Fairway Lakes Ltd v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 July 2016 |
| Neutral Citation | [2016] UKUT 340 (TCC) |
| Date | 25 July 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Judge Greg Sinfield, Judge John Walters QC
Michael Collins, instructed by IVC (VAT Consultants) LLP, appeared for the appellant
Brendan McGurk, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Construction of written agreement between the purchaser of a holiday lodge and the taxable person constructing it – Whether the agreement imposed an obligation on a third party to grant a lease of the plot of land, on which the lodge was constructed – Held, upholding the decision of the First-tier Tribunal, that it did – Value Added Tax Act 1994 (“VATA 1994”), Sch. 8, Grp. 5, item 2 – Company's appeal dismissed.
The Upper Tribunal (UT) dismissed the company's appeal against the decision of the First-tier Tribunal (FTT) ([2015] TC 04749) that Fairway did not make a zero-rated supply of construction services to a customer, but a composite standard-rated supply of construction services and procuring the landowner to grant a lease of the completed holiday lodge to the customer.
Some holiday lodges were constructed on plots at a site known as “Fairway Lakes Village”. The lodges were not conventional buildings, but were delivered in kit form from a Swedish manufacturer and assembled by Fairway Lakes Ltd (“Fairway”) on plots owned by the Landowner. The infrastructure of the development, including roads, drainage, power and water was constructed by Fairway, which met the cost from its own funds.
A customer had to enter into both a lease of a plot with the Landowner and also a building contract (“the Agreement”) with Fairway. Under the Agreement, Fairway was required to build a lodge and procure a lease to the customer from the Landowner. Usually, the lease and Agreement were signed on the same day.
Fairway argued that its supply under the Agreement was of zero-rated construction services under VATA 1994, Sch. 8, Grp. 5, item 2.
However, the FTT noted that the Agreement also required Fairway both to provide a customer with proof of the title and also to ensure the grant of a lease by the Landowner. The FTT dismissed Fairway's appeal and held that the supply by Fairway under the Agreement went beyond providing construction services. That supply was a composite standard-rated supply of both construction services and also procuring the Landowners to grant a lease of the completed lodge to the customer.
On appeal to the UT, Fairway submitted that the Landowners granted leases over the plots which entitled the customers to build lodges on the plots (para. 27 of the decision).
The UT held that the FTT must be taken to have found as a fact that the lease was granted and the Agreement was signed when a lodge was ready for occupation by the customer, rather than at an earlier time before construction of the lodge (para. 35 of the decision).
Neither side criticised the legal basis of the FTT's approach to the construction of the Agreement and the disposal of the appeal. HMRC urged the UT to uphold the FTT's decision in full. Fairway, however, submitted that the incorporation of the Standard Conditions of Sale into the Agreement did not impose an obligation on Fairway to procure the Landowner to grant a lease of a plot to the customer, rather they imposed an obligation on a seller of real property to sell to the buyer (para. 39 of the decision).
The UT held that the most relevant “surrounding circumstance” was that the customer agreed at one and the same time (1) to buy a built lodge from Fairway and (2) to take the relative lease from the Landowner (para. 52 of the decision).
The UT held that Fairway had not identified an error of law in the FTT's decision (para. 53 of the decision).
It was accepted that the FTT had made no error of fact. The FTT did not expressly find that a lease was granted and the Agreement was signed when a lodge was ready for occupation by the customer, rather than at an earlier time before construction of the lodge, but the UT concluded that such is a necessary implication from the findings. The need to draw that implication did mean that the FTT's interpretation of the Agreement was wrong in law (para. 53 of the decision).
In dismissing Fairway's appeal, the UT held that the supply by Fairway to the customer was a composite supply which included an undertaking to procure that the Landowner would grant a lease of the plot to the customer. That supply was not zero-rated under VATA 1994, Sch. 8, Grp. 5, item 2. It was instead a standard-rated supply (para. 54 of the decision).
Fairway's appeal was not helped by the Agreement being less than clear. The solicitors had modified an old agreement for selling a more conventional property, but perhaps they should have started from scratch by preparing a new document.
[1] This is an appeal from a decision (“the FtT's Decision”) of the First-tier Tribunal (Tax) (Tribunal Judge John Brooks and John Coles) (“the FtT”) released on 9 November 2015 [2015] TC 04749. By the FtT's Decision, the FtT dismissed an appeal by Fairway Lakes Limited (“Fairway”) against a decision of the Respondent Commissioners (“HMRC”) that when Fairway enters into contractual relations with a customer in the terms of a particular agreement (“the Agreement”), which we consider below, in connection with the construction of a lodge and its sale to the customer, it makes to the customer a composite supply of construction services and the procurement that the landowners will grant to the customer a lease of the plot of land on which the lodge is to be constructed. Fairway, which contends that the Agreement provides for supplies of construction services only, appeals to this Tribunal by permission of Upper Tribunal Judge Roger Berner dated 16 February 2016.
[2] It is common ground between the parties (and, in our judgment, correct) that the correct construction of the Agreement is determinative of the issue of what was provided to a customer by Fairway in consideration of the customer's payment(s) to Fairway. Further, an examination of what was provided to a customer by Fairway (from the view point of the customer) under the Agreement, determines whether or not, as a matter of VAT law, the consideration for the customer's payment went beyond the supply of the construction of a dwelling for the purposes of item 2, Group 5, Schedule 8, Value Added Tax Act 1994 (“VATA”).
[3] The background facts were found by the FtT and are recorded in the FtT's Decision at paragraphs 5 to 32. It is not necessary for us to reproduce those paragraphs in their entirety, but we set out the following findings of fact to show the context in which the appeal is made.
[4] Sunningdale Investment Limited (“SIL”) owns the freehold of 11 plots of land at Fairway Lakes Village in Norfolk, on which holiday lodges are sited (or will be sited). The directors and shareholders of SIL are Mr Laurence Gage, his sister, Mrs Judith Collen, and their mother, Mrs Doris Gage.
[5] A partnership between Mr Gage and Mrs Collen (“the Partnership”) owns the freehold of a further 31 plots of land at Fairway Lakes Village on which holiday lodges are (or will be) sited. The appeal concerns lodges built on plots owned either by SIL or the Partnership. Like the FtT, we refer to SIL or the Partnership, without making any distinction between them, as “the landowner”.
[6] Fairway is responsible for the construction of the lodges and infrastructure at Fairway Lake Village. It owns the freehold of plots 2, 3 and 5 and has granted leases of these plots. It is also (as “the Management Company”) a party to leases of plots granted by each of SIL and the Partnership. Mr Gage and Mrs Collen are the directors of Fairway, each of them holding 50% of the shares in Fairway.
[7] The freehold of the Fairway Lakes Village development site was purchased by SIL in the spring of 1996. Although the FtT recorded at paragraph 8 of the FtT's Decision that a 125 year lease in respect of each designated plot was registered at the Land Registry, we were told that there is no overarching lease and that a lease of a plot is granted to a customer by the landowner in the context of the customer's acquisition of a holiday lodge.
[8] In 1997, planning permission was granted to Caldecott Golf and Country Club (the trading name of SIL) permitting the construction of holiday lodges – that is, lodges which may only be...
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