Ups and downs of the “staircase tax”

Downs – the consequences of Woolway v Mazars 2015

For years, firms in adjoining units or rooms received one rates bill, but following the decision in Mazars v Woolway, they have faced multiple business rates bills for operating in an office linked by a communal lift or stairs.

The “staircase tax” is a colloquial term given to the effects of the Mazars case. The facts of this case are that Mazars LLP occupied the second and sixth floors of Tower Bridge House (an eight storey office block in St Kathryn’s Way, London) under separate leases, and the floors were separated by common areas. In 2005, the second and sixth floors of Tower Bridge House were entered as separate hereditaments in the rating list. In February 2010, Mazars successfully applied to the Valuation Tribunal for England for the merger of the two entries to form a single hereditament for the purposes of setting business rates. On appeal by the valuation officer (Mr Woolway) the Upper Tribunal (Lands Chamber) confirmed the decision of the Valuation Tribunal. The Court of Appeal dismissed a further appeal by the valuation officer, who then appealed to the Supreme Court. The Supreme Court then decided that each floor in a multi-occupied building should be subject to a separate rates bill, even where immediately above or below another floor occupied by the same entity, unless linked by a private staircase or lift.

A further consequence of the Mazars case decision is that business ratepayers who were eligible for Small Business Rate Relief but have seen their property split into two parts as a result of the Mazars case, may have lost the relief because they are now considered as having two or more hereditaments and are accordingly not eligible for the relief. It is estimated that up to 1,000 ratepayers could have been affected by the loss of Small Business Rate Relief.

Ups – new legislation

This “staircase tax” has unfairly affected many businesses. The Government surprised the rating world by announcing in the autumn 2017 budget that legislation would be introduced to restore the practice of the Valuation Office prior to the Supreme Court decision in the Mazars case. A consultation process has already been held and a draft Bill has been published. The current status of the Bill is that it went for its second reading at the House of Lords on the 4 June 2018. When the new Act is in force, floors will be treated as one provided they are occupied (or, if vacant, were last occupied) by the same entity and are “contiguous”. Contiguous means here that they either touch or are separated only by a void (e.g. a raised floor accommodating landlord’s services).

Further good news is that the Act will apply retrospectively with effect from 1 April 2010. Once the Bill receives Royal Assent and the appropriate secondary legislation is in force, ratepayers will be able to approach the Valuation Office Agency to have the provisions applied.

If you require further assistance, please contact the Edwin Coe Property team.

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