referred to as "the Tenant") on a trust of land.

Importantly, the Tribunal heard that since 14 May 2012, the members of Chambers adopted a constitution (the “Constitution”) which each member was required to sign up to.

The arguments raised

In the recent Court of Appeal decision in Ludgate House the Court held that the exercise of "general control" was the critical factor in establishing who was in rateable occupation.

Counsel for the barrister’s Chambers sought to persuade the Tribunal that the members each had control and exclusive occupation of their own rooms which were therefore separate hereditaments. He made the following points:

• members had exclusive occupation and use of their room.
• members cannot be required to move or give up their room nor can they be required to share it.
• members occupy their own rooms for the purposes of their respective businesses.
• members make minimal use of their rooms for other purposes.
• there are no controls over what use members may make of their rooms.
• there is no connection between a member being allocated their own room and their willingness to participate in the management of Chambers' or co-operate in Chamber's activities.
• members are free to decorate and furnish their rooms as they choose.
• members had spent large sums furnishing and decorating their rooms and would not have done so if there was a risk that they might be required to move or share.

In contrast Counsel for the Valuation Officer stressed that consistent with the decision in Cardtronics (Victory for retailers – no additional business rates liability for ATMs in retail stores (cms-lawnow.com)) the Tribunal should focus upon the wider context and not the specific arrangements regarding individual rooms.

What did the Upper Tribunal decide?

The Upper Tribunal placed particular significance upon the following two factors:

1. Members were bound together by the Constitution, which they had agreed to.
2. Clause 46 of the Constitution expressly stated that the premises were held on trust for all members.

In the Tribunal’s view occupation of the premises as a whole was a shared purpose of all of Chamber’s members.  Whilst the members carried out individual practices from the same premises, using the same premises had benefits to each of them (such as the support and administrative services and the sharing of expenses).  None of these uses of different parts of the premises changed the nature of the agreed arrangement.

The Tribunal considered that Chambers, as a whole, had collective control over the premises and the Constitution did not delegate that control of their rooms to the individual members.  Chambers as a whole retained the power to vary the arrangements requiring moving or sharing rooms (and the fact that it had not exercised the power in the adopted policies, or implemented different policies for room sharing or allocation was not determinative of the question of who was in rateable occupation).

The Tribunal emphasised Lewison LJ’s judgment in Ludgate House that assessing who has general control should include a consideration of unexercised rights as well as exercised rights.   Lewison LJ stated, "the question is whether the exercise of the retained rights would interfere with the occupant's enjoyment of the premises he occupies for the purposes for which he occupies them".  The Tribunal concluded that the members of Chambers (as a whole) had retained all their rights of occupation but had allocated between themselves the use of individual rooms. The premises were in the joint occupation of all the members so single rooms were not occupied by individual members. It therefore determined that the premises formed a single hereditament and was not eligible for small business rate relief.

Implications of the judgment?

Whilst perhaps unsurprising, the Tribunal’s judgment serves as a useful reminder of the Ludgate House judgment in terms of the importance the Courts will place upon the element of control and how it will be determined both in assessing the identity of the ratepayer and the extent of the hereditament. Both the factual position and the rights (even if unexercised) included in material documents must be taken into account. Parties and their advisers would be well-advised to carefully revisit the Ludgate House judgment when considering the effectiveness of any rates mitigation schemes.