Monthly Archives: January 2015

VAT: Zero Rating of Works including existing building

In the Upper Tribunal Tax and Chancery Chamber case of HMRC v Astral Construction Limited [2015], “Astral” supplied construction services relating to the development of a nursing home incorporating a redundant church as its office and reception centrepiece with two new 2 storey wings being added.

Astral thought the supplies were zero rated supplies for VAT being in the course of construction of a building designed for use for a relevant residential purpose.

HMRC said the construction works were not the construction of a building but were an enlargement of, or extension to, an existing building and, so, not zero rated. HMRC originally considered that the works were the conversion of the church to a relevant residential purpose chargeable to VAT at the reduced rate of 5% and had assessed Astral on that basis.

The Upper Tribunal said the phrase “construction of a building” in Item 2 of Group 5 of Schedule 8 of the Value Added Tax Act 1994 (“VATA”) is not restricted to the construction of a wholly new structure and is wide enough to include the construction of a new building or buildings connected to and incorporating an existing building if such works are not an enlargement or extension excluded by Note 16 to Group 5 of Schedule 8 to VATA. Indeed, the exception in Note 16(b) was predicated on the assumption that an enlargement or extension, that creates an additional dwelling or dwellings, is capable of being the construction of a building within Item 2 of Group 5 of Schedule 8 to VATA. If “construction of a building” were not to be so construed then Note 16 would be unnecessary.

If the work carried out to create the nursing home was otherwise the construction of a building for the purposes of Item 2 of Group 5 of Schedule 8 to VATA, was it nevertheless excluded from being the construction of a new building for zero rating by Note 16 as being an enlargement of or an extension to an existing building, namely the church?

So the next issue in this case was whether the construction of a new building or buildings connected to the church was an enlargement of or extension to an existing building, namely the church, so as to be excluded from zero rating by Note 16?

Whether or not the work was an enlargement of or an extension to the church was a question of fact, degree and impression. When you considered the size, shape, function and character of the new completed building, i.e. the nursing home, it was so different from the existing building, the church, that it could not be said to constitute an enlargement of or extension to the church.

So the building work carried out by Astral to create the nursing home was the construction of a building for the purposes of Item 2 of Group 5 of Schedule 8 to VATA and not an enlargement of or extension to an existing building excluded from Item 2 by Note 16, and so was zero rated.

Accordingly, HMRC’s appeal was dismissed.

Though no longer relevant the Tribunal went on to ask whether the work was a conversion of the church to a nursing home amounting to a special residential conversion within Group 6 of Schedule 7A to VATA chargeable to VAT at the reduced 5% rate?

The Tribunal concluded that the works were not a conversion of the church to a nursing home.

There was a clear conversion from a church or former church into a fully functioning reception and office area serving a care home.

Conversion there may have been but, as a matter of degree, in no way could it be said that the church had been converted into the care home. The church had been structurally integrated into the care home but formed a proportionately very small area of it in terms of size and function.

As a matter of impression, size, shape, function and character the nursing home was so different from the church that it could not be said to constitute the conversion of the church. This was the application of the same fact and degree test that had been used when considering whether the works were an enlargement or extension within Note 16.

HMRC now also contended that the conversion was not a special residential conversion within Group 6 of Schedule 7A to VATA because the premises being converted, i.e. the church, did not form, after conversion, the entirety of an institution, namely the nursing home, being used for the relevant purpose, as required by Note 7(6) to Group 6.

The Tribunal said the phrase “the premises being converted” could only refer, in this case, to the original church and the use of the words “after conversion” clearly indicated that the test was to be applied to the premises after the conversion works had been completed.

The question was whether the premises that were to be considered in determining whether the condition was satisfied were the pre-conversion premises, i.e. the original church building, or the post-conversion premises, i.e. the nursing home.

The words “after the conversion” did not rule out an increase in the size of the
premises as a result of the conversion. In Note 16 to Group 5 of Schedule 8 to VATA, ‘conversion’ appeared with ‘reconstruction’ and ‘alteration’ and separately from ‘enlargement’ and ‘extension’. That suggested to the Tribunal that conversion was a concept distinct from enlargement and extension for the purposes of Group 5. There was no equivalent distinction in Group 6 of Schedule 7A.

