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Ten days left to respond to Minimum Energy Efficiency Standard consultation 23 August 2014

There are only ten days left to respond to the Minimum Energy Efficiency Standard (MEES) consultation.  The consultation period ends at 23.45 on Tuesday 2 September 2014.

As I said in my previous post on this topic, I am preparing my own response to the consultation and the draft version is now available on this website here.   I am very happy for people to respond by reference to it, either in whole or in part, or to reproduce in their own responses any parts of my response that they wish to adopt.

Please do send me any comments you may have on my draft response.

I intend to finalise the response, and submit it, on Monday 1 September.  I will post the final response on this website, drawing attention to any changes between it and the draft version, on the evening of Monday 1 September.

Previous articles on this topic

Previous articles on this topic can be found on these links:

Minimum Energy Efficiency Standard consultations published (22 July 2014)

Minimum Energy Efficiency Standard – thoughts on the consultation proposals (28 July 2014)

Three weeks left to respond to Minimum Energy Efficiency Standard consultation (13 August 2014)

 

 

 

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PII in the sky 20 August 2014

I have been intending to write about the Solicitors Regulation Authority (SRA) and the minimum required level of professional indemnity insurance (PII) for a couple of weeks, but there have been just too many other more urgent issues demanding publicity.  Suddenly common sense seems to have broken out so this is an appropriate time to highlight the issues to people who have been too busy at their desks (or on the beach) to be aware of the detail.  It sounds dull, and it is, but it has very serious implications for all lawyers. 

Currently law firms need to have £2m of PII, or £3m for LLPs.  The SRA has proposed that this should be reduced to £500,000.  This should, it says, reduce insurance premiums and therefore enable solicitors to reduce their bills to consumers.  Smiles all round.

Except (1) insurers are saying that it will not save money, because obtaining £500,000 of cover will cost much the same as obtaining £2m; and (2) many firms will choose to obtain more than the minimum cover, which will then cost more than obtaining the minimum cover today. 

There are plenty of other reasons why this is not a good idea, even if it does save a few firms a few pounds.  A specific issue for commercial (and of course residential) property lawyers is that we currently happily accept undertakings to discharge mortgages so long as the amount owed does not exceed £2m (or £3m in the case of LLPs).  If the SRA’s proposal is approved, this will no longer be possible, and for any redemptions over £500,000 it will be necessary to obtain confirmation of the amount of the firm’s PII cover (as ought already to be done in the case of larger mortgages).  Undertakings are only acceptable because they are backed up by PII cover. 

Consultation and more consultation

The SRA proposed, consulted, approved its own proposal and then applied to the “super-regulator for lawyers”, the Legal Services Board (LSB), for approval.  It hoped to obtain approval in time to reduce the minimum PII sum before 1 October, when the majority of law firms renew their insurance.

The LSB has published all the papers, including the SRA’s application to it, and responses from law firms and others to the SRA’s application (are you sure you are keeping up?), on this web page:

Application to LSB for the approval of amendments to SRA’s regulatory arrangements on Professional Indemnity Insurance (PII) Minimum Terms and Conditions of Cover

Of all this paperwork, I believe the most valuable is this response from Legal Risk LLP (solicitors specialising in advice on professional indemnity and professional regulation for solicitors): 

Letter to LSB from Legal Risk LLP dated 21 July 2014

Earlier this month, the LSB announced that it would not be able to make a decision within the standard 28 day period available to consider this sort of application.  It gave itself an extension of 90 days, as it is entitled to do. 

And yesterday came news that the LSB has issued a warning notice to the SRA pursuant to paragraph 21(1)(b) of Part 3 of Schedule 4 to the Legal Services Act 2007 (what? you say – or possibly WHAAATT???), stating that the LSB is concerned that the reduction in minimum PII cover “could be argued to be prejudicial to the regulatory objective of protecting and promoting the interests of consumers.”  This is what it looks like:

Warning notice pursuant to paragraph 21(1)(b) of Part 3 of Schedule 4 to the Legal Services Act 2007

The LSB has asked for further evidence on certain points, and the Law Society Gazette announced yesterday on its website that the SRA has conceded that the application will not be approved (if it is indeed ever approved) in time for the 1 October renewal date for PII this year.

