Are adjacent commercial properties in common occupation, but divided by a service area, to be treated as one unit or two for business rates purposes? The Upper Tribunal (UT) has tackled that thorny issue in a case that clarified the law and will have significant financial consequences.

The case concerned two suites of offices in the same building. They were occupied by a single tenant but were separated by a 1.3-metre-wide fire escape corridor which was under the landlord’s control. A local authority valuation officer (VO) took the view that the suites should be treated as separate units and entered them in the rating list accordingly.

The tenant’s appeal against that decision was subsequently upheld by the Valuation Tribunal for England, which found that the two suites constituted a single unit for rating purposes. That ruling promised a significant saving for the tenant in that the rateable value of the combined suites was substantially lower than would have been the case had they been listed separately.

In ruling on the VO’s challenge to that outcome, the UT noted that the issue hinged on Section 64(3ZD) of the Local Government Finance Act 1988, which states that commercial premises in common occupation are to be treated as contiguous – and thus a single unit for rating purposes – even if there is a ‘space’ between them that the tenant does not own or occupy.

The UT found that, on a true reading of that provision, the word ‘space’ means a compartment or void within a wall, fence or other means of enclosure, or a space between storeys that is not itself a storey. The fire escape corridor did not fall into that category.

The UT ruled that two occupied units on the same floor can only be viewed as contiguous if some or all of a wall of one forms all or part of the wall of the other. As the two suites in question were not at any point on opposite sides of a common wall, the statutory criteria were clearly not satisfied. Even if service pipes above the corridor’s ceiling linked the two suites, that did not change the position. The VO’s appeal was allowed and the suites’ separate listings restored.