Changes to VAT treatment of serviced building plots

A serviced building plot is bare land in respect of which civil engineering works have been carried out to provide access to essential services such as gas, electricity, water, main drainage, street lighting and sewerage. HM Revenue and Customs has just announced that there will be a change in the treatment of these serviced building plots. Following the recent VAT tribunal decision in Douglas Virtue and Sonia Virtue trading as Lammermuir Gaming Services, the supply of a serviced building plot of land will be treated as a single exempt supply of land by the landowner. Prior to this decision, the Revenue had treated the supply of land as an exempt supply and the civil engineering works to install the service connections as a standard rated or zero rated supply. This will be bad news for landowners because if the supply of the works is standard-rated, rather than zero rated then any VAT will be an irrecoverable cost to the landowners. Landowners may try to increase the price of the plots but this might mean that the land is not competively priced compared to non-serviced plots and those where the installation of service connections was zero-rated.

Overage Agreements-Recent Reported Cases

Overage agreements are always a ripe source of litigation because there are can be such large sums of money at stake and because they are difficult documents to make absolutely water-tight. There are 2 reported cases this year on overage agreements and there are some interesting principles emerging from these recent cases.

In the case of Ross River Ltd (1) and Blue River LP (2) v Cambridge City Football Club Ltd, the High Court held that a football club was entitled to rescind an overage agreement with the developer of its football ground, because of fraudulent misrepresentations made by the developer's agent. What is interesting about this case is the court based its argument on an academic essay which suggested that the way in which rights and powers are allocated in a contract can show whether a party to a contract is to act in its own interests, the parties' joint interests or the interests of the other parties. Conflict of interest should be a constant concern of professional advisers during a transaction.

In the case of Berkeley v Pullen a landowner signed a contract with a developer under which the developer agreed to obtain planning permission for some land and then would receive a fee when the land was sold. In the overage agreement, the landowner agreed to use all reasonable endeavours to assist with the planning process as well as act with the utmost good faith. However, the contract was drafted in such a way that it did not bind successors in title and there was no wording preventing a sale. So in 2007, the landowner agreed to sell elsewhere for £35m. The developer sought an injunction on the basis that the landowner was not free to sell until the planning permission had been granted or refused. Surprisingly, the court found in favour of the developer saying that whilst there was a specific "good faith" clause in this contract, the courts would be prepared to imply a duty of good faith even if there was no such wording. The court said it would intervene to protect the commercial purpose behind the contract. This is a significant departure from prior cases in this area.

HIPS Packs for all properties from 14th December

As if the residential property market in the UK was not in a bad enough state, with successive interest rate rises, the credit crunch following the US subprime collapse, the Government deals the killer blow by making HIPS packs compulsory for all properties from 14th December 2007. This will make it an offence to market a property without a HIPs pack comprising local search, drainage search, title documents, Energy Performance Certificate, an index to the HIPS and a sales statement. Trethowans has teamed up with HIP Homes (http://www.hiphomes.co.uk/index_main.cfm) to provide a quick online solution accessible by buyers and agents via the web. For developers, the pack is free and a small fee will be charged to buyers for providing the pack. So, whilst an enormous pain, at least compliance will be fairly effortless.

New Blog for Developers

Hi! I'm Dominic Beeton and I am a partner in the Commercial Property Department of Trethowans, a major law firm in the UK with offices in Southampton and Salisbury.

This blog will contain up to date information on cases and legislation affecting commercial and residential developers in England and Wales and will be of value to anyone working in that sector including investors, professional advisers, funders and brokers.