General relief all round.  Renewals can be carried out on the basis of the existing rules, which everyone (and particularly the insurance market) understands.  Few people in the profession believe that this proposal is sensible.  My guess is that ultimately – perhaps early in 2015 – the LSB will refuse the SRA’s application to reduce the minimum level of PII to £500,000, principally on the basis that the SRA will not be able to provide any cogent evidence that insurance premiums will be lower as a result.

Keep watching this space, if you can keep your eyes open.  Matchsticks are always good, I am told.

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EPCs and listed buildings 18 August 2014

It is at last time to tackle the thorny question of whether EPCs are required for listed buildings, if for no other reason than that landlords of listed buildings will need to know whether the Minimum Energy Efficiency Standard (MEES) will apply to them.  Currently there is, shall we say politely, confusion over the issue.

A recent issue of Estate’s Gazette contained a half-page advert for a “Hotel, Spa & Estate” in St Austell, with a guide price of £7.5m.  What caught my eye was the phrase “EPC Exempt”.

The hotel was not named, but a little research on the web identified it as the Cornwall Hotel, Spa & Estate in Tregorrick (a good Cornish name).   Its website tells us that the main building is called the White House, and this is mentioned by name on the English Heritage website of listed buildings in Cornwall.  It all began to make sense.  This is a listed building – so, people say, it must be exempt from the need for an Energy Performance Certificate (EPC).  But it is not quite so simple …

There is a widespread belief that listed buildings are exempt from the requirements for EPCs.  EPCs are required to be prepared, by EU law, when a building is being sold or let.  They rate a building’s theoretical energy performance on a scale from A (best) to G (worst), rather like a fridge.

The EU directive was “re-cast” a couple of years ago, and changes were made to the relevant regulations that implement the EU law in England and Wales (the Energy Performance of Buildings (England and Wales) Regulations 2012).   So far as possible, the regulations simply repeat the wording in the EU directive, to avoid any criticism that they have not been implemented correctly (we have seen a few examples of this in the past, and the EU Commission has had to crack down on the UK Government). 

The regulations contain one particularly odd provision.  Regulation 5(1)(a) states that EPCs are not required for:

“buildings officially protected as part of a designated environment or because of their special architectural or historical merit, in so far as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance” (emphasis added)

Unfortunately no-one can actually explain what the wording in italics means.  It has been transcribed verbatim from the English version of the relevant EU directive.   Simply copying it out avoids any allegation of “gold-plating” in the regulations (ie requiring more than the EU requires – anathema to the coalition government), and also avoids the risk of getting it wrong.  However, in this instance it has the pretty serious disadvantage that now no-one can understand what the law is.

What are these energy performance requirements that have to be complied with?  Part L of the Building Regulations?  The MEES regulations, which are not coming into force until 2018?  Given the uncertainty as to what is meant, I think there has to be an argument that the effect of the wording in italics is that listed buildings are generally not exempt from the need for EPCs.  Equally, one can concoct an argument for saying that, given that the wording in italics is meaningless (in context), it should be ignored, and therefore listed buildings are indeed exempt from the need for EPCs, as the Government intended. 

Whichever is correct, the hard-working people of Britain (© all politicians) are entitled to better drafting of regulations than this gibberish.

Official advice

The advice on various official websites as to whether or not an EPC is needed for a listed building ranges from correct-but-incomprehensible to succinct-but-arguably-wrong. 

For example,the current guidance on selling your house on the gov.uk website includes in the section “Buildings that don’t need an EPC” the bald phrase “listed buildings”.

I have also just looked, today, at “A guide to energy performance certificates for the construction, sale and let of non-dwellings“, which is a PDF document produced by DCLG in December 2012.  In relation to listed buildings, it merely repeats the wording of the statutory instrument when it explains that the following buildings are outside the scope of EPCs:

“buildings and monuments officially protected as part of a designated environment or because of their special architectural or historic merit in so far as compliance with certain energy efficiency requirements would unacceptably alter their character or appearance”

The relevant page of the English Heritage website is less ambiguous.  In fact, it’s extremely definite (albeit possibly wrong), saying:

“An Energy Performance Certificate (EPC) is a legal requirement when building, selling or renting a property. However, there are exemptions for certain types of building and  since January 2013 listed buildings have been exempted from the need to have an EPC.”

