Rates are typically one of the top five expenses of barristers’ chambers and yet there is little discussion of them in this niche sub-sector of the wider property market. The recent case of Pump Court Tax Chambers highlights some important issues that barristers face in grappling with what is often considered an arcane property tax.

The aim and purpose of this article is to explore and explain the decision – what was decided and why – for readers who may not be well-versed in the law of Rating and Valuation but are interested in the rating assessment of a barristers’ chambers.

So, what are rates, how are they calculated, why are they payable, and by whom?

Non-Domestic Rates (aka ‘Business Rates’) (‘rates’) are a tax based upon the occupation, and not the ownership, (save where the property is unoccupied and empty) of a ‘hereditament’ (Local Government Finance Act 1988, ss 43-44 (occupied), 45-46 (unoccupied) and 65 (Owners and Occupiers)). A hereditament is a unit of property shown as a separate item in the relevant local rating list compiled and maintained by the Valuation Office Agency (‘the VOA’).

What makes the correct identification of both ‘the hereditament’, and the ‘rateable occupier’ of it critical, is because rates liability is, approximately, 50% of rental value (LGFA 1988, Schedule 6 Non-Domestic Rating Valuation). Additionally, the complex web of ‘exemptions’ and ‘reliefs’ are each contingently ‘triggered’ based on these two key concepts in the law of Rating and Valuation. In this case, identifying the hereditament(s) and the occupier(s) of it(them) are interrelated.

Overheads and accommodation costs

For most barristers, rates are a significant component of the total ‘property’ or ‘accommodation costs’ of rent, rates, and service charges, to be found from their gross fee income.

By its recent decision, the Valuation Tribunal for England (‘the VTE’) dismissed the appeal of Kevin Prosser KC, Head of Pump Court Tax Chambers (‘PCTC’), from the Valuation Officer’s (‘VO’) decision that the basement and ground floors of 15 Jockey’s Fields, London WC1R 4BW constituted a single hereditament in the occupation of PCTC with a rateable value of £152,000 on 1 April 2017. (The commencement date of the previous rating list, the current list having been born on 1 April 2023.)

The judgment will be of interest to the self-employed Bar and all those with responsibility for the management and administration of chambers (VTE President, Mr Gary Garland, 26 April 2023).

Why appeal?

The 27-page decision contains a detailed factual account of the operation and constitutional arrangements of PCTC which will be immediately familiar to a self-employed barrister practising from a set of chambers. What the decision does not reveal is why the appeal was brought.

At first blush it may be asked why would PCTC contest the VO’s rating assessment of £152,000 by arguing for split assessments with a higher cumulative RV figure of £156,450? The answer lies in the small business rate relief scheme. A hereditament with a rateable value (‘RV’) assessed at £12,000 or less, results in a ratepayer receiving a 100% reduction in their rates bill. For a hereditament with a RV of between £12,001 and £15,000, tapered relief applies (Article 3 of the Non-Domestic Rating (Reliefs, Thresholds and Amendment) (England) Order 2017 (2017/102)).

Of the seven individual barristers’ rooms proposed, six had RVs of £12,000 or less, while the seventh had a suggested (and, had the appeal succeeded, agreed) RV of £14,500.

PCTC’s proposal and the rating system

If a ratepayer wishes to challenge its rating assessment, it takes this up with the VOA, usually via a rating surveyor, under a procedure now known as Check, Challenge and Appeal.

Knight Frank’s proposal/challenge on behalf of PCTC (30 July 2020) sought a split of the assessment into multiple small units; nine hereditaments with a total combined RV of £156,450 (Reception ground floor, Rooms 1-7, and basement rear North and South). PCTC’s proposal was not accepted by the VO and hence the appeal (Decision notice 11 August 2022).

Had the appeal been allowed only the reception ground floor – RV £44,500, together with the basement rear North and South – RV £28,500 (and a modest rates bill after tapered relief for Room 5) would have been payable.

Accordingly, if successful PCTC’s rates bill would have reduced from £152,000 pa to £73,000 pa payable from 1 April 2017, and for each subsequent year of the life of the 2017 rating list. Rates are paid first to the billing authority, Camden London Borough Council, and then returned later in the event of a successful appeal.

It would seem, had the appeal succeeded, that the three named tax silks, together with three tax juniors, as the putative individual ratepayers, would have achieved a considerable reduction in their individual contributions payable to PCTC. One possible further nuance is that as one silk apparently occupied two of the rooms his ‘combined rateable occupation’ may have taken him above and over the small business rate relief threshold.

Framing of the issues

The VTE framed the issue as: whether the individual rooms were occupied exclusively by the individual barristers/members of chambers, or was PCTC in rateable occupation as they had paramount control over the use of the room(s)?

The facts

PCTC left Pump Court, Temple moving to 15-17 Bedford Row in 1991. It acquired the premises at Jockey’s Fields in 2000, on two reversionary leases held in the names of four members of PCTC on trust for its membership.

