Delineation of Adjoining Tenements

Delineation of Adjoining Tenements 1400 789 Dwyer Lynch & Co
This note discusses the implications of the UK Supreme Court judgment in the case of Woolway v Mazars (2015) on the delineation of adjoining hereditaments [tenements].

Occupiers of large premises currently receive a substantial discount on their rates due to quantum. This is on the basis that a large occupier would pay less in rent per square foot than smaller occupiers.  However, this may soon change, resulting in substantial increases in rates payments for such occupiers. We understand that the Rating and Valuation Department (“RVD”) will have sought to reassess all combined assessments and revalue them as if they were multiple smaller premises. Occupiers’ rates – and government rent, where it is charged – could consequently increase by as much as 40%.

We believe that the reasoning behind this change of practice is poorly considered and that there are grounds to challenge the RVD’s proposed change. This is because the rules determining the boundaries of what is rateable in the UK are different from those in Hong Kong. The unit of assessment in Hong Kong (the “tenement”), is clearly defined whereas the UK “hereditament” has never been defined in legislation and has necessarily been shaped and defined instead in the courts.

Therefore, the UK courts’ interpretation of the physical parameters of a hereditament would appear to be redundant in Hong Kong and should not apply.

With regard to the practical considerations at hand, once the RVD have begun to de-merge multiple floor assessments, ratepayers will be notified either at the General Revaluation which occurs each year in April or through an Interim Valuation which may be at any time during the year. In both instances, those liable for rates and government rent are entitled to object to these new assessments and we would recommend a consideration of such a course of action if the assessments are too high.

The Case

The reason for this change of practice has come from the UK Supreme Court decision of Woolway v Mazars[1] back in July 2015 where that court issued a judgment on the tests to be applied with regard to combining adjoining hereditaments. (The term ‘hereditaments’ – the UK equivalent of the Hong Kong tenement – as a unit of rating assessment has been applied in this briefing note only when utilised in the context of UK rating law.)

Due to the lack of a clear statutory definition of a hereditament, the UK Supreme Court stepped in to issue guidance in place of legislative authority. It stated that, where previously the test was one of pure contiguity (i.e. two horizontally or vertically adjacent spaces), this would be further refined into ‘the primacy of the geographical test and the subordinate character of the functional test’.

The geographical test was decided to be based on ‘visual or cartographic unity’, as opposed to contiguity, per se. Thus, this unity is to be inferred when direct communication is possible between the two spaces, for example, ‘by piercing a door or staircase’, as the self-contained nature of two contiguous yet geographically unlinked spaces will prevent a single hereditament.

The functional test, to be relied upon should the geographical prove indecisive, will be satisfied where the use of one space is necessary to the effectual enjoyment of the other, also taking into consideration whether the two sections could reasonably be let separately. This effectual enjoyment, in line with the court’s hesitation to rely on the functional test, must be inferred not on the business needs of the ratepayer, but on the objectively ascertainable character of the spaces. This is because rates are a tax, not on the business (of the particular occupier), but on the occupation of property.


This leads to an evaluation of the potential impact of this decision on the state of tenements in Hong Kong. This is governed in Hong Kong by the Rating Ordinance (“RO”),[2] which largely follows corresponding UK legislation but contains some key differences with regard to the definition of the unit of assessment.

In summary, we are of the opinion that the decision in Woolway v Mazars is simply not applicable in Hong Kong as its implications clearly contradict existing legislative provisions in Hong Kong governing the same issues.

The two operative provisions of the RO are contained within sections 2 and 10 and appear to be clear and unambiguous with regard to the physical parameters of a tenement: section 2 plainly states that if the subject tenement is held under a (single) distinct and separate tenancy, holding or licence, it should be assessed as a single tenement. In other words, each tenement should be assessed based on the structure of the lease enabling occupation of that property.

Moreover, section 10 directs the Commissioner (of Rating and Valuation) to merge tenements in line, essentially, with the very functional test the UKSC disregarded and considered unhelpful. That clause states that tenements are to be valued together as a single tenement if they are used in connection with one another and the value of one is affected by the value of the other.

This clearly shows the relevance, despite Woolway v Mazars, of the functional test in determining the boundaries of the tenement in Hong Kong. Only the lack of a clear definition in the UK for the hereditament as a unit of rating assessment has the court implemented the convoluted tests as outlined above, whereas the existence of clear guidance in Hong Kong by way of the RO removes entirely the need to refer to these needlessly complex tests.

This note is current as of February 2020 and the legal framework and/or practice may have since changed. This note is solely for internal reference and advisory purposes only. Dwyer Lynch & Co is not qualified to provide legal advice. You should not act or omit to act by reference to or as a result of the contents herein and it is highly recommended that appropriately qualified rating surveyors and experienced solicitors be consulted before doing so.

[1] [2015] UKSC 53.

[2] Rating Ordinance (Cap.116).

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