What did the Government intend?

The Government’s “impact assessment” relating to the re-cast EPC Directive used the number of listed buildings in England and Wales to try to estimate the savings that would be made by removing “buildings and monuments officially protected as part of a designated environment or because of their special architectural or historic merit …” from the scope of EPCs.  So it seems pretty clear what the Government’s intention was. 

If we assume that no-one can satisfactorily explain what the second part of the phrase actually means (and I certainly cannot explain it), does that mean that the owner of a listed building can safely sell it or grant a lease without commissioning an EPC?  After all, commissioning an EPC for a listed building is likely to be far more expensive than for a standard building. 

The pragmatic answer is that failure to produce one is unlikely to result in enforcement action, so the owner might be willing to take the risk (and the buyer, or tenant, is of course not taking any risk).  The EPC regulations are generally not enforced with any great vigour.  And if a trading standards officer decided to take some action, if only to encourage others to comply, it’s pretty unlikely that he or she would start with a listed building, where everyone knows there is confusion.  An agent, on the other hand, might baulk at marketing the building with no EPC – although the Estates Gazette advertisement mentioned at the start of this article suggests that some agents are happy to adopt the view that listed buildings are exempt from the need for an EPC full stop.

So we are left with the embarrassing likelihood that the Secretary of State (or at least the Parliamentary Under Secretary of State on his behalf) signed into law the Energy Performance of Buildings (England and Wales) Regulations 2012 without having any idea what regulation 5(1)(a) actually means.  And if he isn’t embarrassed, then he ought to be.

A possible explanation

After researching this article, I became convinced that there must be an error in the UK regulations – even though the words have been literally transposed from one document to the other.

And here is my conclusion.  The offending provision has been taken entirely out of context, and included in the regulations inappropriately

Article 4 of the Directive is headed “Setting of minimum energy performance requirements” and starts “Member States shall take the necessary measures to ensure that minimum energy performance requirements for buildings or building units are set with a view to achieving cost-optimal levels.”

Article 4(2) then contains some exceptions, as follows:

“Member States may decide not to set or apply the requirements referred to in paragraph 1 [ie minimum energy performance standards] to the following categories of buildings:

“(a) buildings officially protected as part of a designated environment or because of their special architectural or historical merit, in so far as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance;”

In this context, it makes sense – but note that such buildings are still required to comply with minimum energy performance requirements where those requirements do not unacceptably alter the buildings’ character or appearance.

Articles 11 and 12 cover the requirements for EPCs.  Article 12(6) says that

“Member States may exclude the categories of buildings referred to in Article 4(2) from the application of paragraphs 1, 2, 4 and 5 of this Article.”

So what the UK regulations should have done is to exclude from the need for EPCs a category of building (ie listed buildings).  Including the “insofar” bit at the end was entirely inappropriate. 

And, it seems, counter-productive.  My unexpected conclusion is that under the Directive it is indeed permissible for “a building officially protected because of special architectural or historical merit” to be excluded from the requirement for an EPC.  However, by injudicious (or sloppy) transposition from the Directive to the UK regulations, the Government has arguably failed to take advantage of the exemption.  As explained above, as a result of the incorrect transposition it is possible to run an argument that listed buildings are covered by the UK regulations and do require an EPC before sale or letting.  There has to be some kind of irony there, although I doubt that David Cameron would appreciate it.  I’m sure that Nigel Farage would, though.

You can decide whether you agree with me by looking at the Directive itself (available through this link):

EU Energy Performance of Buildings Directive (re-cast) (English version)

 

I am grateful to Sue Highmore, an editor at Practical Law, for commenting on the initial version of this article.  I take full responsibility for its contents, however.