Indeed were HMRC’s interpretation of the condition in Note 7(6) correct then no conversion that increased the size of the building being converted could ever qualify as a special residential conversion. Such a result would be surprising as it would restrict the availability of the reduced rate not according to use, which was the “qualifying criterion”, but by reference to the size of the converted premises.

If that were the intended result. The Tribunal would have expected the condition to be more clearly worded. It would have been simple enough for the draftsman to have made it a condition that the premises after conversion must be no bigger than the premises before the conversion.

The correct approach to the condition in Note 7(6) was to look at the premises after the conversion had been carried out, i.e. the nursing home. The condition was that there had to be an intention that, after the conversion, the converted premises must form the entirety of an institution used for an institutional purpose, as defined.

Accordingly, had it been necessary for the Tribunal to decide it, in this case, it would have said that condition was satisfied as after the conversion, the converted premises formed the entirety of the nursing home i.e. of the relevant institution, and satisfied the condition in Note 7(6) to Group 6 of Schedule 7A to VATA.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Appeal Inspector had failed to justify departure from planning precedent

Consistency in decision-making is a well established principle in planning, which has been supported in many decisions of the court. A previous appeal decision is capable of being a material consideration. Like cases should be decided in a like manner. Consistency is important to both developers and development control authorities so that they know where they stand. It also secures public confidence in the workings of the development control system.

An inspector must always exercise his own judgment. He may upon consideration disagree with the judgment of another but should first have regard to the importance of consistency and give his reasons for departure from the previous decision.

To say like cases should be decided alike assumes the earlier case is alike and is not distinguishable in some relevant way.

If it is distinguishable it may still be material in some other way.

Where it is indistinguishable from the current application it will usually be a material consideration.

The inspector must ask himself whether deciding a case one way or the other will be necessarily agreeing or disagreeing with some critical aspect of the decision in the previous case?

Agreement or disagreement may occur (amongst other things) on:

– interpretation of policies
– aesthetic judgments and
– assessment of need.

Where there is disagreement the inspector must weigh the previous decision and say why he is departing from it.

In the case of disagreement on aesthetics, the explanation could be short. In other cases the reasons may have to be elaborate.

In Butterworth v Secretary of State for Communities and Local Goverment & Anor [2015] the single ground of challenge was that the appeal inspector had failed to have proper regard to the two previous appeal decisions for roof extensions to other buildings nearby.

The ground comprised two alternatives:

– either the inspector failed to regard the importance of consistency in decision-making or
– she had not properly explained the reasons for her decision.

The High Court said the previous appeal decisions on proposed roof extensions in the same terrace were not peripheral in Mr Butterworth’s appeal. They had been carefully analysed by his agents and were prominent in the representations his agents made to the appeal inspector on his behalf.

Moreover the design of his proposed development had been carefully informed by that of the roof extension at 4 St Stephen’s Gardens, for which planning permission had been granted on appeal.

The inspector had failed to say clearly whether she accepted what Mr Butterworth’s agents had said about the approach adopted by the other inspectors, whether she thought that was the right approach, or how she saw this case as being materially different on its facts. She said the design of the proposed development was “unacceptable” but she did not differentiate the design of Mr Butterworth’s proposal from those aspects of the roof extensions proposed in the previous successful appeals in St Stephen’s Gardens.

Although the inspector was not bound to:

– agree with the other inspectors in their approach or

– find that Mr Butterworth’s case could not be materially distinguished on its facts from the appeals they had had to decide

it was not enough that she had left the parties to deduce her reasons for differing from those inspectors. She should have given an express and unambiguous explanation of her approach given the previous decisions, and specifically addressing the points Mr Butterworth’s agents had made.

The inspector’s failure to provide intelligible and adequate reasons had caused substantial prejudice to Mr Butterworth. They did not have to be elaborate. It could have been quite succinct. But there was nothing to show she had really got to grips with what Mr Butterworth’s agents had said about the previous appeal decisions, or that she had had regard to the importance of consistency in planning decision-making, or that she had resolved both whether and why she was differing from the other inspectors.

