Retail giant Debenhams has won a dispute over rent payable at one of its department stores in Wiltshire.
The High Court has ruled that VAT paid by customers should not be included in an assessment of the store’s turnover, when calculating a percentage rent for the premises at 1-11 The Parade, Swindon.
Various landlords, including present lessor Sun Alliance & London Insurance Co Ltd, have included VAT as part of the turnover figures for more than 30 years.
However, Mr Justice Etherton said that the VAT inclusion was “inconsistent” with the purpose of the original 1971 lease agreement, which sought to ensure that the landlord and tenant “shared the trading risk associated with the premises”.
If VAT were included, he said, Debenhams would be forced to “pay rent by reference to sums that it would never get to keep”, since it would have to account for them to Customs & Excise.
He added that such an approach would result in rent increases if VAT rates went up, despite the retailer’s trade not having improved.
The 99-year lease, which Debenhams Retail plc assigned to Debenhams Properties Ltd in February 2001, defines “turnover” as the “gross amount of the total sales”.
According to Sun Alliance, this included all sums taken at the till, without deduction. However, Debenhams contended that VAT “did not form part of the turnover in the ordinary sense of the word”.
Debenhams refused to comment on whether it would be seeking reimbursement of overpayments made since VAT came into effect in 1973.
However, according to documents before the court, the store paid its rent for the period expiring in January 2003 “under protest”, and has refused to pay additional rent for the January 2004 period pending the court’s decision.
Debenhams Retail plc and another v Sun Alliance & London Assurance Co Chancery Division (Etherton J) 9 November 2004.
Jonathan Brock QC (instructed by Walker Morris, of Leeds) appeared for the claimants; John Furber QC (instructed by Maples Teesdale) appeared for the defendant.
References: EGi Legal news 10/11/2004
