The Court of Appeal (the “CoA”) has handed down a decision which reminds us of the importance of carefully considering the treatment of VAT during any land transaction. In CLP Holding Company Ltd v Singh & Anor  EWCA Civ 1103 (“CLP v Singh”), the court was asked to determine whether, in the absence of clear wording in the sale and purchase agreement, the appellant seller, CLP Holdings Limited (“CLP”), or the respondent buyers, Singh and Kaur (the “buyers”), should be liable for the VAT payable on the transfer of freehold commercial land.
Facts: CLP V Singh
In August 2006, CLP agreed to sell to the buyers the freehold of a commercial property in the West Midlands for £130,000 (the “Purchase price” as defined in the agreement).
The sale agreement comprised the Standard Conditions of Sale (4th edition) used conventionally for residential conveyancing (the “standard conditions”) and additional agreed special conditions.
The relevant standard conditions are 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.
The special conditions stated at clause 1 that “The Seller will sell and the Buyer will buy the Property for the Purchase price”. Clause 2 went on to say that, in the event that the terms of the standard conditions and the special conditions conflict, the special conditions would prevail.
CLP was VAT-registered and had waived the exemption from VAT. In late 2007, HMRC raised an assessment notice in respect of the transaction for £22,750 – the VAT rate being 17.5% at that time. After an initial exchange of solicitors’ letters between the parties, CLP issued proceedings in 2012 to recover that sum from the buyers.
The First Instance Judgment And High Court Appeal
CLP applied for summary judgment to recover the disputed sum on the basis that the buyers had no real prospect of successfully defending the claim. That application was heard by a deputy district judge (the “DDJ”) and was successful. The DDJ found that: (i) there was no tension between the standard and special conditions; (ii) the Purchase price was therefore exclusive of VAT; and (iii) CLP was therefore entitled to recover the VAT charge from the buyers.
On appeal to a High Court judge, the buyers successfully persuaded the court there was indeed a tension between the standard and special conditions, and that therefore the express terms of the special conditions should apply – namely that the full amount owing, inclusive of VAT, was £130,000.
The Current Position: Judgment By The Court Of Appeal
CLP appealed to the CoA. The CoA considered that there were five ‘material’ points of fact to be considered:
- CLP never told the buyers that it had exercised the option to tax;
- As individuals, the buyers had no reason to suppose that the purchase would be subject to a VAT charge;
- The purchase price was agreed some time before completion occurred;
- CLP’s responses to the buyers’ requisitions indicated that the amount payable on completion was the “Balance of the purchase monies”, and made no mention of any VAT liability; and
- The special conditions provided that the Purchase price was £130,000.
The judgment given by Kitchin LJ concluded that, with the above points in mind, no reasonable person could conclude that any further sums were due from the buyers and that, this being the case, the special conditions did conflict with standard conditions 1.4.1 and 1.4.2 above. Consequently the special conditions prevailed and CLP’s appeal was dismissed.
This case highlights the crucial importance of ensuring that the drafting of the contract (together with any tax planning) is properly evaluated at the start of any sale and purchase agreement for land. Each party should be aware of the other’s position with regard to their respective VAT status, so that agreement can be reached and its terms expressly set out in writing.
The full judgement can be found here.