Iceland AHU is “tool of the trade”

UK: Refrigerated food retailer Iceland has won a Supreme Court battle to exclude an external air handling plant from the rateable value of the building.

Yesterday’s Supreme Court ruling decided that an external air handling unit serving integral cabinets at an Iceland store in Liverpool was a “tool of the trade” and should be excluded from the rateable value of the property. The decision settles a dispute dating back to 2010, and could have far reaching effects for refrigerated food retailers and others.

The Iceland property in question at 4 Penketh Drive, Liverpool, has around 80 refrigerated cabinets, all but one of the cabinets being integral units. The cabinets are by far the largest single contributor to the stores heat load. In order to handle these heat gains, a large air handling unit with a cooling capacity of approximately 85kW is located outside to the rear of the building.

In 2010, Iceland applied for a reduction on the rateable value of the property on the basis that the air handling unit used in connection with refrigerated goods were “manufacturing operations or trade processes” under the Valuation for Rating (Plant and Machinery) (England) Regulations 2000.

Plant and machinery that forms part of the property cannot normally be taken into account when calculating the property’s rateable value. However, the 2000 Regulations created an exemption for plant and machinery that could be described as part of the “tools of the trade” of the business, rather than as part of the property.

After being turned down, Iceland appealed to a valuation tribunal, which decided the issue in Iceland’s favour. That finding was then reversed by the Upper Tribunal, whose decision was upheld by the Court of Appeal. Both of these ruled that business rates should be calculated on the full value of the retail warehouse including the air handling system because it did not fall within the exemption granted to plant and machinery used in connection with “manufacturing operations or trade processes”.

Iceland finally appealed to the Supreme Court on the issue, which yesterday decided unanimously in the retailer’s favour.

Iceland argued that the Court of Appeal misunderstood the purpose of the legislation and had adopted an unduly restrictive interpretation of the exemption. The trade process was one of continuous freezing or refrigeration of goods to preserve them in an artificial state, without which they would be worthless. The air handling plant was installed to deal with the heat generated by the freezers and refrigerators and was, therefore part of that trade process and thereby excepted from rateability.