VAT rate and rent reviews

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18 December 2008

A recent High Court decision means that in cases where the landlord has opted to tax VAT on rent, the effect of decreasing VAT to 15% is that the rent has decreased with effect from the 1 December 2008. The consequence is that the next date on which either party may obtain a rent review is the 1 December 2011. In addition the Chancellor has stated an intention to increase the rate of VAT in 2010. As matters presently stand, that would have the further effect of freezing agricultural rents for three years thereafter.

The High Court recognises that the ruling will cause an inadvertent and possibly prolonged rent freeze under the Agricultural Holdings Act. The High Court has called for legislation to be rapidly passed to amend the Agricultural Holdings Act 1986. The ruling does not apply to farm business tenancies.

Plainly the ruling has the potential to cause great hardship to landlords or tenants or both.

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