Legal Practice Notes

Vacant possession Vacant possession is a central concept in property law, arising on both the sale of land and at lease expiry under the covenant to yield up at the end of the term. It is often especially significant in conditional lease break options. This Practice Note explains what vacant possession involves in practice, and the steps a tenant or seller must take to deliver possession to a landlord or buyer. For guidance on bringing to an end the range of interests a developer may face when seeking vacant possession of a potential development site—including commercial leases with protection of Part II of the Landlord and Tenant Act 1954 ( LTA 1954), residential tenants (including security of tenure under the Housing Act 1988), licensees and telecoms operators—and how those interests may be terminated and vacant possession recovered, see Practice Note: strategy for...

Why use environmental consultants? Environmental consultants operate across varied sectors and disciplines, working to regulate, manage and prevent pollution of air, soil and water. They evaluate environmental risks, check conformity with environmental legislation and best practice, and appear as expert witnesses in formal legal proceedings......

Change of use and development under the TCPA 1990 For the purposes of section 55 of the Town and Country Planning Act 1990 ( TCPA 1990), any material alteration in the use of buildings or other land is treated as “development”. As development requires planning permission, it is therefore always necessary to assess whether a proposed change of use is material and so amounts to development. However, TCPA 1990, s 55(2)(f) states that no development occurs, and permission is not needed, where the existing and proposed uses both fall within the same class specified in an order made under that paragraph. For instance, switching from a post office to a hairdresser would not need planning permission, as each sits within class A1 (shops). That said, physical works to the premises to enable the new use may still call for planning...

Material change of use and the Use Classes Order Any material change in how buildings or other land are used is treated as ‘development’ for the purposes of section 55 of the Town and Country Planning Act 1990 ( TCPA 1990). As development requires planning permission, it is always necessary to assess whether a change of use is material and therefore amounts to development. However, TCPA 1990, s 55(2)(f) states that a change of use is not development, and so does not need planning permission, where both the previous and proposed uses sit within the same class specified in an order made under that paragraph. The Town and Country Planning ( Use Classes) Order 1987 (the Use Classes Order), SI 1987/764, is an order made pursuant to TCPA 1990, s 55(2)(f). It places uses of land and buildings into broad categories set out in the...

Introduction This playbook sets out guidance for negotiating the terms of an underletting clause for a lease of part of a larger building, such as an office block or a shopping centre (or a comparable retail setting), with the aim of making those terms more favourable for the tenant (‘tenant-friendly’ or ‘pro-tenant’). It features preferred provisions, fallback wording, and drafting notes that support the prospective tenant’s position. Lawyers acting for prospective tenants and in-house counsel can use this playbook and should tailor it to address client-specific matters to ensure the client’s interests are fully protected. The level of risk indicated may vary by client. Note that the playbook does not provide drafting for situations where the tenant has a substantial negotiating advantage (for example, where the tenant is an anchor tenant). This document forms part of a collection of pro-tenant playbooks. For a list of the...

When the market turns downwards, commercial occupiers with premises they no longer require can find it difficult to shed their obligations. In many cases, market rents will have slipped below the passing rent under the lease, which makes securing an assignee challenging. Leases in this position are often labelled over‑rented. The choices available to a tenant of an over‑rented property are few. Commonly, the most practical step is to grant an underlease. While this may not eliminate the tenant’s losses, it can help to offset expenditure, as some rent will be received and the undertenant will take on the usual costs of occupation (including business rates). That said, many commercial leases, particularly those drawn up in the 1980s and 1990s, imposed restrictions on: underletting at below the passing rent; or underletting at less than the passing rent or the market rent,...

This Practice Note addresses VAT zero-rating available to developers who sell or let residential buildings, other than dwellings, that they have built. Such properties are classed as buildings for a ‘relevant residential purpose’ ( RRP). For guidance on the zero-rating of dwellings, see Practice Note: Zero-rated sales and leases—person constructing a dwelling. Why does zero-rating matter? If zero-rating is not in point, the supply will ordinarily be exempt, meaning the developer is unable to reclaim VAT (ie input tax) on expenditure, including construction costs, professional fees and potentially the purchase of the site. For further detail, see Practice Note: When can a person recover VAT? There is also a zero-rating for constructing an RRP building, but only where the works are commissioned by the ultimate user, for example the operator of a care home. The zero-rating considered in this Practice Note is an...

