Rating ATMs and similar facilities

Steven Gasztowicz QC analyses a recent Court of Appeal ruling on the rating of ATMs and similar facilities - or whether ‘Holes in the Wall’ give free money to government.

Where an ATM (automated teller machine) is fitted into the wall of a supermarket, one might as a lawyer instinctively think that, in the absence of specific statutory provision, the ATM or the small space it occupies, useless to the store for other purposes, and ancillary or incidental to the store itself, could not sensibly be regarded as a separately rateable unit of occupation.

However, legal issues like this are not decided simply by the test of common sense of course, but by whatever test is laid down by the courts as to what is and is not separately rateable, having regard to the general statutory background.

In Cardtronics Europe Ltd & Others v Chris Sykes & Others (Valuation Officers) [2018] EWCA Civ 2472 the Court of Appeal on 9th November 2018 reviewed the authorities, laid down the applicable legal test, and decided that on this occasion the result of the application of it accords with common sense. The test is based on “paramount occupation” of the space occupied, and will have implications for other rating situations.

It is appropriate to first set out the relevant statutory provisions.

The Statutory Background

Non-domestic rates are a tax on individual units of property, which have always been termed ‘hereditaments’. Rates are payable by the party who is in rateable occupation of any such hereditament. While a hereditament may be occupied by more than one person, only one occupier may be in ‘rateable occupation’.

Under section 64(1) of the Local Government Finance Act 1988 a ‘hereditament’ is defined as “anything which, by virtue of the definition of hereditament in section 115(1) of the General Rate Act 1967, would have been a hereditament for the purposes of that Act had this Act not been passed”. The relevant definition in section 115(1) of the 1967 Act is “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”.

This does little to assist in relation to things such as ATMs, however. Whether a unit of property is capable of being a ‘hereditament’ in its own right for rating purposes (eg the space occupied by an ATM) as opposed to just part of a larger hereditament (such as a supermarket) is determined by applying legal principles developed by the courts over the years.

The Background Principles

The Court of Appeal in Cardtronics examined relevant rating cases decided in English and Scottish law to date. For present purposes, it is necessary to mention just four of them, decided at Supreme Court/House of Lords level, and binding therefore on the Court.

In Woolway (Valuation Officer) v Mazars LLP [2015] AC 1862 the Supreme Court held that the primary test of whether distinct spaces in common occupation were to be assessed for rates as a single hereditament was a “geographical” test based on visual unity.

However, where two spaces are “geographically distinct”, a functional test falls to be applied. This may mean the two spaces are nonetheless to be treated as a single hereditament where the use of the one is necessary to the effectual enjoyment of the other, This depends not on the business needs of the ratepayer but on the ‘objectively ascertainable character of the subjects’, and may commonly be tested by asking whether the two spaces could reasonably be let separately.

Interestingly, Lord Sumption, with whom the other Justices agreed, said in paragraph 12 of his judgment that, “The application of these principles cannot be a mere mechanical exercise. They will commonly call for a factual judgment on the part of the valuer and the exercise of a large measure of professional common sense”.

The question then arises as to what the position is where distinct spaces are not in the exclusive possession of a single party, but are shared – as in the case of an ATM, where access to the space occupied by it is generally legally, and physically, available to both the machine operator and the store owner.

In the 19th century House of Lords case The Assessment Committee of the Holywell Union v Halkyn District Mines Drainage Company [1895] AC 117 (at p.126), Lord Herschell LC stated that “[where] a person already in possession has given to another possession of a part of his premises, if that possession be not exclusive he does not cease to be liable to the rate, nor does the other become so”. He gave the example of a landlord and his lodger, both of whom “are, in a sense, in occupation, but the occupation of the landlord is paramount, that of the lodger subordinate”.

The distinction between paramount and subordinate occupation was considered by the House of Lords in Westminster Council v Southern Railway [1936] AC 511. In that case, retail units on a station were occupied by independent entities, such as WH Smith & Son, under arrangements with the railway company.

