CLP Holding Company Ltd v Singh (1) Kaur (2) [2014] EWCA Civ 1103

This Court of Appeal decision prompts consideration of a common oversight in dealing with dilapidations claims.  The case, in fact, had nothing to do with disrepair, being concerned with the sale of a property.  The special conditions of the contract set out the purchase price as £130,000, with no mention of VAT.  The general conditions provided that all sums were exclusive of VAT, and that VAT should be payable as well; however, the contract also provided that the special conditions should take precedence over the general conditions.  The latter point was the crucial one, although the court found that other surrounding circumstances also supported the interpretation that the buyer was not obliged to pay anything more than the £130,000, which was inclusive of VAT.

The issue arises in dilapidations claims because a landlord which has carried out repair work, or can satisfy the court that it intends and is likely to do so, will be able to show that VAT is an actual loss that it has incurred or will incur.   If, in addition, the landlord can show that it will not be able to recover the VAT as input tax, then it can in principle be included in the claim.

While landlords need to be alert to include this element in their claim, where it does represent a real loss, tenants equally need to scrutinise this part of the claim and eliminate it if the circumstances point that way.

The incidence of VAT should not be overlooked in settling dilapidations claims, and clear provision should be made in the agreement as to whether VAT is included in the settlement sum.  Settlement agreements are not supported by standard conditions which make provision for VAT, so it is all the more important.