BFC Development LLP v Comptroller of Property Tax [2014] SGCA 9

The case of BFC Development LLP v Comptroller of Property Tax is instructive for the Court of Appeal’s decision regarding the interpretation of the word “unoccupied” in section 8 of the Property Tax Act (the “Act”) in the context of claims for property tax refunds. The court found that the meaning of the term “occupied” referred to the enjoyment and use of the premises for the purpose for which those premises were created. Therefore, in so far as the property is for obtaining rental, this purpose must be the collection of rent.

In the course of the judgment, the court also considered the underlying purpose of the vacancy refund scheme under section 8 of the Act, particularly in the context of a fitting-out period given to a tenant. Essentially, when fitting-out works are being carried out, no one is really enjoying the use of the premises. Accordingly, the court held that certain office units were “unoccupied” during the fitting-out period for the purpose of section 8 of the Act because the landlord, receiving no rent, was not obtaining the beneficial use of the property for which it was intended.

Facts of the case

The appellant appealed for property tax refunds (the “vacancy refunds”) in respect of its various leased premises (the “Units”) for the period between issuance of the Temporary Occupation Permit (the “TOP”) for the Units, and the commencement of the lease (the “Term Start Date”).

The appellant owned two office blocks. The TOPs for the two office blocks were issued in 2010. Prior to the issuance of the TOPs, the appellant had secured a number of tenants. The tenants each signed the acceptance of a letter of offer. The letter of offer provided for a rent-free fitting-out period starting on the date on which the tenant was required to take possession of the premises (the “Possession Date”). Rent was only payable from the date of commencement of the lease, which was immediately after the end of the fitting-out period. During the fitting-out periods, the tenants did not move into the Units, but their contractors conducted fitting-out works in the Units.

The appellant filed claims for refunds of property tax from the date of issuance of the TOP until the Term Start Date (the “Claim Period”). The Claim Period therefore included the fitting-out period.

The Comptroller of Property Tax (the “Comptroller”) disallowed the claims for refunds relating to the fitting-out period taking the view that since the appellant had by then secured tenants, and the tenants had taken possession of the Units and were carrying out fitting-out works, the Units were not “unoccupied” for the purpose of section 8 of the Act.

The appellant applied for an order that the Comptroller refund the property tax in respect of the Units during the fitting-out period, and a declaration that the appellant was entitled to such refund.

Relevant provisions of Property Tax Act

Section 8(1) of the Act provides for the refund of property tax in respect of any building for any period during which the building is unoccupied.

Section 8(4) of the Act sets out four conditions which an owner must satisfy before a vacancy refund is allowed:

  1. the building is in good repair and fit for occupation;
  2. every reasonable effort to obtain a tenant has been made;
  3. the rent demanded is a reasonable one; and
  4. the building has been vacant during the whole of the period in respect of which a refund is claimed.

Section 8(5) provides that where a refund is claimed in respect of a period during which the building has been undergoing repairs for the purposes of rendering it fit for occupation, it is not necessary to prove in respect of the claim the matters specified in (a), (b) and (c) above.

Issues before the Court of Appeal

The following issues arose for consideration before the Court of Appeal:

  1. What was Parliament’s intention behind the vacancy refund scheme in section 8 of the Act;
  2. Was the High Court Judge (the “Judge”) correct in his interpretation of the term “occupation” as used in section 8(1) of the Act; and
  3. The significance of the four conditions under section 8(4) of the Act, and whether they were fulfilled in relation to the Units during the Claim Period.

Intention of vacancy refund scheme

The Court of Appeal was of the view that the underlying purpose of the vacancy refund scheme under section 8 of the Act was the provision of financial relief to an owner who is not able to reap the return for which his property was intended, through no neglect or unreasonableness on his part.

In the court’s opinion, section 8(4) and (5), read together with the relevant Parliamentary speech show that this financial relief was deemed not appropriate where the owner brought the financial burden upon himself by depriving himself of a tenant and therefore rent, because he has not made reasonable efforts to secure a tenant, or insists on charging too high a rent. On the other hand, it was deemed appropriate to grant a refund of the property tax where the owner was deprived of financial return on his property despite his best efforts at securing a tenant, or because the property is undergoing essential repairs and is therefore not able to take a tenant.

