Tag Archives: Sale and Purchase

Context & Special Conditions disapplied Property Sale General VAT Payment Condition

Where a property sale is liable to VAT the contract should contain a provision identifying the value of the supply and imposing upon the buyer an obligation to pay the VAT to the seller.

In CLP Holding Company Ltd v Singh & Anor [2014] the claimant exchanged contracts to sell 72 Rolfe Street, Smethwick (“the property”). Completion took place on the same day. Were the defendants liable to pay the claimant the VAT charge on that transaction?

The claimant was registered for VAT and, in 1989, it gave notice to HM Customs & Excise (“HMRC”) that it had opted to waive the exemption from VAT for the property. The claimant having exercised its option to waive the exemption, was liable to pay VAT upon the transaction, and in late 2007 HMRC raised a notice of assessment. In 2008, the claimant informed the defendants of the notice it had received and claimed that, under clause 1.4 of the general conditions, the defendants were liable to pay the claimant the sum it had to pay to HMRC in respect of VAT. They offered a VAT invoice. The defendants refused to pay VAT.

Clauses 1 and 2 of the special conditions covered the inter-relationship of the special and general conditions:

“1. The Seller [the claimant] will sell and the Buyer [the defendants] will buy the Property for the Purchase Price.

2. This Agreement incorporates the Standard Conditions of Sale (4th edition) (“the general conditions”). Where there is a conflict between the general conditions and this Agreement or the general conditions are not consistent with the express terms of this Agreement, this Agreement shall prevail…..”

Turning to the general conditions, clause 1.1.4 of the general conditions made it clear that they applied except as varied or excluded by the special conditions.

General condition clause 1.4 dealt with VAT as follows:

“1.4.1 An obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment.

1.4.2 All sums made payable by the contract are exclusive of value added tax.”

General condition clause 7.4 provided:

“Completion does not cancel liability to perform any outstanding obligation under this contract.”

The Court of Appeal said the following points were material:

1. It had never been suggested that the claimant ever told the defendants that it had exercised the option to tax.

2. The defendants were individuals. Whilst the property comprised commercial premises, there had never been any suggestion that the defendants were aware, or had any reason to suppose, that the transaction might be subject to a VAT charge.

3. The purchase price for the property was agreed in principle a considerable time before completion. Moreover, the whole purchase price of £130,000 had been paid over by the defendants to the claimant by, at the latest, 2005. There was never any suggestion that VAT might be payable, still less that the defendants would be liable for it. Quite the opposite. In advance of the sale, the claimant’s solicitor’s letter expressly acknowledged that the claimant had received “all of the sale monies of £130,000 on this matter, subject to contract”. Apparently they were repaid to the defendants and then paid again to the claimant at exchange and completion.

4. The standard requisitions requested details of the exact amount payable on completion. The reply was: “Balance of purchase monies”, that is to say £130,000. No hint was given that VAT was or might be payable.

5. The special conditions specified that the “Purchase Price” was £130,000. They contained no indication that that price was exclusive of VAT. Additionally, the special conditions provided, in clause 2, and, implicitly, the general conditions in clause 1.1.4, that where there was any conflict with the general conditions (e.g. general condition clause 1.4 above), the special conditions were to prevail.

Taking all these factors into account and considering, the position from the standpoint of the reasonable person who had all the background knowledge which would reasonably have been available to the parties, placed as they were at the time of the contract, the Court of Appeal thought that person would almost certainly have inferred the parties to have intended that the defendants should not have had to pay the claimant anything over and above the specified purchase price of £130,000.

Here it was impossible to interpret “purchase price” as the price exclusive of VAT.

Or, putting it slightly differently, the reasonable person would think that the special conditions could not be reconciled with clause 1.4 of the general conditions and that the parties had, therefore, intended special condition clause 2 and general condition clause 1.1.4 to apply. So the special conditions would prevail i.e. without reference to VAT being paid additionally to the purchase price.

Therefore the court unanimously dismissed the appeal and left the claimant having to pay the VAT assessment.

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

Court implies duty on Seller to cooperate in property sale conveyancing

In the scenario where a defaulting Buyer has its deposit at risk on a flat purchase and arrives at a settlement agreement, to what extent is the Seller impicitly obliged to cooperate in the normal conveyancing process to meet the deadlines laid down in the settlement for one of the Buyers to buy an alternative flat off the Seller?

In Gateway Plaza Ltd v White [2014] the Buyer concerned had been given till 28 March 2012 to “exchange contracts” for the purchase of the alternative flat.

However the Seller’s large Leeds conveyancing solicitors sent the Buyer’s solicitors documentation still wrongly in the joint names of the Buyer and the other original buyer (who had by now dropped out of the purchase and then died) and for whatever reason did not provide the CML disclosure of incentives form required by the Buyer’s Mortgagees under the Council of Mortgage Lenders’ Rules. In consequence the purchase had still not been completed in May and the Seller alleged that the Buyer had failed to take the alternative flat purchase available to him under the settlement and so must suffer the full financial consequences of not going along with the alternative flat offer compromise.

The High Court had no difficulty inferring terms that it had been incumbent on the Seller to comply with the normal conveyancing process and requirements of the Buyer’s solicitors and of its lender to meet the deadline and to have done all the things normal Sellers’ solicitors would do including produce correctly drawn documents and a CML Certificate.

So it was the Seller, rather than the Buyer, who had failed to comply with the obligations, which were impliedly imposed on the Seller under the settlement agreement as soon has the Buyer had decided to take up the opportunity the settlement offered of the alternative flat.

This is no “rocket science”.

Applying one of the standard tests for implying legal terms, if at the settlement hearing a “reasonable bystander” had asked whether the Seller would cooperate with the conveyancing process the Seller would hardly have said “no”. The parties would have both said “of course”.

Different rules apply to court settlements like this though. Under normal land contracts its not safe to rely on implying terms as Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 requires all terms to be express and contained in the contract and (where applicable) other documents whose terms are properly incorporated by reference into the contract.

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