This Practice Note addresses opting to tax land and buildings. It looks at who may make the election, the breadth of that election, how it is exercised and notified, the consequent effects, when it can be withdrawn, and the pros and cons of opting. For situations where the election is expressly disapplied, see Practice Notes: Option to tax—disapplication for residential and other property and Option to tax—disapplication under anti-avoidance rules. Why does this matter? By default, property dealings are VAT‑exempt (see Practice Note: Exemption from VAT for land and buildings), meaning no VAT is charged and associated input tax is irrecoverable. Electing to opt generally converts supplies into taxable ones and enables input tax recovery. In day‑to‑day practice, the majority of commercial property is covered by an option to tax. As a rule, once a property owner has opted, the election governs all of their...

FORTHCOMING CHANGE : HMRC issued a call for evidence, ‘ Simplifying the VAT Land Exemption’, in May 2021, seeking views and input on bold options for redefining the exemption’s scope and future direction. Among the ideas were bringing all ‘short‑term or minor’ rights over land within the VAT net, or abolishing the existing ‘option to tax’ regime and instead treating every land deal as subject to VAT, with targeted carve‑outs for, for example, residential or charitable property. While these suggestions largely failed to win favour with respondents, they may nevertheless signal narrower and potentially more suitable reforms that HMRC could look to advance in the near term. The evidence‑gathering consultation exercise ran from 12 May 2021 to 3 August 2021. A response summary appeared on Tax Administration and Maintenance Day on 30 November 2021, confirming that the government did not, at that point, plan any...

This Practice Note addresses the VAT time of supply rules applying to property transactions. For a summary of the general time of supply framework, see Practice Note: VAT time of supply rules—when is a supply made? Why does this matter? VAT must be accounted for to HMRC on the VAT return covering the period in which the time of supply—often called the ‘tax point’—arises in practice. If that point precedes the customer’s obligation to pay the VAT to the supplier, the supplier will be out of pocket and may need to finance the VAT amount from their own resources. Solicitors should determine when VAT will fall due to HMRC to avoid this outcome or, at the very least, ensure the client knows it will occur and plan accordingly. It can be prudent for the parties to agree when the VAT sum is paid, aligning payment terms with the tax...

Disapplication of the VAT option to tax for residential and some other property This Practice Note explains when the VAT option to tax is disapplied for residential and certain other property, and refers to the Practice Note on the option to tax land and buildings. It does not address disapplication under the anti-avoidance provisions; for that, see the Practice Note on option to tax—disapplication under anti-avoidance rules. Where the conditions bite, they override an option to tax so that a sale or letting is exempt. In situations where these provisions apply, the purchaser or tenant would be unable to reclaim the VAT, so exemption can be a valuable advantage. However, the vendor or landlord would be unable to recover associated VAT and may face a charge under the capital goods scheme ( CGS); see Practice Note on VAT—capital goods scheme ( CGS). These...

This Practice Note concerns the . It includes references to EU legislation and case law. For guidance on the continuing effect of EU law in the UK after the close of the Brexit implementation period on 31 December 2020, see Practice Note: Retained EU law and tax. Unless indicated otherwise, all rulings of the EU Court of Justice cited here were delivered prior to the end of that implementation period. Accordingly, references to EU case law in this Note should be read in that temporal context. Why does this matter? Parking fees are generally liable to VAT; this also covers leases and licences for whole car parks or blocks of garages, meaning the amounts at stake can be significant and VAT must be factored into sale and lease documentation. VAT can, in some circumstances, arise where parking is supplied alongside other...

This Practice Note explores the VAT consequences of overage payments. Why is this important? In simple terms, where the underlying sale attracting the overage was taxable for VAT, the overage will itself carry VAT, ordinarily becoming chargeable only when the overage is actually paid; however, there are significant exceptions. Accordingly, sellers may encounter unforeseen liabilities, and at unexpected points in time, so sale contracts must reflect the correct VAT position. Moreover, HMRC offers no comment in guidance, and there have been instances of it misunderstanding overage arrangements, or their VAT analysis, leading it to dispute a position even where VAT has been correctly accounted for. It is therefore prudent to record, at the time, the rationale for the approach adopted, together with any professional advice obtained. What is overage? Overage refers to a scenario in which a seller—often, though not exclusively, of...