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Help fishing boats to catch fish, not albatrosses 16 August 2014

Something entirely different in this “Weekend Musings” article, following a trip yesterday to the annual Bird Fair at Rutland Water.

 

Courting Southern Royal Albatross on Campbell I lsland

Over 100,000 albatrosses are killed annually when they swallow bait on longline fishing lines, after the lines are dropped over the boat but before the hooks sink into the sea.  An organisation called Hookpod has designed a clever gadget that encloses the hook until it reaches a safe depth, out of the reach of albatrosses.

Hookpod needs to raise £100,000 by 25 August via crowd-funding to fund the first production batch.  It has raised two-thirds of this but is still seeking some £35,000.  Please help by visiting this crowd-funding website

Hookpod – Saving the albatross from extinction

The photograph shows a pair of Southern Royal Albatrosses at their breeding ground on Campbell Island, part of an archipelago some 400 miles south of New Zealand.  Royal albatrosses have a wingspan of almost twelve feet and can live for over fifty years.  We were lucky enough to be able to land on this remote windswept island during our trip to the Sub-Antarctic Islands in 2011.

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Three weeks left to respond to Minimum Energy Efficiency Standard consultation 13 August 2014

An amusing headline for a blog or journal article is always tempting, but sometimes a bit less subtlety is called for.

As the heading indicates, there are only three weeks left to respond to the Minimum Energy Efficiency Standard (MEES) consultation.  The consultation period ends at 23.45 on Tuesday 2 September 2014.

The six week consultation period – timed almost to the day across the summer holiday period – is not sufficient for a sensible discussion of this important piece of legislation.  It was chosen because DECC wants to get the regulations made early in 2015, before the Government closes down in advance of the election in May 2015.

We all want the regulations to be issued at the earliest opportunity so people know what to do in readiness for the start date in April 2018.   But if in fact the regulations do not make clear what has to be done – or (as is likely) raise more questions than answers – this will be a case of more haste, less speed.  Spending a bit more time on the detail before issuing the regulations might be a better option.  This is something that DECC will need to consider when all the consultation responses have been received.

The MEES proposals

The MEES proposals are summarised in my article (“MEE time” – I came up with that gem!) published in last weekend’s Estates Gazette.  To ensure maximum readership, EG has kindly made the online version available to everyone (not just EGi subscribers) free of charge at this link:

MEE time (Estates Gazette, 9 August 2014)

Responding to the consultation

To save space, I will not reproduce in full here the 15 consultation questions.  They, and a link to the consultation document itself, are set out in this blog article dated 22 July 2014:

Minimum Energy Efficiency Standard consultations published

DECC needs all the help that we can provide to help finalise the details of this policy.  So please don’t just sit back and let other people respond.   Do put in your own response – but I can help.

During next week I will be preparing my own response to the consultation and I will make it available on this website.  I am very happy for people to respond by reference to it, either in whole or in part, or to reproduce in their own responses any parts of my response that they wish to adopt.

There are two questions in particular where input from surveyors and consultants is going to be essential.  They are:

3.  Should the Government allow landlords the option of demonstrating compliance by installing those measures which fall within a maximum payback period, and if so do you have any evidence on an appropriate payback period? Do you have any views on how the process of identifying improvement payback periods should operate?

This is discussed in paragraphs 59-63 of the consultation document.  The purpose of this “alternative financing mechanism” (as it is termed by DECC) is to enable landlords to demonstrate they have done everything possible to improve the energy efficiency of a building, yet still not reached an E rating, without the need for using Green Deal finance.  Large organisations are likely not to wish to use Green Deal finance, as the cost may be too high and the paperwork overwhelming.  But I do not know enough about the technicalities to understand what sorts of works are likely to be carried out, and what the effect will be.

4.  Do you agree with the proposed method for demonstrating an exemption where works would result in a material net decrease in a property’s value? What would be the most appropriate way to set the threshold?

This is discussed in paragraphs 64-68 of the consultation document.  The key word here is “value”.  Is it just rental value or capital value that should be taken into account here, or should it have a wider meaning?  And should it be only loss of lettable area caused by energy-efficiency improvement works that should be taken into account, or should loss of value for any other reason also be relevant?

