Exclusive Possession in Serviced Offices: Why It Matters for Business Rates

Serviced offices have become a key part of the UK’s flexible workspace economy. They offer small businesses and start-ups the chance to access professional office space on easy-in, easy-out terms, without the long commitments of a traditional lease.

But one issue often overlooked by both operators and occupiers is business rates liability. Whether the operator pays the entire rates bill, or whether each occupier becomes liable (and can claim Small Business Rates Relief), often turns on one legal concept: exclusive possession.

Why Exclusive Possession in Serviced Offices Matters

Business rates are a major cost in commercial property. For serviced office providers, the way liability is assessed can fundamentally change the financial model:

• If the operator is in rateable occupation of the whole building, the local authority will treat the entire property as one “hereditament,” meaning the operator shoulders the business rates. These costs must then be recovered indirectly from licensees through higher licence fees.
• If occupiers each have exclusive possession of separate, self-contained rooms, those rooms can be separately assessed in the Rating List. In practice, this means:
  • Each occupier is directly liable for rates on their own unit.
  • Many small businesses benefit from Small Business Rates Relief (up to 100% if the rateable value is £12,000 or below).
  • The operator avoids a large, centralised rates bill, keeping its tax overhead much lighter.

For most serviced office businesses, showing that occupiers enjoy exclusive possession of their rooms is the key to reducing tax exposure.

The Legal Backdrop: Cardtronics and Ludgate House

Two recent appellate cases are shaping the VOA’s (Valuation Office Agency) approach to serviced offices.

Cardtronics Europe Ltd v Sykes [2020] UKSC 21

This case concerned ATMs in supermarkets. The Supreme Court held that the party with “paramount control” of the space is the occupier for rating purposes. Even though supermarkets owned the premises, Cardtronics was in control of the machines, staffing, and trading risks. Paramount control won the day.

Lesson: Occupation depends on who really controls the space, not just what the paperwork says.

LB Southwark v Ludgate House Ltd [2020] EWCA Civ 1637

Here, a tower block was “let” to property guardians under licences. In reality, the operator could move guardians around at will, retained overall possession, and controlled access. The Court of Appeal held the guardians did not have exclusive possession. The operator was the occupier for business rates.

Lesson: Courts and the VOA will look past labels. If agreements allow the operator to override or displace occupiers, there is no exclusive possession.

How Serviced Office Businesses Can Show Exclusive Possession

To avoid the VOA treating the whole building as one hereditament, serviced office operators need to demonstrate that each room is genuinely occupied by its tenant. That requires attention to agreements, physical layout, and day-to-day practice.

1. Drafting Agreements

• Use licences that grant exclusive possession of a defined office.
• Avoid clauses that let the operator move occupiers at will.
• Reserve rights of entry only for repairs, inspection, or statutory obligations.
• Make clear that cleaning, reception, and other services are ancillary.

2. Physical Set-Up

• Provide lockable rooms with keys or fobs held by the occupier.
• Ensure offices are individually identified (Room 2A, First Floor).
• Where possible, add separate meters or postal addresses to support the separateness of each unit.

3. Operational Practice

• Occupiers should control access to their rooms.
• The operator should not routinely swap or shuffle occupiers between rooms.
• Entry by the operator should be limited, scheduled, and justified.

4. Evidencing to the VOA

When challenged, operators should be ready to show:

• The licence agreements.
• Floor plans with demised areas marked.
• Evidence of exclusive use (keys, utility records, correspondence).
• Statements explaining that occupiers are not displaced or rotated.

The Commercial Pay-Off

By ensuring occupiers have exclusive possession:

• Occupiers benefit: Small businesses often pay no business rates at all thanks to reliefs.
• Operators benefit: They avoid being saddled with a single, large business rates liability, which can be one of the heaviest overheads in running a serviced office building.
• Tax efficiency is maximised: The cost of rates is shared fairly, rather than centralised.

In short, exclusive possession is not just a legal nicety. It is central to the financial viability of many serviced office businesses.

Final Thoughts

The VOA increasingly relies on Cardtronics and Ludgate House to argue that operators retain control and should be rated on the whole. To stay ahead, serviced office providers should carefully design their licences, their buildings, and their operations so that exclusive possession rests with the occupier.

At Jonathan Lea Network, we advise workspace operators on structuring their agreements and premises to withstand VOA scrutiny. Getting this right can mean the difference between a competitive, tax-efficient business model — and one weighed down by unexpected business rates bills.

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Please email wewillhelp@jonathanlea.net providing us with any relevant information ensuring that any call we have is as productive as possible or call us on 01444 708640. After this call, we can then email you a scope of work, fee estimate (or fixed fee quote if possible), and confirmation of any other points or information mentioned on the call.