Don’t overlook the (cash) point

The humble automated teller machine (ATM) has been making headlines lately. In Cardtronics Europe Ltd and others v Sykes (VO) [2018] EWCA Civ 2472; [2018] PLSCS 194, ATMs were the subject of a Court of Appeal decision on which around £500m in rates refunds depend. The case, which might be reconsidered by the Supreme Court, is discussed in more detail below. Business rates are not the only issue, however. Property owners and occupiers alike must give due regard to the assortment of factors which can arise when agreeing to the placement of an ATM inside or in the external wall of a property. Similarly, investors and those who advise them must be alive to the concerns. In the short to medium term, ATMs appear here to stay due to the government’s stated intent to support consumers’ access to cash for as long as they need it. Currently, there are approximately 70,000 machines in the UK, and the total value of cash withdrawals can exceed £10bn a month. Longer term, ATM usage is likely to dwindle as digital payments increase. The current trend is a 6% year-on-year decline in cash withdrawals since the peak of ATM usage in the third quarter of 2015. Cardtronics Business rates are a tax on individual units of property, or “hereditaments”. Where a hereditament is wholly or partially occupied, rates are payable by the party in rateable occupation. Cardtronics considered the correct approach in law to the rating of a site of an ATM located at a supermarket, shop or petrol station, where the operators of the ATM are different from the occupiers of the shop premises in which it is situated. ATMs in various supermarkets are operated either by banks in the same corporate group as the operators of the stores or by Cardtronics, which has more than 16,000 of its own ATMs, widely located inside smaller grocers and corner shops. The Valuation Office Agency (VOA) had imposed separate assessments on the site of both internal and external ATMs in various supermarket premises, having concluded that they were separate hereditaments in the rateable occupation of the relevant bank operating the ATM. Interestingly, in most cases where the valuation officer had imposed these separate assessments, no reduction in the rates assessment of the main shop premises had been made. As such, this resulted in significantly increased rates bills, estimated to be a rateable value of around £4,000 per ATM. Supermarkets and Cardtronics disagreed with the VOA and argued that the ATM site should be assessed together with the shop premises as a whole. They therefore appealed against the valuation officers’ findings. The Court of Appeal held that sites for ATMs are not to be assessed separately for business rates. In coming to its conclusion, the court did recognise that the actual presence of an ATM could be taken into account in determining whether there was a separate hereditament and that, where there are fixed ATMs, the ATM sites were sufficiently self-contained to form separate hereditaments. Despite this, it held that the supermarkets remained in paramount occupation of the ATM sites and, therefore, there was to be no separate assessment. The VOA has applied for permission to appeal this decision to the Supreme Court, which will now delay the estimated refunds due back to the ratepayers in the sum of £496m until the court decides on whether permission will be granted. This could be as late as the middle of this year.  Other issues for the landowner Security of tenure Where a landowner (whether freeholder or occupational tenant) agrees to the installation of an ATM at its property, one of its first concerns will be to ensure that the ATM operator does not acquire security of tenure, which could fetter future occupational plans or development of the property. Security of tenure will apply where the property comprised in the tenancy is or includes premises that are occupied by the tenant for the purposes of a business carried on by it. Arguably, ATMs would fall into this category. Therefore, if their occupation is not documented correctly by way of a contracted-out lease or their right to occupy has expired and they have remained in occupation carrying out business purposes, the operator is likely to have acquired security of tenure in relation to the ATM site. If security of tenure has been established, landlords can wave goodbye to removing a business tenant quickly and cheaply. A landlord must be able to satisfy one of the seven grounds in section 30 of the Landlord and Tenant Act 1954, one of which is redevelopment which triggers statutory compensation, to oppose a tenant’s right to a new lease. In order to rely on the redevelopment ground, the landlord will need to show that they will redevelop and have supporting evidence to that effect.  Lease issues A common scenario might be where a retailer in a shopping centre wishes to install an ATM within its store. Assuming the store is leasehold, the following further issues should be considered: ν The lease is likely to prohibit or limit sharing occupation and/or parting with possession. It is also likely to govern the granting of underleases. It is therefore probable that the superior landlord’s consent will be required to the grant of any lease or other arrangement with an ATM operator. Retailers should also remember to take into account the ATM lease when considering any restrictions on the number of permitted sublettings and/or total occupiers. On occasion, ATM operators may be group companies (eg the banking arm of a major supermarket) and, in those circumstances, it may be possible to avoid alienation restrictions where group sharing is permitted. ν The user clause should be considered. Are there any restrictions on the use of the premises for financial services? Is the use of a small area for an ATM permitted as an ancillary use to a general A1 user? ν Will the installation of the ATM trigger any restriction on alterations? This is more likely to be the case where an ATM is being embedded within the external structure of a property, rather than where the ATM is free-standing. ν Any sublease to the ATM operator should almost certainly place the burden of insuring the ATM on the operator, but this will need to be considered in the light of the landlord’s/occupier’s own insurance. ν Should the lease to the ATM operator contain a rolling landlord’s break right in case the ATM needs to be moved? This may be more straightforward than attempting to incorporate a provision enabling the relocation of the whole of the demised premises. ν Yielding up: for permanent ATMs fixed in a site, it is likely that initial works will need to be carried out to ensure that the ATMs are fully functional (connected to electrics) and secure (whether it be chained to the floor of a cash room or within its own secure cash room). Consideration will need to be made as to whether works will need to be carried out at the end of the lease in relation to any alterations made to the premises to accommodate the ATMs and whether the costs of those works are payable by the tenant or the operator. All of the above starts to feel like using a sledgehammer to crack a walnut. Not to mention the cost of negotiating and documenting all the consents that might be required under the strict terms of a lease. A better approach when drafting future leases could be to carve ATMs out of all of these lease restrictions from the outset. Might landlords be convinced that it is sufficient simply to require that any leases to ATM operators must be outside the 1954 Act and notified to the landlord? Other considerations for the ATM operator ATM operators will need to address the following: ν Have all requisite access rights been granted? Indeed, is the landowner in a position to grant these rights? For example, in a shopping centre context, does the retailer itself have out-of-hours access rights across the common parts of the shopping centre? ν Where, after 2003, an ATM operator is granted legal easements (most likely to be rights of access to the cash machine), remember that these should be noted on the superior title at the Land Registry, even where any lease to the operator is not itself substantively registrable. ν Where the landowner is a tenant, have all lease restrictions and requirements for consent been addressed (see above)? There is a great deal to consider, and one suspects this is often overlooked in practice by landlords, occupiers and investors conducting their due diligence. Ultimately, the ATM may have a limited lifespan as we move to a cashless society but, for now, ignore the humble ATM at your peril.  Implications of Cardtronics v Sykes For ATM providers, despite the decision initially seeming to help to sustain and protect their business model by allowing them to continue to provide free cash withdrawal points, this is now under threat again from the VOA’s appeal For supermarkets and retail operators, the VOA’s appeal will now delay any refund due to them, which, in an uncertain economic climate, could greatly affect all concerned businesses For the consumer, the VOA’s appeal will continue to cause concern that free cash withdrawals may be a thing of the past Elizabeth Thomson is a professional support lawyer and Catherine Dear is a litigation solicitor in the real estate department at Irwin Mitchell