I think there is a strong possibility that unless consultees provide detailed proposals to DECC in response to these two questions, the regulations will not contain provisions that address these issues.  DECC could say, with some justification, “we asked consultees if they wanted provisions along these lines, and no-one said they did, so we haven’t provided them.”

So please start thinking about the answers to these questions, and do contact me at info@nullfalcolegaltraining.co.uk with any thoughts on them, or on any of the other questions, that I can incorporate into my draft consultation response.

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When I use a word regularly … 9 August 2014

At the risk of sounding like Jack Dee at the start of the “I’m sorry I haven’t a clue” round called “Uxbridge English Dictionary”, many people confuse the two words “regularly” and “habitually”.

The case I am about to describe is not going to help such people.  It relates to an area of law that will be unfamiliar to most of my readers, the “bedroom tax”.  It has been brought to my attention in the beautifully written housing law blog nearlylegal.co.uk.

Broadly, the policy for the bedroom tax is that occupiers of social housing should be encouraged to move to the smallest property that they can occupy (or to take in a lodger).  To this end, a reduction in housing benefit is made for claimants who occupy social housing with more bedrooms than they “need”, with “need” being defined in regulations.   These are necessarily complex, but in summary adults in a relationship are entitled to a bedroom together, with additional bedrooms for single people, children (but two younger children, and two older children of the same sex, are expected to share a room) and – the important bit – an additional bedroom is permitted where someone requires overnight care.  However, in the detail the relevant regulations state that the carer has to “regularly stay overnight at the dwelling for that purpose”.

In SD v Eastleigh Borough Council [2014] UKUT 325 (AAC), the claimant needed help overnight on irregular occasions.  This troubled the First Tier Tribunal, which (most reluctantly) ruled that this lack of regularity meant that the test allowing an extra bedroom was not satisfied.  The case went on appeal to the Upper Tribunal (Administrative Appeals Chamber), where Judge Rowland said:

“The First-tier Tribunal held that the word [“regularly”] “denotes something which happens at intervals which, if not precisely fixed, are at least reasonably even” but the judge was unhappy with that construction because whether or not the need for overnight care was regular in that sense might not reflect the relative extent of the need.  In my judgment, that difficulty suggests that the word does not, in this instance, have the meaning ascribed to it by the First-tier Tribunal.  The word can also be used as a synonyn for “habitually” or “customarily” or “commonly” and this seems a more sensible understanding of the word in the context of the legislative provision than that adopted by the First-tier Tribunal.  Whether the intervals between a person’s need for overnight care are uniform or not is, as the First-tier Tribunal pointed out, immaterial to his or her need for a bedroom in which to accommodate a carer.”

The title of this article is of course taken from Lewis Carroll’s “Through the Looking-Glass”:

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, it means just what I choose it to mean – neither more nor less.”

Incidentally, during my research for this article I discovered (thank you, Wikipedia) that this quotation was actually used in a House of Lords decision.  The case was Liversidge v Anderson [1941] UKHL 1, which concerned the courts’ powers to review a Government Minster’s actions taken under the Defence (General) Regulations 1939.  These, presumably passed in a hurry at the start of WW2, stated:

“If the Secretary of State has reasonable cause to believe any person to be of hostile origin or associations and that by reason thereof it is necessary to exercise control over him he may make an order against that person directing that he be detained.”

The majority of the House of Lords ruled that the legislation prevented the courts investigating whether the Secretary of State’s belief was a reasonable one.   Lord Atkins dissented, saying that the majority decision was “a strained construction put on words with the effect of giving an uncontrolled power of imprisonment to the minister.”  He went on to say:

“I know of only one authority, which might justify the suggested method of construction.  ‘When I use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I choose it to mean, neither more nor less’.   ‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’  ‘The question is,’ said Humpty Dumpty, ‘which is to be the master, that’s all.’   After all this long discussion, the question is whether the words ‘If a man has’ can mean ‘If a man thinks he has’.  I have an opinion that they cannot and the case should be decided accordingly.”

