This week we report on the widening of Permitted Development Rights affecting homes and offices, HMRC's briefing paper regarding VAT and SDLT in lease variations, and a recent adverse possession case.
Planning update
As part of the Government's strategy to 'build, build, build', in June and July it published new regulations to expand permitted development rights (PDRs) to allow upward expansions of existing homes and the demolition and rebuilding of vacant homes and offices.
PDRs have existed in the planning system since the Town and Country Planning Act 1947 and essentially mean that certain specified development or classes of development are deemed to have been granted planning permission.
The first new PDRs announced by the Government, permitting self-contained flats to be constructed on top of certain existing and purpose-built blocks of flats, came into effect on 1 August 2020 with the remaining PDRs, which are detailed further in our article, coming into force on 31 August 2020.
Clarification from HMRC on the VAT and SDLT consequences of lease variations
The past few months have seen the number of lease variations agreed between landlords and tenants increase dramatically as a result of Covid-19. Last week, HMRC issued guidance which clarifies its views on how arrangements such as rent reductions, rent holidays and lease extensions will be treated for VAT and SDLT purposes.
Should VAT be charged?
Whilst noting that the VAT position always depends on the wording of any agreement and the precise facts involved, HMRC has confirmed its view that where the tenant does not make an additional payment or provide any additional benefit (other than entering into the varied or extended lease) then no VAT should be charged by either the landlord or the tenant (even if the landlord has opted to tax the property).
For example, if the tenant is obtaining a rent reduction of some kind and in return the tenant agrees to remove a tenant break clause or extend the lease then no VAT liabilities should arise. However, if the tenant is making a lump sum payment or providing some other benefit (e.g. works to the landlord's property) then the landlord should charge VAT on that payment or other benefit if the landlord has opted to tax.
If the tenant is making a payment then it is not making a supply for VAT purposes. If it is providing some other benefit (e.g. works to the landlord's property) then the tenant should charge VAT whether or not it has opted.
This guidance from HMRC is very helpful. However, HMRC has been known to change its mind and in some cases it may not be clear whether the tenant is providing a benefit to the landlord. Therefore, landlords and tenants should always ensure that the VAT wording in the variation documents allows them to charge VAT in the event that HMRC assess them as making a VATable supply.
Will SDLT be payable?
HMRC has confirmed that if the tenant is not giving the landlord anything in exchange for the variation to their lease, this should not trigger an SDLT liability. However, some variations or arrangements may give rise to a SDLT liability, for example, extensions to the existing term of a lease, the grant of a reversionary lease or agreements by a tenant to carry out works on behalf of the landlord.
Landlords and tenants should carefully consider any potential SDLT which might be payable when negotiating an arrangement or variation to their lease. If you would like specific advice on the terms of a lease variation and the tax liabilities it may might trigger, our tax team would be happy to advise further.
Case law update – adverse possession
The Upper Tribunal (Lands Chamber) has ruled that an application for adverse possession could not succeed where the land in question was not adjacent to the applicant's land.
The general principle under the Land Registration Act 2002 ("LRA") is that land belongs to the registered proprietor unless a person is able to prove adverse possession, meaning that they can demonstrate the requisite intention to possess and factual possession of the land, without the registered proprietor's consent, for ten years. If, following an application for adverse possession, the registered proprietor serves a counter-notice, the applicant must satisfy one or more of the three conditions found in paragraph 5 of Schedule 6 of the LRA.
In this case, Mr and Mrs Dowse claimed adverse possession of approximately two acres of open land near to their property in Keighley, Bradford. The land was registered to Bradford District Council but the couple claimed to have been in possession of the land since the 1970s including using it for grazing and for storage. In 2001, the Land Registry rejected the couple's application for adverse possession, as did the First-Tier Tribunal (Property Chamber) who found in favour of Bradford District Council. Mr and Mrs Dowse appealed this decision and argued that they had satisfied the third condition of paragraph 5 of Schedule 6 of the LRA which requires:
a) the land to be adjacent to the applicant's land;
b) the boundary between the two pieces of land not to have been determined;
c) the applicant to have reasonably believed that they owned the land for at least 10 years; and
d) the land to have been registered more than one year prior to the date of application.
On appeal, the Judge held that condition a) would only be satisfied if "the whole (or substantially the whole) of the disputed land was capable of being described as “adjacent to” the applicant’s land". Having examined maps of the area, the Judge concluded that the land to which the application relates was not adjacent to the land belonging to Mr and Mrs Dowse, within the meaning of paragraph 5. On that basis, the Judge ruled that the couple could not succeed even if they proved adverse possession and a reasonable belief that the application land belonged to them for a ten year period. The appeal failed. (Dowse v Bradford Metropolitan District Council [2020] UKUT 202 (LC)).
Even where a squatter has failed in their application, a landowner must take prompt steps to recover possession, otherwise the squatter is able to apply again for registration as proprietor if they remain in adverse possession for a further two years.
Insight from around the firm:
- Using the Towns Fund to promote prosperity and resilience
- Webinar: Private residential development briefing series – Looking beyond the pandemic - Working together to build the future
- Voluntary reporting on environmental matters
Positive news stories
- Lemonade for Yemen-aid - two six-year-old boys, Ayaan and Mikaeel have helped to raise more than £37,000 for the Yemen Crisis during the coronavirus pandemic. The two young boys started selling lemonade to their local community, Redbridge and informing local people about the ongoing humanitarian crisis.
- Solidarity shown by restaurants during lockdown - the hospitality sector has been one of the hardest hit as a result of the pandemic. However, restaurants have found ways to support staff and contribute to the Covid-19 response. The London based restaurant Cooperative recruited furloughed staff from within the hospitality sector to distribute meals to vulnerable people and NHS staff.
- Tackling loneliness - Emma Leighton has moved her weekly social group online to help those shielding during the coronavirus pandemic. Using platforms such as Zoom, people throughout the UK and other parts of the world, such as Holland, have joined the online group where they have a coffee morning on a weekly basis. This allows those who are self-isolating to have regular social interactions and, as a result, create new friendships.
