ATM’S not liable for Additional Business Rates
May 28, 2020
The Supreme Court has upheld the Court of Appeal’s decision that cash machines (or ATM’s) situated in shops and supermarkets are not rateably occupied separately from the host stores.
The ruling means that there will no longer be a separate rates bill for ATM’s hosted in shops and convenience stores. Some estimates put the total of reimbursements due from local authorities at £430m. Not surprisingly, retailers have claimed that this will provide a boost to high street business, as research shows the majority of ATM users spend the money they withdraw in the store which hosts the machine. Conversely, local authorities are left with the very substantial cost of reimbursing rates paid at a time of collapsing rates receipts.
Lord Carnwath noted that the treatment for rating purposes turned on two main issues:
- Were the sites of the ATM’s properly identified as separate hereditaments from the stores or shops? And;
- If yes, who was in rateable occupation?
Some 34,000 appeals had been stayed pending the outcome of this case.
It was striking that at each level below, different conclusions had been reached. The Valuation Tribunal decided that in each case the sites of ATM’s were in separate rateable occupation. The Upper Tribunal (Lands Chamber) upheld that decision in respect of all “external” (or hole-in-the-wall) machines, but not “internal” (or in-store) machines. The Court of Appeal held that none of the machines, external or internal, were separately rateable.
Lord Carnwath described the typical arrangements for “external” ATM’s. They are available for use whether or not the store is open. They are installed and operated by a separate (but sometimes related) banking company for regulatory reasons, although they are refilled by staff of the store with cash held in the store’s cash-room, and run on the store’s power supply. The contractual arrangements between the store and the bank are generally in the form of a licence agreement, although this was not held to be significant for rating purposes. As a consequence of the Upper Tribunal’s decision, they had become separately rateable. For example, Sainsbury’s in Worcester had had a rateable value of £875,000.00 for “Store and Premises”. After the decision, it had been re-rated as £875,000.00 for the store alone and £8,300 for the ATM site.
Arrangements for “internal” ATM’s are for practical purposes the same, except that they are only accessible during store hours.
“Convenience store ATM’s” again are broadly the same except that their maintenance and operation causes greater interference with the running of the store.
The applicable legal principles – S.64(1) Local Government Finance Act 1988 adopts the definition of hereditament in s.115(1) 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.”
Authoritive guidance as to the application of that definition has been given by the Supreme Court in Woolway (Valuation Officer) v Mazars LLP  UKSC 53
As to rateable occupation, s.65(2) of the 1988 Act also adopts the law under the 1967 Act and in turn the classic definition in John Laing & Son Ltd v Assessment Committee for Kingswood Assessment Area  1 KB 344 which held that the four necessary ingredients of rateable occupation are:
- Actual occupation
- Exclusive for the particular purposes of the possessor
- The possession must be of some value or benefit to the possessor
- The possession must not be for too transient a period.
Lord Carnwath then considered a number of historic authorities on the issue of “exclusive” occupation in the context of concurrent occupation. In Holywell Union Assessment Committee v Halkyn District Mines Drainage Co  AC 117 Lord Herschell noted that there are many situations where two persons may be said to occupy the same land. A person in possession may give to another possession of part of the premises. For example, a landlord may be said to be in “paramount” occupation and the occupation of the lodger may be said to be “subordinate”. Lord Russell in Westminster Council v Southern Railway Co  AC 511 noted, in the context of retail units at a railway station, that the question in every such case is one of fact, namely whose position in relation to occupation is paramount and whose position in relation to occupation is subordinate. If an owner of a hereditament (being also in occupation) retains to himself general control over the occupied parts, the owner will be treated as being in rateable occupation. If he retains to himself no control, the occupiers of the various parts will be treated as in rateable occupation of those parts.
Whilst he cautioned against the “danger of over-analysis” of the decided cases, Lord Carnwath did note that the concepts of “paramount” and “subordinate” occupation lay at the heart of the second issue in this case, namely who was in occupation.
As to the first issue – identifying the hereditament – the arguments gave rise to two aspects:
- The retailers submitted that the boundaries of a hereditament could not be defined by reference only to the presence of a piece of machinery that was not itself liable to be rated. By virtue of the Valuation for Rating (Plant and Machinery) (England) Regulations 2000 (SI 2000/540), an ATM has no effect on the rateable value of the hereditament upon which it is sited. The retailers argued that an ATM, being “non-rateable plant”, must be disregarded for all purposes, including the identification of the hereditament. This argument was not accepted by the Court of Appeal, and Lord Carnwath agreed. The Upper Tribunal was right to say that the presence of non-rateable machinery, such as an ATM, should not be ignored when determining whether a separate hereditament exists.
- Secondly, the retailers argued, it followed from the inability to define the area of the purported hereditament that the geographical test in Woolway could not be satisfied. Lord Neuberger had in that case referred to a hereditament as:
“a self-contained piece of property (ie property all parts of which are physically accessible from all other parts, without having to go onto other property)…”.
It was argued by the retailers that the site of an ATM did not satisfy this description because it was not self-contained and was unusable without extensive use of the adjoining parts of the host store for servicing and access by the public. Against this, the Valuation Officers argued that there was no difference in principle from separate shop units in a shopping centre which would undoubtedly qualify as separate hereditaments even though they are dependent for some purposes including access on other parts of the shopping centre. The Supreme Court agreed with the Upper Tribunal’s view that:
“Once a machine has been installed, there should be no difficulty in defining the boundaries of a fixed ATM site with sufficient precision to satisfy the geographic test of self-containment.”
The key submission of the retailers was that the ATM service was not a distinct business activity but an integral part of the business activity of the store. It was no different, say, from the provision of photo-booths or coin change machines. The situation was therefore clearly distinguishable from Southern Railway where selling newspapers was no part of the railway company’s business. There were therefore no competing candidates for identification as “paramount” occupiers. One starts from the position that the retailers were in exclusive occupation of their stores. One then asks how that has been affected by the transfer of operation to an associated company, and the limited possession given of ATM sites. The retailers argued that, like a landlord, the retailer retains control of the whole premises and the ATM remains part of the overall business.
The Valuation Officers argued that this was the wrong approach. It is necessary to focus on the ATM sites in question and ask whether the degree of control exercised by the host interferes with the enjoyment by the ATM operator of the site of the ATM for the purpose for which it is occupied, to the substantial exclusion of all other persons. The answer was that the presence of the bank through its ATM excludes the host from any occupation of the ATM site for the same purpose, and excludes the host from any beneficial occupation of the ATM site for any other purpose.
The Supreme Court preferred the analysis of the retailers. The Upper Tribunal was entitled to find on the evidence that the retailers retained occupation of the ATM sites. The stores had not parted with possession of the ATM sites, but had conferred rights on the banks that restricted its use of that small part of the premises in order to further its own business and provide an income, rather in the same way that a landlord remains in rateable occupation of a single hereditament even though he confers rights on a lodger. There was no reason, the Supreme Court held, for treating internal or external machines differently.
The decision will come as a welcome relief to retailers, but as a blow to local authorities who now face a substantial bill for reimbursements owed as a consequence.
It also shows how, as Lord Carnwath said, whilst the law has shown itself adaptable to technological developments over the years, and whilst the core concepts of rating law are well understood, it is not always easy to find precise formulations of the terminology. The principles therefore provide no more than a framework for the evaluation of the facts of any particular case.