As a result, Lord Atkin believed that it was open to the court to investigate whether the Minister’s belief was objectively reasonable.  In the heat of war, the majority disagreed.  But Lewis Carroll would have been delighted by Lord Atkin’s comment, I am sure.

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Possible abolition of chancel repair liability 6 August 2014

In 1985 the Law Commission reported on “Liability for chancel repairs” (Law Com No 152).  It pulled no punches.  This is the summary:

“In this report the Law Commission examines the liability, of mediaeval origin, to repair the chancels of some parish churches of the Church of England and the Church in Wales.  It recommends that in cases where this liability is an incident of the ownership of particular pieces of the land, and where it attaches to the right to receive corn rents and some rentcharges created to replace tithes, it should be abolished in ten years’ time.  A draft bill with explanatory notes on its clauses is annexed to the report.”  (Emphasis added.  Don’t you just love that wonderfully mediaeval “mediaeval”.)

The reason for the ten year delay was explained as follows (in para 4.18):

“… it seems fair to allow Church authorities a final opportunity to put their chancels in good repair before the landowners’ liability is abolished.  Churches are inspected by the diocesan architect every five years, and it follows that there should be enough time for making at least one of those inspections and for implementing any recommendations which follow from it.  Taking these factors into account, we favour the liability being abolished in ten years’ time.  To perpetuate the uncertainty within the conveyancing system for any longer period would not be tolerable.”

As we all know, nothing happened until the Land Registration Act 2002 was drafted (ignoring , for simplicity, the complexities around human rights and the Wallbank case).  A ten year period was allowed for protection of Chancel Repair Liability (CRL) by notice at the Land Registry, and it was thought that that would resolve the difficulty.  It now appears that there are three problems with this solution.  First, it does nothing to assist the people who have not sold their land.  It only helps people who buy on or after 13 October 2013.   Secondly, there is always a risk that CRL may be protected by a notice between exchange and completion, meaning that buyers need to consider insurance even where there is no notice of CRL on the register at the time of exchange.  And thirdly, the Land Registry has said that it will not itself make a decision as to whether a property is free from CRL after a transfer by rejecting an application to register a notice.  It states (see Landnet issue 38, October 2013) that it will enter a notice on the register even after a transfer on or after 13 October 2013, and leave the landowner to apply to cancel the unilateral notice in the normal fashion by lodging a UN4, if he or she believes that the notice is invalid.  If this is resisted, then the dispute will need to be referred to the Land Registration division of the Property Chamber, First-tier Tribunal in accordance with section 73 Land Registration Act 2002.  (I have some sympathy for the Land Registry’s approach here, even though it is clearly not what the proponents of the Land Registration Act 2002 expected to happen.)   So nothing seemed to have changed.  Clients continued to be mystified by CRL, and insurance was still the only option.

Deus ex machina

However, without warning, a Private Member’s Bill (the Chancel Repairs Bill) has appeared that could put an end to CRL overnight, should the Government allow it sufficient time and not obstruct it.  Private Member’s Bills are seldom successful, although there are rare examples that make it onto the statute book.  So I rarely pay them much attention, particularly at first reading (which is merely a formality).

But this may be different, as I have discovered from reading the Explanatory Notes to the Bill, which have just become available.  The wording of the Bill is astonishingly abrupt, which I took to be a sign that its promoter was not confident of its success.  Clause 1 reads:

“No person shall after the commencement of this Act be liable as lay rector for the repair of the chancel of any church or chapel.”

The reason for my cautious optimism that this Bill might be enacted appears in paragraph 7 in the Explanatory Notes:

“This Bill is based on the one proposed in the Law Commission’s Report, save that the ten year grace period has been removed in the light of the ten year period of retention of chancel repair liabilities as overriding interests …, which ended on 12th October 2013.”

So let’s compare the wording of clause 1 with the Law Commission’s drafting from 1985:

“No person shall after the end of 1995 be liable as lay rector for the repair of the chancel of any church or chapel.”

