Property law reports

VAT: LIABILITY

VAT - legitimacy of UK legislation - seasonal pitches for caravans subject to VAT under Value Added Tax Act 1994 - appellant caravan park owner held liable to VAT - whether UK legislation within powers conferred by VAT Sixth Council Directive 77/388/EEC - whether reference should be made to European Court of Justice - appeal dismissed

Commissioners of Customs & Excise v Colaingrove Ltd: ChD (Mr Justice Jacob): 16 April 2003

The appellant operated a number of caravan parks in which many of the pitches were let to caravan owners on licences terminable by notice.

The appellant's customers were given no interest in land.

In addition, they were prohibited from living in the caravans as a permanent address and from staying overnight for three months from December to February.

The VAT Tribunal determined that the services provided by the appellant were chargeable to VAT under Group 1 of Schedule 9 to the Value Added Tax Act 1994.

Under that provision, the grant of any interest in, or licence to occupy, land was exempt from VAT, with certain exceptions, including 'the provision of seasonal pitches for caravans, and the grant of facilities at caravan parks to persons for whom such pitches are provided'.

The 1994 Act purported to implement the VAT Sixth Council Directive 77/388/ EEC, which, by article 13B(b), exempted from VAT the letting of immovable property, excluding, by article 13B(b)(1), 'the provision of accommodation in the hotel sector or in sectors with a similar function, including...

in holiday camps or on sites developed from use as camping sites'.

Article 13B included a 'tailpiece', providing that 'member states may apply further exclusions to this exemption'.

In reaching its decision, the tribunal rejected an argument by the appellant that the seasonal pitches exclusion went beyond the powers given by the directive.

It was unsure whether the seasonal pitch provisions were justified by the hotel sector exclusion in the directive, but considered that it was covered by the tailpiece.

The appellant appealed, and contended that it had a sufficiently good point for reference to the European Court of Justice.

Roderick Cordara QC and David Scorey (instructed by Eversheds, Cardiff) for the appellant; Rupert Anderson (instructed by the solicitor, Customs & Excise) for the respondents.

Held: The appeal was dismissed.

It was not clear that the UK provision bringing seasonal pitches into tax were legitimised by article 13B(b)(1), and, had that been the key question, it would have been appropriate to make a reference to the European Court of Justice.

However, the case centred on the tailpiece, and that provision clearly justified the taxing of seasonal pitches.

The general principle of construction of EU instruments, that exceptions were to be narrowly construed, did not apply to the tailpiece because it was not an exception, but, on the contrary, empowered member states to derogate from an exception.

There was clear authority that that power was a wide one: Blasi v Finanzamt Mnchen I C-346/95 [1998] All ER (EC) 211 and Amengual Far v Amengual Far C-12/98 [2002] STC 382 considered.

Moreover, in the latter case, the court held that it was acceptable to except all non-dwelling uses from the VAT exemption, whereas all the UK had done, in the case of seasonal pitches, was to except a particular example of non-dwelling use from the VAT exemption; since the greater included the lesser, the UK provisions were also legitimate.

There was no question of irrational discrimination between equivalent types of transaction on the ground that long-stay hotel accommodation was VAT-exempt and seasonal caravan pitches were not.

Seasonal pitches had much in common with things excluded from the exemption in article 13B, and there was no reason why the UK should not tax them if that was the policy decided upon: Lubbock Fine & Co v Commissioners of Customs & Excise C-63/92 [1994] QB 571 distinguished.

The matter was clear, and a reference to the European Court of Justice was not required.

LEASEHOLD REFORM ACT 1967: ACQUISITION OF FREEHOLD

Acquisition of freehold - meaning of 'house' - vertical division - respondent wishing to acquire freehold of two mews units - whether vertically divided property can constitute single house - appeal dismissed

Collins v Howard de Walden Estates Ltd: CA (Lords Justice Aldous and Dyson): 16 April 2003

The respondent held a long lease of numbers 11 and 12 of a mews building, and wished to acquire the freehold from the appellant pursuant to the Leasehold Reform Act 1967.

The terms of the respondent's lease required her to occupy the demised premises 'as a single private dwelling', with the exception of the first floor of number 12, which constituted a separate, self-contained flat that was let on an underlease granted by the respondent's predecessor.

The lease also provided that a garage forming part of the ground floor of number 12 should be used 'ancillary to the use only of...

number 11'.

Numbers 11 and 12 had originally been entirely separate, but a communicating door had subsequently been constructed in a party wall from the patio of number 11 into a utility room at the rear of number 12, and thence into the garage.

The respondent sought a declaration that she was entitled to acquire the freehold.

The central issue in the proceedings was whether numbers 11 and 12 together constituted a single 'house', reasonably so called, within the meaning of section 2 of the 1967 Act.

The judge found that they did, and attached weight to the requirement in the lease to use them as a single dwelling.

He considered that the limited access arrangements did not detract from that view.

In reaching his conclusion, he was guided by the Court of Appeal decision in Malekshad v Howard de Walden Estates Ltd [2001] EWCA Civ 761; [2001] 3 EGLR 47.

Following the House of Lords decision in Malekshad [2002] UKHL 49; [2002] 3 WLR 1881, the appellant appealed, contending that: the facts of that case were analogous; and the vertical division between numbers 11 and 12 meant that they were excluded from the definition of a house by section 2(1)(b) of the 1967 Act, the door in the party wall being insufficient to convert the two houses into one.

Judith Jackson and Timothy Harry (instructed by Speechly Bircham) for the appellant; Anthony Radevsky (instructed by Lawrence Graham) for the respondent.

Held: The appeal was allowed.

Applying the principles set out in Malekshad, numbers 11 and 12 satisfied the first test, in section 2(1), of being a building that had been designed and adapted for living in.

Accordingly, the outcome of the appeal depended upon whether, because of the vertical division, they were excluded from constituting a single house by section 2(1)(b).

The finding in Malekshad, that the property under consideration was not, for that reason, a single house, did not decide that issue in the present case because the facts were very different.

A vertical division along the lines contemplated by the appellant would not divide the property into two residential units, as contemplated in Malekshad.

It would result in number 11 forming a house, with its premises including the garage and the utility room in number 12.

That would produce just the effect that section 2(1)(a), in excluding horizontally divided units such as flats, was designed to avoid, since it would turn the flat in number 12 into a flying freehold.

That difficulty would be avoided if the real position were accepted, namely that the utility room and garage of number 12 were part of number 11 both in practice and by design.

The correct view was that numbers 11 and 12 were not vertically divided in the manner contemplated by section 2(1)(b).