Accordingly her appeal decision was quashed and the appeal was sent back to the Secretary of State to be decided.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Planning Decision Maker had wide remit to assess quality of development

Paragraph 64 of the National Planning Policy Framework (“the NPPF”) says:

“Permission should be refused for development of poor design that fails to take the opportunities available for improving the character and quality of an area and the way it functions.”

Design which, in the planning decision-maker’s judgment, “fails to take the opportunities available for improving the character and quality of an area and the way it functions” is one kind of “poor design” and, in principle, should not be accepted.

But that does not mean, that a proposal which does not take every conceivable opportunity to improve the character and quality of an area, or which does not do as well in this respect as some alternative proposal might have done, must therefore automatically be rejected.

The policy in paragraph 64 must not be read in isolation from the broader context of policies on development design, involving many considerations, in paragraphs 56 to 64 of the NPPF and the still broader context of sustainable development. The decision maker has to assess the design in the round, giving such weight as is appropriate to the various factors and constraints which come into play.

When determining applications for planning permission, it is on initial application the responsibility of local planning authorities, and, on appeal, of the Secretary of State and his inspectors to make aesthetic judgments.

Such judgments are among the most difficult to challenge in judicial review proceedings because the legally acceptable range of reasonable judgment can accommodate widely differing views on the quality of a particular design.

We may think that a developer has failed “to take the opportunities available for improving the character and quality of an area and the way it functions”, but the planning decision maker has the same the range of reasonable judgment as to whether the design is, for that reason, “poor design”.

In the High Court case of Horsham District Council v Secretary of State for Communities and Local Government & Anor [2015] the inspector had identified the large housing development proposal’s “adverse environmental impacts”, which included “a loss of some long views from parts of the footpath across the site”.

The court found that inspector referred to the policy in paragraph 64 of the NPPF more than once, both as a “Main Issue” and in the section of his decision letter where he considered “Design”. Also he applied the policy on good design in paragraphs 56 to 68 of the NPPF generally finding that the design approach of the scheme “would broadly accord with the design objectives of [the NPPF]”. So it could not be said that he was unaware of the need to tackle the question effectively posed by paragraph 64 of the NPPF.

And the inspector expressed a clear conclusion on the quality of the design of Barratt’s proposed development saying that since an “urban extension on this scale” was required to meet housing needs the approach taken to the design was “reasonable for this site and has regard to its context and to local distinctiveness”.

His judgment, that this “would not be a poor design in the terms of paragraph 64 of [the NPPF]” had been entirely reasonable, clearly explained, and was based on a secure planning assessment with which the court could not properly interfere.

Not least as the inspector had identified “available opportunities” first, by creating areas of open space; secondly, by protecting some of the character of adjoining lanes; thirdly, by providing new rights of way; and fourthly, by using locally distinctive styles and materials and had concluded that the design would take those opportunities.

So the proposal could not be challenged for poor design.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Landlord’s surveyor could not unilaterally apportion residential service charges

A service charge clause may say the Landlord’s surveyor will decide how the Landlord’s service costs are to be divided between residential tenants and that that decision will be “final and binding.”

However Section 27A(6) of the Landlord and Tenant Act 1985 renders void any parts of any agreement that, in effect, provide for any question to be determined in any particular way, if that question could be referred to the appropriate tribunal under s.27A(1).

A clause that provides for determination of proportions by the landlord’s surveyor is such a provision, whether it is said to be “final and binding” or not. So Section 27A(6) deprives the landlord’s surveyor of his role in determining the apportionment.

Any service charge provision which purports to give the landlord’s surveyor that role is to be read as if that method of ascertaining a fair apportionment was omitted from the clause altogether.

That being the case in the recent Upper Tribunal (Lands Chamber) case of Gater & Ors v Wellington Real Estates Ltd & Anor [2014] where similar facts applied, the tribunal ruled that:

1. Where the provision for determining an apportionment was void under section 27A(6), then, unless the parties could agree what was fair, the fair apportionment fell to be determined by the appropriate tribunal.

2. Here it had been for the Leasehold Valuation Tribunal to decide what fair proportion of the cost of communal services was payable by the respondents.