Identical except for the effective date.  So this is not, as I had originally assumed, the usual type of Private Member’s Bill that stands little hope of success.  Instead it appears to be a carefully thought-through effort (apparently with the assistance of the Secular Society) to implement a change in the law that the Law Commission itself emphasised was in urgent need of reform virtually 30 years ago.  With the exception of the very bright (and presumably now very wealthy) folk who devised the ChancelCheck search, and the indemnity insurers, the conveyancing profession must be crossing their collective fingers and hoping that this particular Private Member’s Bill makes it all the way.   (I should add that this optimism might be tempered slightly in Wales, since the Bill extends to England only.  The Welsh Assembly Government would need to legislate separately for Wales, apparently.)

Incidentally, by way of postcript, the draftsman of what is now section 2(1) of the Torts (Interference with Goods) Act 1977 must be cackling at the absurd prolixity of clause 1 of the Chancel Repairs Bill.  Section 2(1) reads, you will recall, “Detinue is abolished.”

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Plus VAT ? 1 August 2014

This is a salutary warning about not overlooking VAT when drafting a sale and purchase contract.

Condition 1.4 of the Standard Conditions of Sale (4th edition) says:

“1.4.1 An obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment.

1.4.2 All sums made payable by the contract are exclusive of value added tax.”

By a contract that was subject to those conditions of sale, CLP Holding Company Limited agreed to sell to Mr Singh and Ms Kaur a property for “the Purchase Price”, which was defined as £130,000.   No mention of VAT at all.  The contract said that the Standard Conditions applied unless inconsistent with the express terms of the contract.

Was the price under the contract £130,000 or £130,000 plus VAT ?

In CLP Holding Company Limited v Singh [2014] EWCA Civ 1103, decided yesterday by the Court of Appeal, the court held that VAT was not payable in addition to the purchase price.  According to Kitchin LJ (who gave the only judgment), the contract had to be interpreted “as a whole in the light of all of the circumstances of the parties’ relationship and the relevant facts surrounding the transaction as known to them.”  And he found five reasons why VAT was not payable in addition to the purchase price:

1.  The seller had never told the buyers that the option to tax in respect of the property had been exercised.  (Indeed, there is no indication in the transcript that enquiries before contract were ever raised.)

2.  The buyers (individuals, although buying business premises) had never been aware that VAT might be payable.

3.  The purchase price had been agreed long before completion and in fact had been handed over by the buyers to the seller long before solicitors were instructed.

4.  The answer to the requisition “what is due on completion?” was just “The balance of the purchase monies.”

5.  The “Purchase Price” in the contract was £130,000 and this prevailed over the relevant provision in the Standard Conditions.

“Fifth, the special conditions specify that the “Purchase price” is £130,000. They contain no indication that this price was exclusive of VAT. Indeed they make it clear that this and no other sum was due upon completion because the table to which I have referred  [showing the sum due on completion] contains no mention of VAT or any other sum being payable by way of “other payments” in addition to the specified purchase price. Moreover, and importantly, the special conditions provide, in clause 2, that where there is any conflict with the general conditions, the special conditions are to prevail.”

Kitchin LJ then concluded:

“Taking all these matters into consideration and considering, as I must, the matter from the perspective of the reasonable person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, I have little doubt that such a person would conclude that the parties intended that nothing was or could become payable by the defendants over and above the specified purchase price of £130,000.  In the particular circumstances of this case it is not possible to interpret “Purchase price” as the price exclusive of VAT.  In my judgment the reasonable person would therefore consider the special conditions are not reconcilable with clause 1.4 of the general conditions and that the parties intended that, in these circumstances, the special conditions must prevail.”

Isn’t this a strange result ?  To me, it seems clear that the purpose of Standard Condition 1.4 is to ensure that VAT is payable on the purchase price where nothing else is said.

If the purchase price is defined as X plus VAT, then the Standard Condition is clearly not needed.

But (according to the Court of Appeal), where the purchase price is merely X, then this trumps the Standard Condition, which then does not apply.

So … what is the point of Standard Condition 1.4 ?

More generally, the case is a reminder that drafting that follows the formula “A applies, unless it doesn’t for some reason” is inherently dangerous.  If you want A to apply, say so. 

 Click here to see the transcript on BAILII.

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