Mason v Boscawen
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR. JUSTICE LEWISON |
| Judgment Date | 18 December 2008 |
| Neutral Citation | [2008] EWHC 3100 (Ch) |
| Docket Number | Case No: 7BS90941 |
| Court | Chancery Division |
| Date | 18 December 2008 |
[2008] EWHC 3100 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BRISTOL DISTRICT REGISTRY
The Honourable Mr. Justice Lewison
Case No: 7BS90941
Mr. Martin Rodger QC (instructed by Burges Salmon LLP) for the Claimant.
Mr. Leslie Blohm QC (instructed by Foot Anstey Hancock Caffin Solicitors) for the Defendant.
Hearing dates: 8 th December 2008
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr. Justice Lewison:
What counts as “rent” for the purposes of a notice to pay given under Schedule 2 of the Agricultural Holdings Act 1986 (“the 1986 Act”) as a prelude to the service of an incontestable notice to quit? That is the short but difficult question posed on a reference in the course of an arbitration arising out of the service of a notice to quit alleging failure to comply with a notice to pay. The problem arises because the landlord has opted to charge VAT on part of the rent. Does the VAT element itself count as rent? If it does not, then the parties agree that the notice to pay demanded too much and is therefore invalid. If it does, then the tenant has a separate argument that the notice was unclear and is invalid on that account.
The facts are not in dispute. Mr Mason is the tenant of a farm at Great Trewirgie, Probus, Cornwall. The tenancy is an annual tenancy originally granted in 1988. The property comprised in the tenancy consists of a dwelling house, buildings and 225 acres of agricultural land. Under the terms of the tenancy the rent is payable by quarterly instalments in arrear on the usual quarter days. The initial rent was £7,875 per annum, and that is the sum that the tenant agreed to pay under the express terms of the tenancy. By clause 3 (2) the tenant also agreed to pay the land tax and “all other taxes rates charges assessments and outgoings whatsoever whether parliamentary parochial local or of any other description which are now or may hereafter be assessed charged or imposed upon the Farm or the owner or occupier in respect thereof”.
On 25 April 2001 the landlord informed the tenant that he had decided to add VAT to his commercial and agricultural rents. Because Mr Mason's holding included a dwelling house, not all the rent was potentially subject to VAT. In the result, 90 per cent of the rent was subject to VAT but the remaining 10 per cent was not. Rent invoices were sent regularly to the tenant. A typical invoice (of which I was shown some examples) distinguished between the basic rent and the VAT. Thus the invoice sent in relation to the rent due on 29 September 2006 set out the amount demanded as follows:
Description Net Vat % Vat £ Total
Agricultural rent (Vatable element) 29/09/2005 £4702.50 17.50 £822.94 £5525.44
Agricultural rent (Non Vatable element) £522.50 0.00 £0.00 £522.50
Total £5225.00 £822.94 £6047.94 Amount now due £6047.94
Mr Mason did not pay the rent due on 29 September 2006. On 8 November 2006 the landlord's agent wrote to him enclosing a Notice to Pay “relating to the full amount outstanding”. The same letter also noted that insurance of £535 was also due on 29 September and had not been paid. The accompanying Notice to Pay was in the form prescribed by The Agricultural Holdings (Forms of Notice to Pay or to Remedy) Regulations 198It gave notice that the landlord required the tenant to pay within two months of the date of service of the notice “the rent due in respect of the above holding as set out below”. The particulars of the rent not paid were given as follows:
“£6047.94 Rent inclusive of VAT”
This sum was the same sum as the total demanded by the invoice which Mr Mason had received for the rent due on 29 September. Mr Mason did not pay the amount demanded within the two month period. Consequently the landlord served notice to quit on 9 January 2007. The notice to quit stated that it was given on the ground set out in Case D of Schedule 3 to the Agricultural Holdings Act 1986 namely that:
“At the date of the giving of the notice you have failed to comply with a written notice dated [8 November 2006] served on you by your landlord which required you within 2 months of service of the notice to pay rent due in respect of the Holding.”
On 5 February 2007 Mr Mason demanded arbitration on the reason stated in the notice to quit. The effect of demanding arbitration is to suspend the operation of the notice to quit until the conclusion of the arbitration. On 13 June 2007 Mr CC Wreford-Brown FRICS FAAV was appointed as arbitrator. The parties have nevertheless agreed to refer to the court, under section 45 of the Arbitration Act 1986 the following two questions of law:
“(a) Whether, where a Notice to Pay Rent purportedly served pursuant to Schedule 3, Case D of the Agricultural Holdings Act seeks to include as rent due such sum as may have been payable by the tenant to the landlord by reason of the exercise by the landlord of his right to elect to waive the exemption from Value Added Tax pursuant to Schedule 10, para. 2, Value Added Tax Act 1984, the notice is an invalid notice.