Lord Russell said (at p530): “… The general principle applicable to the cases where persons occupy parts of a larger hereditament seems to be that if the owner of the hereditament (being also in occupation by himself or his servants) 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.” This he called “the landlord-control principle”.

On the question of “control”, he said: “In truth the effect of the alleged control upon the question of rateable occupation must depend upon the facts in every case; and in my opinion in each case the degree of control must be examined, and the examination must be directed to the extent to which its exercise would interfere with the enjoyment by the occupant of the premises in his possession for the purposes for which he occupies them, or would be inconsistent with his enjoyment of them to the substantial exclusion of all other persons.”

The other Law Lords reached similar conclusions. Applying these principles to the facts of that case, they held that the railway company did not retain sufficient control over the bookstalls and kiosks which it let out to others for the purposes of their separate businesses and that the bookstalls and kiosks were therefore properly regarded as separate hereditaments and separately rateable.

Even where machines or structures placed in particular places on land retain their character as chattels, Lord Radcliffe LCC v Wilkens (Valuation Officer) [1957] AC 362, at p378 noted it to be well established that their presence is capable of being a relevant factor in determining the factual question of who is in rateable occupation of the land occupied by them.

The Cardtronics Case

I: Facts

The Cardtronics case involved ATMs placed in Sainsbury and Tesco supermarkets by associated companies (all of whom were parties to the case), and placed in Co-Op supermarkets by Cardtronics itself, which was the first named appellant in the various appeals before the Court of Appeal. Each of the banks, as they may for simplicity be called, had licences from the supermarket owners giving legal rights of access to, and use of, the machines.

II: Upper Tribunal Decision

The Upper Tribunal (Lands Chamber) held [1] that the presence of an item of machinery which in itself was not rateable (by reason of the Valuation for Rating (Plant and Machinery) (England) Regulations 2000), as an ATM is not, was nonetheless in principle a relevant factor in determining whether a defined area occupied by it was a separate hereditament for rating purposes.

It considered that each of the ATMs installed with a degree of permanence in the walls of various stores constituted a distinct physical space, specially designed or adapted for the purposes of the machine, and that this could properly be viewed as amounting to a “unit of property separate from the rest of the store” and therefore capable of being a separate hereditament for rating purposes.

In contrast, in the single case before the Tribunal where the ATM simply stood on the floor of a store, in a floor area that was not in a specially formed or adapted for it, and where it could be readily moved elsewhere, it held the space occupied by it was not capable of being regarded as a separate hereditament. Accordingly, that could not be separately rated.

In relation to the fixed ATM sites, which had the potential to be separate hereditaments, the Tribunal concluded on the facts that both the bank operating the ATM and the store could be regarded as in occupation of the relevant space. This was because whilst the bank had rights to enter and keep the machines on them, the store owner also retained rights of access and had not parted with possession. It held that (at para 170) that it was therefore “necessary to address the question of rateable occupation in the conventional way, by examining the degree to which there is concurrent occupation of the ATM sites and considering which party’s possession is paramount and which subordinate”.

In the two cases where such ATMs were located inside the retail premises, the Tribunal considered that the sites of them were “in the paramount occupation of the Store, and not the Bank” because the service was primarily offered to shoppers in the store not aimed at passing trade and the purpose of the Bank’s occupation of the site was therefore to provide a service to the Store’s customers, which was also the purpose of the Store’s occupation of the whole of the premises including the site. By its control of the opening hours of the premises the Store also limited the use which may be made of the ATM by the Bank. An internal site, even one which has been designed or adapted to house an ATM, would also be “likely to be more easily relocated elsewhere in the store than an external hole in the wall site”.

In the Tribunal’s view, these considerations were “sufficient … to justify treating the Store as the party in paramount occupation of the area in question”.

