Landlord electing to waive VAT exemption — Tenant becoming liable for VAT payment — Landlord failing to inform tenant in good time — Whether tenant liable for VAT for period prior to receiving notification documents — Appeal dismissed
Under the provisions of para 2 of Schedule 6 to the Value Added Tax Act 1994, the appellant landlord elected to waive exemption from VAT in respect of a property let to the respondent tenant. The effect of the election was to make VAT chargeable on subsequent rent. The landlord neither notified the tenant nor provided him with the appropriate documentation until more than a year after its election, at which point it also claimed retrospective payment of VAT to cover the period between the election and the date upon which it had informed the tenant. The tenant maintained that, upon a proper construction of the lease, the landlord was not entitled to claim for VAT prior to the service of correct documentation.
At first instance, the court held that the tenant was liable to pay only the additional amount of VAT from the date upon which he was informed of his liability to do so. The landlord appealed.
Held: The appeal was dismissed.
Under the terms of clause 3(31) of the lease, the tenant was obliged to pay VAT to the landlord as required. However, that clause was determined by the provisos found in clause 5(10), which stated that until such time as the correct documentation had been supplied, the tenant would not be liable for any additional sums of VAT in respect of the rent. Clause 5(10) was quite specific about the landlord’s obligation to provide the tenant with the appropriate documentation.
Under the landlord’s construction of the lease, it would be possible for the landlord deliberately to withhold documents from the tenant for any period of time, during which payments of VAT would accrue without the tenant’s knowledge. This was contrary to good business practice and could not have been the intention of the parties to the lease.
Penny Hamilton (instructed by Kennedys) appeared for the appellant; Rupert Baldry (instructed by Beachcroft Wansbroughs) appeared for the respondent.
Vivienne Lane, barrister
