One of the more unlikely government consultations this year has been the one proposing that landlords should take responsibility for preventing tobacco and other excise duty evasion at let property.
HMRC issued a consultation which closed in May suggesting that landlords and landowners should have a duty to ensure their property is not used to evade tobacco or other excise duty and proposing penalties for non-compliance.
The perception is that landlords of some retail outlets turn a blind eye to the sale of illicit tobacco from the premises they let. However, the consultation does not suggest that the new rules would be limited to any particular type of property use, whether retail, office, industrial or residential.
The suggestion is that landlords should be asked to include a clause in their leases expressly outlawing the sale of illicit tobacco "or other illicit excise trading". Given most lease terms already prohibit illegal use and contain an obligation to comply with all statutes, singling out one specific illegal activity will not give the landlord any extra rights against its tenant but may open it to the possibility of enforcement action if it omits to include the express clause.
The next suggestion is that, if notified that their tenant has evaded any excise duty (not limited to tobacco – obviously many other goods are also subject to excise duty), landlords must carry out checks on that tenant's activities and terminate the lease if it believes excise duty evasion is being carried on at the premises. A penalty would be imposed if the landlord could not demonstrate that it had taken reasonable steps to prevent future wrongdoing.
The consultation does not seem to take account of the fact that the landlord's right to terminate a lease for breach by the tenant are heavily circumscribed by statutes such as s.146 of the Law of Property Act 1925. Nor that the ability of the landlord to inspect the premises and investigate the tenant's activities will depend on it having reserved such rights in the lease.
We consider these proposals are impractical and place a disproportionate burden on the vast majority of law abiding landlords who are not complicit in their tenants' illegal activities, while being unlikely in practice to reduce the incidence of duty evasion. We have responded to the consultation accordingly. HMRC are now analysing the feedback received to its consultation but no decision has yet been announced as to whether the government intends to proceed with legislation to implement the measures.