VAT negligence claims involving holiday homes
We specialise in VAT negligence claims against solicitors and accountants. To find out about making a claim on a no win, no fee basis contact our free legal helpline on 0808 139 1595 or send us an email.
We recently dealt with a number of VAT negligence claims involving holiday homes.
It concerned a development of forty luxury flats with views over the sea, valet parking, swimming pool and gym facilities. All the properties were subject to a planning restriction that they could be used for holiday lets only.
The purchasers were aware of this restriction, but to make sure the property developer inserted a specific clause in each of the leases saying that the flats could only be used for holiday lets. The solicitors who were dealing with the purchases, were also aware of this restriction. various
So, contracts were exchanged. There were two things about the contract. Firstly, there was no completion date. The property was still being developed and so it was a clause of the contract that, after practical completion, the property developer would serve a notice on all the contract-holders and they would complete the purchase within 30 days. This is important as the solicitors were therefore aware that the property was a new development.
The second clause was buried deep in the contract. It said that the contract would be subject to the Standard Conditions of Sale (Fourth Edition). Everyone was happy about this, but there is a small standard clause in those conditions of sale that nobody paid much attention to at the time. It said that any figures quoted in the contract were “exclusive of VAT”.
The developer served notice that the property was now ready. All the contract-holders completed on the transaction and became new flat owners.
Two years after completion, the developer (a company) went into liquidation. Somebody at the liquidator’s office started to brush down the contracts for the purchase of the flats and found the obscure clause in the contract about the price being “exclusive of VAT”. Even more importantly, he knew the Value Added Tax Act 1994 contains a clause that if new holiday flats are sold within three years of their development and the seller is registered for VAT, VAT must be charged on the sale price.
The developer was registered for VAT and the purchase price was deemed to be exclusive of VAT. So each of the purchasers got a demand from the liquidator for an additional 17.5% of the value of their property.
You can imagine how they felt. Horrified would be an understatement. One of them did try to challenge this in the VAT Tribunal, but the tribunal confirmed that VAT was chargeable.
This is where we got involved. In light of the tribunal decision, there was very little that we could do to defend the claim by the liquidator so, after checking each of the purchase files, we brought professional negligence claims against the legal firms who dealt with the purchases on the basis that there had been solicitors’ negligence.
On checking the solicitors’ files, It was clear that each firm had completely overlooked the issue of VAT. To be fair to them, the solicitors involved were residential conveyancing solicitors and it is unusual for VAT to be involved in residential transactions. If a commercial property lawyer had been involved (on the basis that these flats were being purchased for investment purposes) then it’s likely they would have been more aware of the possible VAT consequences.
To add insult to injury, the solicitor acting for the original developer didn’t even know himself about the purchasers’ liability for VAT. They sent a completion statement to each of our clients at the end of the purchase transaction and it was entirely silent on the issue of VAT.
Each of the purchasers’ solicitors tried to argue that they weren’t negligent. The main argument they raised was that if eight firms of solicitors hadn’t noticed the problem, then surely it is not reasonable to suggest they were negligent to miss it? Unfortunately though, as they were holding themselves out as ‘reasonably competent conveyancing solicitors’ and the VAT point is one of statute, they didn’t get far with that argument. In fact, they pretty much caved in when we served them with court papers.