On 31 July 2014 the Court of Appeal held5 that the purchasers of VAT-opted freehold property were not contractually liable to pay VAT on the purchase price.
The VAT-registered seller had opted to tax the property, before selling to the purchasers. However, the seller made no mention of this (and it seems the purchasers did not ask the question) at any point during the protracted sale negotiations.
The sale contract incorporated standard conditions of sale that stated that:
- any obligation to pay money included an obligation to pay any related VAT;
- all sums payable under the contract were exclusive of VAT; and
- any liability to perform an outstanding obligation under the contract survived completion.
However, the special conditions in the sale contract, which took priority over any conflicting standard conditions, defined the “Purchase Price” as simply £130,000. The actions of the parties were also consistent with the stated price being inclusive of VAT.
The Court held that the sale contract, properly construed, did not oblige the purchasers to pay the VAT amount. The Court’s reasoning was that it is necessary to consider what a reasonable person, with “all the background knowledge” at their disposal, would have understood the contracting parties to have meant. Of critical importance to the Court seems to be that, on the facts of this case, the purchase monies were agreed and paid a considerable time prior to completion. The seller, through its solicitors, confirmed that it had received “all of the sale monies of £130,000 on this matter”, with no mention of VAT. In response to the standard requisition seeking confirmation of the exact amount payable on completion, there was again no mention of VAT. As a result the purchasers, in the eyes of the Court, were not aware and had no reason to suspect that the price would be subject to VAT.
To view the decision, click here.