Q and A
In this edition, David Horan clarifies the VAT treatment of premises used for storage purposes and Sanjay Dave considers the implications of tree roots causing damage to neighbouring property.
Q: I am a landlord and I’ve heard that where a leasehold property is used for storage purposes, this will be treated as a taxable supply, whether or not I have opted the property to tax? Is that really right?
A: You will be aware of the default rule that rent payable on property is exempt from VAT. This usually applies unless the landlord has opted to charge VAT, in which case VAT will be payable. There is an exception to this rule, however, such that where a rented property is used for storage purposes by the tenant or a third party with their permission, this will be treated as a taxable supply, despite the fact the landlord has not opted to charge VAT. This exception was introduced on 1 October 2012. Initially there was some doubt over whether these rules only applied to “self- storage” units; however HMRC has recently clarified that the rules have a wider application.
You do not need to worry about this if you have opted to tax your property for VAT purposes, as VAT will already be payable on the rent. However, where the property is not opted to tax but is used for storage purposes, this will be treated as a taxable supply
HMRC has confirmed that these rules apply to any space used for storage provided that it is the whole or part of a unit, building, container or other structure that is fully enclosed. This may apply even if storage use is not permitted under the terms of the tenant’s lease. Note that where the tenant uses part only of the premises for storage, you do not need to worry about this, provided storage use is ancillary to the main use of the premises. However, if the tenant takes a separate lease of a unit which is to be used exclusively or principally for storage (such as a storage unit in a shopping centre), then VAT would be payable on the rent under that lease.
However, the new rules do not normally apply where your tenant makes its own supply of the property (e.g. by subleasing) to another person, and that person uses the property for the self-storage of goods.
Real Estate Quarterly Winter 2013 17 HMRC says that the landlord is responsible for ensuring that the correct VAT treatment is applied according to the actual use of the space. This means that you should be particularly alert to this issue if your tenant is using the premises for self-storage or a third party is doing so with their permission. In most cases, this will be clear (if, for example, the premises are purpose built for storage, such as a warehouse).
Q: I own a large estate populated with many trees which is in close proximity to residential developments. I have heard there is a new case which changes the law on liability for negligentdamage caused by tree roots. Should I be concerned?
A: The new case you refer to is Robbins v London Borough of Bexley1 in which the defendant’s trees’ roots caused severe damage to the claimant’s property. The High Court found the defendant liable for the damage caused, amounting to over £150,000, and the defendant’s subsequent appeal was dismissed.
In reaching its decision, the Court of Appeal provided guidance on two fundamental issues which are
relevant to a negligence claim in this context:
- the precise scope of the duty that a tree owner owes to its neighbours to prevent tree root damage; and
- how the courts decide whether the defendant has actually caused the relevant damage when it has taken no steps to comply with that duty.
The Court held that the duty the defendant owed to its neighbour was one to “take reasonable steps to prevent trees from causing damage to [neighbouring properties]”. This duty is extremely broad and is not limited to merely requiring a tree owner to take specific, precautionary steps to prevent such damage. Unhelpfully, whether this broad test is satisfied by a tree owner ultimately depends on the facts of a particular case. However, fortunately for tree owners, the duty only usually arises, in relation to a particular property, if the tree owner has reasonable notice of its trees’ roots causing damage to that property. Therefore, to some extent, ignorance is bliss.
Whether the defendant’s breach of duty was actually the cause of the damage was the main ground of the appeal. In the High Court it was held that there were many ways for the defendant to comply with its duty to prevent damage. The defendant had done nothing and so the material question was what the defendant would have done had it taken steps to discharge its duty. If the defendant had taken these steps and the damage had still occurred, then clearly the defendant would not have caused it. In Robbins, the High Court held that the steps the defendant would have taken included conducting severe cyclical crown reduction on the trees. This action would have prevented the damage and therefore the defendant caused it by doing nothing.
On appeal the defendant argued that it could have complied with its duty by conducting less severe cyclical crown reduction and had it done that, the damage would still have occurred. Therefore the defendant argued its inaction had not caused the relevant damage. This argument was dismissed. The Court of Appeal held that it was open to the High Court judge to determine the steps that the defendant would (as opposed to could) have taken. This was the relevant fact when determining whether the defendant’s inaction caused the damage.
Given that this area of law is relatively untouched by statute and the courts, Robbins has introduced a great deal of uncertainty for tree owners. The duty which they owe is very wide; if they fail to act at all, the court will have to determine whether the tree owner caused the relevant damage by reference to a hypothetical course of action that the party would have taken in the circumstances. Regardless of this nebulous area of law, a prudent landowner should always ensure that the trees on his property are managed.