This Practice Note examines VAT points to address when a lease is assigned or brought to an end. In this Practice Note, unless indicated otherwise, termination covers any form of ending a lease, including surrender, use of a break option, forfeiture, and a disclaimer in insolvency. Must the seller account for VAT?......

This Practice Note sets out the VAT matters to address when granting a lease and during an ongoing lease. whether VAT is payable when it becomes due the tenant’s position on recovering VAT inducements payment of rent the tenant paying the landlord’s costs changes to the lease tenant default which VAT provisions ought to be included in the lease For the VAT points to consider where a lease is assigned or brought to an end (including by surrender), see Practice Note: VAT issues for lease assignments and terminations. Is VAT chargeable?......

This Practice Note is about the . More specifically, it considers which categories of building work qualify for VAT relief, either through zero rating or by applying the reduced VAT rate. To benefit from relief, there must be both an appropriate kind of building and an appropriate scope of work. Why is that important? This is, naturally, significant to those undertaking it, but it also feeds into project appraisals, and influences whether development and investment prospects are viable. If the VAT is ultimately recoverable, it might appear unimportant whether the contractor charges it. However, even then it is crucial to ensure the correct reliefs are used, as HMRC will not reimburse VAT that should never have been paid. A final consideration is that businesses commissioning construction may, in some cases, need to account for VAT themselves under a ‘reverse charge’......

This Practice Note addresses the VAT considerations that arise in commercial development projects. It first outlines a simple, uncontentious scenario, then explores: when and whether the developer should opt to tax input tax recovery and circumstances in which that option could be disapplied whether a sale to an investor qualifies as a transfer of a going concern ( TOGC) alternative development structures, such as forward funding and forward sales planning obligations and other payments towards local infrastructure tenant incentives disposals of surplus land and incomplete schemes, and rights to light For VAT issues in residential developments, see Practice Note: Residential development— VAT issues. Basic scenario There can be a variety of VAT considerations with commercial schemes, yet in practice most projects do not create major difficulties. It is helpful to begin with a clear, uneventful example...

FORTHCOMING CHANGE : HMRC issued a call for evidence in 2019 on ‘simplifying’ the VAT partial exemption rules and the capital goods scheme ( CGS). In March 2021 this was followed by a summary of responses that set out adjustments to partial exemption processes and confirmed HMRC would continue to engage with stakeholders on other matters. No timetable was provided for any subsequent steps, yet it appears probable that, in due course, the CGS threshold for land and property will be lifted, perhaps to £1m, with other assets removed from the scheme altogether. Why does this matter? This Practice Note examines the principles of the VAT capital goods scheme. The CGS can give rise to a significant liability for property owners, especially on a disposal. That exposure is usually avoidable, but only where it is identified and appropriate measures are taken. This does not...

Background to the HMRC's online HMRC’s online trust registration approach was devised to give effect to the EU’s Fourth Anti- Money Laundering Directive, Directive ( EU) 2015/849 (4MLD), via the Money Laundering, Terrorist Financing and Transfer of Funds ( Information on the Payer) Regulations 2017 ( MLR 2017), SI 2017/692, and to the EU’s Fifth Anti- Money Laundering Directive, Directive ( EU) 2018/843 (5MLD), through the Money Laundering and Terrorist Financing ( Amendment) ( EU Exit) Regulations 2020 ( MLR 2020), SI 2020/991. The Money Laundering and Terrorist Financing ( Amendment) Regulations 2019, SI 2019/1511 also transposed 5MLD into UK law, but addressed matters other than the registration of trusts. Accordingly, this Practice Note concentrates on MLR 2017, SI 2017/692 and MLR 2020, SI 2020/991. For guidance on implementing 5MLD in the UK, including the consultations undertaken, see Transposing 5MLD into UK law below. MLR...

Tax is a key consideration when selecting an appropriate structure for holding UK commercial property. The prevailing route for investing in UK commercial property is typically a UK‑incorporated, tax‑resident limited company. Non‑ UK investors have also gravitated towards offshore ownership for investment, commonly via a non‑ UK resident special purpose vehicle ( SPV). Following reforms to the taxation of gains realised by non‑ UK residents on UK immovable property from 6 April 2019, and to the taxation of property income of non‑ UK resident companies from 6 April 2020, non‑ UK resident companies that hold UK commercial assets now fall within UK corporation tax on gains (subject to certain exemptions) and on rental income. As a consequence, a number of the core tax attractions of using non‑ UK resident SPVs to own UK commercial property have been curtailed....