On the sale of commercial property, is VAT payable on the price?

Buyers and Sellers should not overlook VAT when drafting a sale and purchase contract of commercial property. This issue was considered by the Court of Appeal in CLP Holding Company Limited v Singh. The Court had to review the provisions of a sale contract in order to decide whether the buyer was liable to pay VAT to the Seller in addition to the agreed sale price.

Under a contract entered into in 2006, the seller agreed to sell to the buyer a commercial property for the Purchase Price and which was defined as £130,000. There was no mention of ‘plus VAT’ in the contract. The contract was in a standard form incorporating the Standard Conditions of Sale (4th Edition). These are known as the ‘general conditions’. There were also special conditions, but these did not deal with the question of VAT.

General condition 1.4 stated the buyer was liable to pay any VAT for which the seller was liable. The general conditions also provided all sums payable under the contract were exclusive of VAT.

In the lead up to completion, the solicitors for the buyer raised some requisitions on title and one asked for a completion statement. In its reply, the solicitors for the seller said the amount due on completion was ‘the balance of the purchase monies’ . In the period leading up to exchange, no specific enquiries were raised about whether the seller had opted to tax, or whether VAT would be payable on the price. It appears the buyer decided not to raise the usual standard industry enquiries which specifically deal with these issues.

On completion, the balance of the purchase price was paid, without VAT; the transaction completed and the buyer was registered as the proprietor of the property.

Subsequently it transpired the Seller had indeed opted to tax, and consequently was liable to account to HMRC for the VAT on the sale. After HMRC made an assessment on the seller for VAT, the seller in turn asked the buyer for the VAT, and submitted a VAT invoice to the buyer. The buyer refused to pay. After a long delay, the seller finally issued proceedings and the dispute found its way to the Court of Appeal.

The Court concluded VAT was not payable in addition to the Purchase Price. The court reached this conclusion having regard to all the circumstances of the parties’ relationship and the relevant facts surrounding the transaction as known to them. In addition, the Court relied on the following reasons

1 the seller had never told the buyer that an option to tax had been made
2 the buyers were individuals and there was never a suggestion that VAT might be payable
3 the price had been agreed a long time before completion. Also the buyers had already deposited the Purchase Price of £130,000 long before completion
4 in a reply to a requisition asking for a completion statement, the seller’s solicitors had stated the amount due on completion was ‘The balance of the Purchase Price’ with no mention of VAT.
5 Finally, the special conditions state the purchase price was ‘£130,000’.There was no mention of VAT. There was a conflict with the general conditions – which stated all sums were exclusive of VAT. The Court decided where there was any conflict with the general conditions, then the special conditions must prevail.

Accordingly, the case demonstrates the importance of a seller and a buyer expressly addressing the VAT position on any sale contract in the special conditions on the sale of a commercial property.