3. The appropriate tribunal would consider what valid parts of the parties’ agreement remained.

4. In that particular case, what the tribunal thought had survived was the parties’ agreement that the tenant’s share would be:

4.1 a due and fair proportion of the service costs

4.2 to be divided having regard to “the relevant floor areas within the Building or other reasonable factors”.

5. As the tribunal thought the provisions at 4 above did not in their effect provide for a determination “in a particular manner”, they did not offend section 27A(6). We might disagree and think they had precisely that effect. But the key factor may be that the clause wording claiming to RELEGATE the tribunal’s discretion to apportion the service costs under those provisions TO “the landlord’s discretion” had been declared void by the tribunal and cut out of the lease.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice individual cases.

Planners’ usual duty “to have regard to” required only specific consideration

East Northamptonshire District Council v Secretary of State for the Communities and Local Government [2014] concerned granting planning permission for development that affected a listed building or its setting. Here the planning inspector had the duty, under section 66 (1) of the Planning (Listed Buildings and Conservation Areas) Act 1990 (“the PLBCAA”), to “have special regard to” the desirability of preserving the building or its setting or any features of special architectural or historic interest which it possessed. It was ruled there that the planning inspector had not complied with it.

In Howell v Secretary of State for the Communities and Local Government [2014] the claimant tried to quash a planning inspector’s grant of planning permission for a single wind turbine on farmland fringed by the Norfolk Broads.

Relying on the above case the claimant said the inspector had failed to comply with section 17A of the Norfolk and Suffolk Broads Act 1988 (“the NSBA”) which required the Secretary of State, and his representative the inspector, to “have regard to” the purposes of conserving and enhancing the natural beauty, wildlife and cultural heritage of the Broads in exercising or performing any functions relating to, or affecting land in the Broads.

The court distinguished the East Northamptonshire case.

There the words “have special regard to” in section 66(1) of the PLBCAA meant that considerable importance and weight had to be given to the desirability of preserving a heritage asset and its setting, when balancing the development proposals against other material considerations. It created a presumption against granting planning permission.

But in this case section 17A of the NSBA applied, and it imposed on the local planning authority or the inspector, a lesser duty to “have regard to”.

This meant only that the issue had to be specifically considered. I.e. not that it had to be given more weight than other issues.

So the court rejected the claimant’s application to quash the inspector’s decision.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Termination notice did not mislead Tenant as to Landlord’s intent

Under section 37A of the Landlord and Tenant Act 1954 (“1954 Act”), business tenants can claim compensation from any landlords who:

1. make misrepresentations, or

2. conceal material facts

that cause the court:

1. not to order the renewal of a business tenancy or

2. induce the tenant to:

2.1 refrain from making, or

2.2 withdraw,

an application to renew a business tenancy.

The compensation is to be sufficient to compensate the tenant for loss or damage sustained from the tenant quitting the property.

In Saturn Leisure Ltd – v – Havering LBC [2014] the council’s Romford Ice Arena was run by a private operating company.

The council wanted to get the site back vacant so it could do a property swap with a retailer.

To that end it served a termination notice on the private operating company under section 25 of the 1954 Act, basing its opposition to renewal on the following grounds:

(b) persistent non-payment of rent; and

(f) landlord’s intention to redevelop.

However the council also alleged that the private operating company was not a business tenant protected by the 1954 Act.

The private operating company accepted £150,000 off the council to quit the ice rink.

Later the private operating company alleged that the council had misled it by misrepresenting that the council had a settled intention to pull the ice rink down, regardless of anything else.

The High Court said the council had been transparent that its plans to demolish were contingent on there being a ruling, or agreement, that the private operating company had security of tenure but that that was sufficient.

This was because ground (f) of the 1954 Act has two separate limbs.

To fall within the ground the landlord may intend to:

1. to demolish, or

2. to demolish and reconstruct

the premises, or a substantial part of them.

In short it’s enough that the landlord intends to demolish to satisfy ground (f).

The private operating company was unable to put forward any evidence that denied or precluded the council having had an intention to demolish the premises if it had to, even though no planning permission had been required to be obtained for demolition. This was more demonstrably the case as the council had got the proper internal authorities to proceed on that basis.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.