However, it held that in relation to the external ‘hole in the wall’ ATMs, where the sites were identifiable as separate units of property, and were accessible by the public at large without entering the store, there was no need to consider the occupation of the store as a whole. What mattered, it held, was “the purpose for which the ATM has been installed on the external wall of the building”, which was to make cash facilities available to members of the public, whether they were customers of the store or not.

III: Court of Appeal Decision

The Court of Appeal (through Lindblom LJ at para 54) held that the Tribunal was right to conclude that the presence in a specific area of an item of machinery, though non-rateable in itself (by reason of the 2000 Regulations), such as an ATM, was nonetheless a relevant factor to take into account in determining whether the area containing it constitutes a separate hereditament for rating purposes. Once a fixed ATM (which will comprise the box visible to the public and the associated machinery on the floor below and behind it) has been installed, that is capable of defining the boundaries of a geographically separate self-contained site. This was consistent with Woolway v Mazars. Where the unit is mobile, however, only if there was a “sufficient right of occupation” of the specific area of land on which it was physically placed as a specific unit of property (as opposed to a right to access to the machine wherever placed on the floor) could it be capable of being a hereditament, or “separate unit of occupation”.

In relation to the fixed-site ATMs, the Court also agreed (at para 81) that the Tribunal was correct in treating both the retailer and the bank as being in concurrent occupation of the areas occupied by them, and that the question, in accordance with the established case law (above), was therefore which was in “paramount occupation” of those areas (para 83).

The Court (at para 87) held that the Tribunal had gone wrong, however, in that the question of “paramount”, and therefore rateable, occupation is not resolved in such a situation by examining each party’s underlying purpose. The store owner and the bank had a common purpose in wanting an ATM in operation in its location at the store, whether they each had different reasons for this or not. Weighing one party’s underlying purpose against another’s, to arrive at a ‘dominant’ or ‘primary’ purpose, formed no part of the test in the decided cases. The question is to be decided instead by the application of the “general control” principle, as referred to in the Southern Railway case (above).

On a straightforward application of the “general control” principle to the facts as set out by the Tribunal, in relation to both the internal and external ATM sites, the store owner had not parted with its possession and retained sufficient control of the site, in contractual, physical and functional terms, to be regarded as remaining in rateable occupation of it (para 88).

There was nothing to demonstrate that the retailers had ceded “general control” of the areas occupied by the ATMs to the banks. The bank and the retailer had “a mutual interest in providing ATM services, and both derive a benefit from the presence of the machines” and the underlying aims of the bank or of the retailer, in serving either the public generally for the bank’s profit, or customers of the store for its benefit, did not alter this fact.

Accordingly, in all the cases, involving both internal and external ATMs, the retailer, and not the bank, was in paramount occupation of the part of the land occupied by the ATMs, and was therefore in rateable occupation of those areas as part of the wider supermarket site.

The Implications

In terms of the law, it is now necessary for valuation officers, landowners, and those potentially subject to rating decisions, in the case of distinct, definable, spaces within landholdings, where possession is shared, to focus on the question of control of those spaces, however small, rather than on issues such as the “primary purpose” of what is done on them. In relation to this, the whole factual picture must be examined, including looking at what if anything is placed on the land and on what terms.

The principles laid down in the case are not limited in their application to ATMs, but are also potentially relevant to other operations carried out in stores and other premises, such as dry cleaning drop off points or facilities, vending machines, and the like.

In terms of ATMs alone, however, there are obviously large numbers installed around the country in premises other than banks, and indeed Cardtronics alone operates around 16,000 such machines in shops and other premises.

Inclusion of the site of an ATM or other facility in the rating list as a separate hereditament leads to it having its own rateable value, though in most cases without any corresponding reduction in the rateable value of the shop or other premises in which it is located. It remains to be seen whether the light of this, and the amount of revenue cumulatively at stake, the government will seek to appeal the decision.

© Steven Gasztowicz QC

Steven Gasztowicz QC is a member of Cornerstone Barristers, and author of ‘Scamel & Gasztowicz on Land Covenants’ (2018).