(b) Whether the Notice to Pay Rent served by the Defendant on the Claimant on 8 th November 2006 was an invalid notice because it was not sufficiently clear.”
Mr Martin Rodger QC argued the case for the tenant; and Mr Leslie Blohm QC argued the case for the landlord.
As Mr Rodger said, the right of the tenant of an agricultural holding to challenge a notice to quit by giving a counter notice under section 26(1) of the 1986 Act is taken away when the notice falls within one of the cases in Part 1 of Schedule 3: section 26(2). Nor can the tenant apply for anything like relief against forfeiture. He cannot be given a second chance. This is why a notice to quit relying on one of these cases is often called an “incontestable” notice to quit. Thus where a notice to quit is served in reliance on a notice to pay rent the tenant's only defence is to contest at arbitration a question relating to the reason stated in the notice to quit for its having been given: Article 9, Agricultural Holdings (Arbitration on Notices) Order 1987. The question referred to arbitration therefore relates to the accuracy of the reason stated in the notice to quit. Because of the draconian effect of a valid notice to quit relying on one of these cases strict compliance with the statutory provisions is required, and the preliminary notice must be accurate: Pickard v Bishop (1975) 31 P & CR 108, 112. However, immaterial misdescriptions or inaccuracies which do not have the potential to mislead will not invalidate a notice: Dallhold Estates (UK) Pty Ltd v Lindsey Trading Properties Inc [1994] 1 EGLR 93, 97E-98K.
It is not the existence of arrears of rent but the tenant's failure to comply with the notice to pay rent which provides the basis for termination of the tenancy under Case D. A notice to pay rent which demands a greater sum than that which is actually due will be invalid: Dickinson v. Boucher [1984] 1 EGLR 12. The purpose of the notice is to tell the tenant precisely what he must do in order to avoid the loss of his tenancy. Accordingly a demand for a greater sum of rent than the rent properly due invalidates the notice. This much is common ground. So the first question is: did the notice to pay overstate the amount of rent due? It plainly did not overstate the amount due on 29 September 2006. The amount due had been specified in the invoice sent at that time, broken down into rent and VAT; and the notice to pay merely repeated the total amount. So the question can be further refined: was the whole of the amount due “rent”?
I should first sketch the provisions of the Value Added Tax Act 1994 ( VATA) in so far as they are relevant to the question. VAT is charged on the supply of goods or services in the UK. The grant of a major interest in land is a supply of goods: VATA Schedule 4 para 3. A major interest in land is the fee simple or a tenancy for a term certain exceeding 21 years: VATA s. 96. Anything which is not a supply of goods but is done for a consideration, including the grant of a right, is a supply of services: VATA s. 5 (2). Thus the grant of an annual tenancy counts as a supply of services. At the relevant time VAT was charged at the rate of 17.5 per cent on the supply of goods or services by reference to the value of the supply: VATA s. 2 (2). However, the Treasury has power to increase or decrease that rate by not more than 25 per cent: VATA s. 2 (2). As is well-known, in order to alleviate the effects of recession the rate of VAT has recently been decreased by The Value Added Tax (Change of Rate) Order 2008 with effect from 1 December 2008 from when VAT became chargeable at the rate of 15 per cent. Simultaneously with announcing the decrease in the rate of VAT, the Chancellor of the Exchequer announced the Government's intention to increase it again in 20The value of a supply is determined by section 19. Section 19 (2) provides:
“If the supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the VAT chargeable, is equal to the consideration.”
However, certain supplies are exempt supplies. These are listed in Schedule 9. Subject to certain irrelevant exceptions, the list of exempt supplies includes the “grant of any interest in or right over land”. Thus the grant of an annual tenancy is, in principle, an exempt supply. At the relevant time Schedule 10 contained provision for an election to waive the exemption. It has since been renamed the option to tax and its language has...
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...both UK and European case law. 63 The first of the UK cases to which we were referred is the decision of Lewison J (as he then was) in Mason v Boscawen [2008] EWHC 3100 (Ch), [2009] 1 WLR 2139. The facts were far removed from those of the present case, but the relevant issue for present p......
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... ... Vogue Holdings Limited [1999] STC 524, Debenhams Retail Plc v. Sun Alliance ... [2005] STC 1443 at [12], Mason v. Boscawen [2009] STC 624 to CLP Holding Co ... Limited v. Singh [2015] STC 214. I should therefore mention those cases also. I find ... that they ... ...
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