Constitutional and occupational arrangements

The description in the Tribunal’s decision of how PCTC operates will resonate with readers. PCTC is an unincorporated association set up by a group of self-employed barristers as a means of sharing the costs of premises and administrative services including clerks and other staff. The global cost of running PCTC is shared by its individual members who contribute to ‘a pool’ to fund such costs.

PCTC has a constitution, management and other committees, which set out the detailed terms of membership. Each member was entitled, but not obliged, to occupy an individual room paying an ‘own room contribution’ calculated to cover the rent and rates costs based on its floor area, ‘banded’ according to size – £28,000 for the largest room, £18,000 for the next size, £13,500 for a medium sized room, and £9,000 for a small room.

The concessions for a tenant starting in practice, together with expectation that the more senior members would occupy the larger and more expensive rooms, are again features of the ‘common model’ of how barristers’ chambers traditionally operate (paras [9]-[28] contain a more comprehensive explanation). PCTC charges its members a single composite sum to include rent, rates and service charges (para [8]).

Setting the scene

Following a report from the billing authority the VO had ‘merged’ the several hereditaments into a single hereditament with an assessed RV of £152,000. This was because the premises comprised several contiguous rooms within the basement and ground floor all occupied and used by PCTC for the provision of legal advice and representation by barristers specialising in the law of taxation. Hence, as a question of fact, applying the conventional legal tests the VO concluded the premises comprised a single hereditament occupied by PCTC.

The rival arguments

On behalf of PCTC it was contended that each individual barrister’s room fell to be assessed as a single individual hereditament and that the ratepayer was the individual barrister who occupied such a room on 1 April 2017 – being both ‘the material day’ and ‘the effective date.’

On behalf of the VO, it was contended that merely because each individual room passed ‘the geographical or cartographic test’ that did not mean each named individual barrister was in rateable occupation of his room or rooms. (Geographical or cartographic test explained by Lord Sumption in Woolway (VO) v Mazars LLP [2015] UKSC 53 as asking if the putative hereditament constituted a single self-contained unit on a plan.)

PCTC remained in ‘paramount occupation’. That was so because PCTC was the lessee of the premises. The individual rooms constituting the demised premises were offered, and allocated, on an informal basis to individual barristers. If a barrister was a member of PCTC they were entitled, but not obliged, to take a room. As a matter of custom and practice the more senior members generally occupied the larger and more expensive rooms.

The hereditament

The statutory definition of ‘hereditament’ is found in the General Rate Act 1967, s 115(1):

‘… such a unit of property which is, or would fall to be shown as, a separate item in the valuation list.’

As observed by Lord Neuberger, this definition is to some extent circular.

He then discussed the relationship between ‘the geographic test’, as an aspect of recognition that lands and heritages are physical subjects (Scottish Lands Tribunal decisions) and the inter-related question of by whom and how the premises are, in fact, occupied ([46]-[49] Mazars op. cit.).

The rateable occupier

As famously stated by Lord Russell of Killowen in the leading case of Westminster City Council v Southern Railway Co, The Railway Assessment Authority and WH Smith and Sons Ltd [1936] AC 511:

‘The occupier, not the land, is rateable; but the occupier is rateable in respect of the land which he occupies.’

The four essential ingredients for determining whether an occupier is in rateable occupation have long been settled since the decision of the Court of Appeal in Laing (J) & Son v Kingswood Assessment Committee [1949] 1 KB 344: namely, (1) actual occupation; (2) exclusive occupation; (3) beneficial occupation; and (4) occupation for not too transient a period.

Occupied for wholly different purposes?

The VTE decision focused on the problem PCTC faced in that ordinarily a successful ‘split assessment’ required the putative smaller units to be occupied ‘for wholly different purposes’ which feature was not present because:

‘… all members of chambers were occupying the premises under the umbrella of chambers as a whole, albeit they had their own individual rooms.’ (paras [32]-[36])

Why did the VTE dismiss the appeal?

The President’s essential reasoning for dismissing the appeal was: although the individual rooms could, in theory, constitute separate hereditaments individually assessed, that could only be so if each individual barrister was in rateable occupation. Mr Gary Garland, held [67]:

‘Applying sound common sense when looking at what was happening on the ground, it was clear to me that there was no rivalry between the individual barristers and chambers as a whole, in the use of rooms. Even though each individual barrister operated as a separate business entity, none of them truly operated independently of Chambers as a whole. Probably, the only time they acted independently was in giving confidential legal advice to their clients or representing them in tribunal or court. For virtually all other matters they were hugely reliant on the shared clerk and administrative support provided by Chambers as a whole, without whom they simply could not function. Clerks were effectively the business managers and managed their diaries, they also managed the invoicing and banking of receipts. The relationship between the individual barristers and chambers was intertwined and symbiotic.’

Appeal to the Upper Tribunal (Lands Chamber)

The appeal failed, but the case is now on appeal to the Upper Tribunal (Lands Chamber). Such an appeal is a fresh hearing which allows new witnesses and arguments to those deployed before the VTE. Readers are advised to watch out for the decision.

Because the 2023 revaluation, based on the antecedent valuation date 1 April 2021, has resulted in significant increases in the RVs of many barristers’ chambers the decision of the Upper Tribunal is eagerly awaited.