Eastham (HM Inspector of Taxes) v Leigh London & Provincial Properties Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 16 February 1971 |
| Date | 16 February 1971 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Capital gains tax - Interim charge on companies - Agreement for building lease - Whether conditional contract - Whether lease disposed of within three years of acquisition - Finance Act 1962 (10 & 11 Eliz. 2, c. 44), ss. 10(2), 12(2) and 16(8) and Sch. 9, para. 1; Finance Act 1965 (c. 25), s. 82(2) and (3).
On 22nd June 1962 the Respondent Company entered into an agreement with the owners of certain land providing that the Company would erect a building thereon in accordance with conditions specified in the agreement, and that, if the building should have been finished to the landowners' satisfaction within a stated period and the Company should have performed all the said conditions, the landowners would grant them a lease of the building for 125 years from 24th June 1962. The lease was duly granted on 12th May 1964, and on 28th July 1965 was transferred to a third party.
The Company was assessed to capital gains tax for the year 1965-66 in respect of the gain realised on the disposal of the lease, on the footing that the disposal took place within three years of the acquisition of the lease and s. 82(2) and (3). Finance Act 1965, applied. On appeal, the Company contended that for the purposes of capital gains tax the lease was acquired by the 1962 agreement, since there was no condition outside the agreement upon which it was conditional and therefore it was not a conditional agreement within the meaning of para. 1 of Sch. 9 to the Finance Act 1962. For the Crown it was contended (inter alia) that the 1962 agreement constituted an agreement for a lease conditional upon fulfilment of the obligations of the Company under the terms of the agreement, and that the right to the lease was acquired on 12th May 1964. The Special Commissioners held that the agreement was not a conditional contract but an absolute contract to acquire the lease upon the performance of the terms which the Company had agreed to carry out.
Held, that the Commissioners' decision was correct.
Stated under the Finance Act 1965, Sch. 10, the Income Tax Management Act 1964, s. 12(5), and the Income Tax Act 1952, s. 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 20th November 1968 Leigh London and Provincial Properties Ltd. (in voluntary liquidation) (hereinafter called "the
Company") appealed against an assessment to capital gains tax in the amount of £267,518 in respect of a chargeable gain for the year 1965-66.2. Shortly stated, the question for our decision was whether the provisions of an agreement dated 22nd June 1962 (hereinafter called "the agreement") rendered that agreement a conditional contract within para. 1(3) of Sch. 9 to the Finance Act 1962. If it was such a contract then on the facts the said assessment was correct; if it was not, then the assessment was not correct.
3. The only document adduced in evidence before us was an agreed copy of the agreement dated 22nd June 1962, the material provisions of which are incorporated in this Case. A copy of the agreement is available for inspection by the Court if required.
4. The following facts were admitted between the parties:
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(2) The agreement dated 22nd June 1962, and made between (1) Kathleen Cozens and others (therein called "the Landlords"), (2) the Company (therein called "the Tenants") and (3) Kennedy Leigh Properties Ltd. (therein called "the Surety"), contained the following provisions which are material to this Case:
1. The Tenants shall for the period of two years from the date when they shall commence the works hereinafter mentioned or from the 29th day of September 1962 whichever shall be the earlier have leave and licence to enter upon All That piece of land forming the site of numbers 80 and 82 Kings Road in the County Borough of Reading as the same is more particularly delineated for the purposes of identification on the plan annexed hereto and thereon edged red for the purpose of demolishing any existing structures erecting a building and executing works in accordance with the stipulations hereinafter contained and for no other purpose whatsoever.
2. The Tenants hereby agree to perform and observe the stipulations following:
(2) To hold the said premises until the same shall be comprised in a Lease to be granted as hereinafter provided as tenants at will to the Landlords at the same rent and subject to the same covenants and stipulations so far as applicable as if a Lease thereof had been actually granted and so that the Landlords shall have all the remedies by distress or otherwise for rent in arrear that are incident to the relation of Landlord and Tenant but so that nothing herein contained shall be construed as creating a legal demise or any greater interest in the Tenants than a tenancy at will.