The Court of Appeal therefore disagreed with the Judge that Parliament’s intention was to only grant financial relief to owners unable to secure tenants and not to an owner who agrees with a tenant under a lease where the date from which the tenant would occupy the premises and pay rent would be on a date later than the date on which the lease agreement was executed (the “gap period”). In this situation, no sensible owner would be making any further efforts to find a tenant to occupy the premises for the gap period.

Meaning of “occupation”

The appellant’s suggested meaning of the term “occupied” is the enjoyment and use of the premises for the purpose for which those premises were created. The Court of Appeal found that this meaning best advanced the intention of Parliament when it re-introduced the vacancy refund provision in 1963.

In the Court of Appeal’s view, when fitting-out works are being conducted, even the tenant is not obtaining the beneficial use of the premises for which he intended them. As a matter of principle, it should not matter whether the works are commissioned by the owner, the tenant-to-be, or by someone else. It is the condition of the property which is under examination. The identity of the person commissioning the works is irrelevant. Essentially, when fitting-out works are being carried out, no one is really enjoying the use of the premises.

The Court of Appeal held that, in the context of the scheme envisaged under section 8 of the Act, the term “occupation” should be construed to mean beneficial use for the purpose for which the property is intended. In so far as the property is for obtaining rental, this purpose must be the collection of rent. On the other hand, if the owner were to permit a relative to occupy the property rent-free, the beneficial use is the enjoyment of the premises by the relative, not the collection of rent. Possession per se should not be the basis to determine whether an owner would be eligible for property tax relief under section 8 as a property, even when not occupied by anyone, would be under the possession of the owner. To say therefore that because the owner was in possession he would not be eligible for the refund would run counter to the object of the vacancy refund scheme. Nor is there any basis for the Comptroller’s contention that when a tenant-to-be was given early possession of the property by the owner-landlord for the specific purpose of fitting out, such possession by the tenant-to-be would constitute occupation, in the sense of the tenant-to-be having had the enjoyment of the property.

Four conditions of section 8 of the Act

Section 8(4) of the Act sets out four conditions which an owner must satisfy before a vacancy refund is allowed.

Although the Court of Appeal agreed that the Judge was correct to find that generally all four requirements must be met before a claim for refund could be allowed in respect of a period, the Court of Appeal was unable to accept the proposition that once a tenant is found for the property, and where the tenant would only take occupation of it in a couple of months’ time, the owner would not be able to claim refund for the gap period because he had made no effort to obtain a tenant for the gap period.

The Court of Appeal found it clear from the Parliamentary debates that the vacancy refund was intended to grant relief to an owner of a building which was at all material times meant to be rented out rather than kept vacant for other reasons. It was also stated in the relevant Second Reading Speech that the four requirements served as “precautionary steps” to prevent an owner who kept his property vacant for other types of benefit, such as sale with vacant possession, from claiming the refund.

In the light of this, the Court of Appeal was of the view that the four conditions should be understood as a specific mechanism prescribed by Parliament to differentiate between owners who genuinely intended to let out their properties and those who kept their properties vacant for other reasons. The legislative purpose of the four conditions is to discourage the inefficient holding out of property, and not to penalise those who through great efforts managed only to obtain a tenant who wanted the tenancy to start only a couple of months later.

The Court of Appeal found that the appellant met the four conditions under section 8(4) of the Act throughout the Claim Period. It was not disputed that the Units were in good repair and fit for occupation under section 8(4)(a) of the Act, when TOP was granted. As for the conditions under sections 8(4)(b) and (c), it was not disputed that the appellant had made reasonable efforts to secure tenants by enlisting the services of various estate agents, and by asking for a reasonable rent. The conditions under sections 8(4)(b) and (c) were therefore also satisfied.

Conclusion

On the basis of the foregoing analysis, the Court of Appeal found that the appellant had met the criteria for entitlement to the vacancy refund under section 8 of the Act. The Units were “unoccupied” during the fitting-out period for the purpose of section 8 of the Act because the appellant, receiving no rent, was not obtaining the beneficial use of the property for which it was intended. The Court of Appeal also found that the appellant met the four conditions under section 8(4) of the Act throughout the Claim Period.