(3) To pay all rates taxes assessments and outgoings whatsoever in respect of the said piece of land.
(4) At its own cost within the said period of two years to erect cover in and complete fit for immediate occupation upon the said piece or parcel of land in a substantial and workmanlike manner with the best materials of their several kinds and in conformity in every respect with the plans elevations sections and specifications which have been approved by the Landlords and are annexed hereto and to the satisfaction in all respects of the Landlords' Surveyor a six storey building consisting of offices with a garage basement and with all proper and suitable offices drains sewers and fences.
(5) To expend in erecting the said building for materials and labour at cost price the sum of not less than Two hundred and seventy thousand pounds.
(6) In the erection and completion of the said building to do all acts and things required by and perform the works conformably in all respects with the provisions of any statutes applicable thereto and the bye-laws and regulations and planning schemes of the local authority having authority in that behalf in the district wherein the said land is situate and to pay and keep the Landlord indemnified against all claims for the fees charges fines penalties and other payments whatsoever which during the progress of the works may become payable to or be demanded by the said authority in respect of the said works or of anything done under the authority herein contained and generally from time to time to discharge and pay all claims assessments and outgoings now or at any time hereafter chargeable against an owner by statute or otherwise in regard to the said piece of land or any buildings thereon.
(7) Not to do or suffer to be done in or upon the said premises or any part thereof anything which may be or become a nuisance or cause damage to the Landlords or to the tenants or occupiers of neighbouring properties.
(8) Not to deposit or make up or manufacture or allow to be deposited or made up or manufactured upon the said piece of land any building or other materials except such as shall be required for the building to be erected thereon in accordance with this Agreement and so soon as the said building shall be completed at its own expense to remove from the said piece of land all building and other materials and rubbish whatsoever.
(9) To cause to be insured the said building or the part thereof for the time being erected in the joint names of the Landlords and the Tenants against loss or damage by fire in an office of repute in the full value thereof and to keep the same so insured until a Lease thereof shall be granted as hereinafter provided and to make all payments necessary for the above purposes within ten days after the same shall respectively become payable and to produce to the Landlords or their agent on demand the policy or policies of such insurance and the receipt for each such payment and to cause all money received by virtue of any such insurance to be forthwith expended in re-building and reinstating the building and to make up any deficiency out of its own moneys Provided Always that if the Tenants shall at any time fail to cause the premises to be insured as aforesaid the Landlords may do all things necessary to effect or maintain such insurance and any moneys expended by them for that purpose shall be repayable by the Tenants on demand and be recoverable forthwith by action.
(10) To pay all fees payable to any Surveyor employed by a public Authority and all other fees and payments properly claimed by any such Authority or otherwise in connection with the carrying out of the works in accordance with this Agreement.
(11) Not to assign or part with its interest under this Agreement or any part thereof without the written consent of the Landlords and in the case of any assignment to which the Landlords shall so consent the Tenants shall be liable for the payment of a reasonable sum in respect of any legal or other expenses incurred in connection with such consent and shall continue liable for the performance of the several stipulations herein contained until the grant of the Lease hereinafter mentioned.
3. It is hereby mutually agreed that until the Tenants have completely performed the aforesaid agreement to build the said building and execute the works in accordance with the stipulations and conditions contained in Clause 2 hereof the Landlords shall possess the rights and powers following that is to say:
(2) The right for themselves their agent and Surveyor at all reasonable times to enter upon the said premises to view the state and progress of the said building and works to inspect and test the materials and workmanship and for any other reasonable purposes Provided that the Landlords shall only exercise the rights aforesaid at their own expense.
(3) Full right and liberty in case the said...
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Jerome v Kelly (Inspector of Taxes)
... ... which may be termed promissory conditions: Eastham v Leigh London and Provincial Properties Ltd (1971) 46 ... ...