PropertyLaw.guru Blog

SDLT on building licences & substantial performance

Interesting email discussion between me, Judith Pederzolli of PEM Accountants in Cambridge who advises on SDLT, and Anne Humphreys who also advises on SDLT - almost makes me miss lecturing on SDLT!

Situation - developer has access to site to build the building under a building licence, with the right to buy it when it's built. 

Judith mused as follow: 

"I wondered if there can be substantial performance of a lease to a developer, even if the building to which the lease relates has not been built and they are under a building licence to construct it? My feeling is that there would be, as the lease is over the land as well as the building and in the process of construction the developer takes possession of the land. Is this something you have seen in practice? I wasn't sure if legally you couldn't have substantial performance of a lease over a land and building without a building!"

My views were:

"But that aside, I think you are right in that if the builder/tenant has effectively control of the site, then this can easily construed as substantial performance.

Now there have some interesting comments on the interpretation of the phrase used in FA03. Michael Thomas in one of the first books on SDLT felt that this should include the position where both the seller and the buyer had possession, in other words it didn't have to be exclusive possession. Cox & Woolich in their 2nd edition of their excellent book on the subject think that it might be construed as only where the buyer has exclusive possession so it wouldn't apply where there is shared possession with the buyer.. They came up with various arguments for this but  as a property lawyer I didn't personally thing their analogies were particularly persuasive.


I think, for what it is worth that a broader interpretation may be justifiable as that was the intention, to prevent the 'resting on contract' deals that this was introduced to combat. But in any event under the structure you mention it is likely that the developer will have access like under a JCT contract which gives the contractor exclusive possession against the employer. This would mean that your client would be obliged to pay the tax on getting possession to the site, with the possibility of a further return when the lease is granted. Either way the client is going to pay tax at the end of the day, it's just a question of cashflow vs interest and penalties.


There is a way of deferring the payment until any conditionality on the agreement is satisfied by making the clauses in the agreement dealing with the sale and purchase subject to a condition precedent, as I probably mentioned in my lecture, such idea first being floated by PLC in 2006 and incorporated into their precedents."



And Anne's expert comments on the situation were, with the last word:


"Whether a person has taken possession will be a question of fact. In Marsden v. Miller and Others [1992], a case which turned on whether the plaintiff had ever had possession of certain disputed land, the Court of Appeal expressed the test in the following way:

‘It is well-established that in order to obtain or retain possession of land both a mental element and a factual element are requisite. The factual element must involve an appropriate degree of physical control. The mental element, the so-called animus possidendi, must consist of an intention to take possession to the exclusion of all others.’

The possession must be of ‘the whole or substantially the whole’ of the ‘subject-matter’ of the land transaction. The subject-matter of the land transaction is defined in section 43(6) as the chargeable interest acquired (the ‘main subject matter’) together with any interest or right appurtenant or pertaining to it that is acquired with it and it is possession of this interest (and not the land subject to it) which must be taken by the purchaser or a person connected with him to constitute substantial performance.

Section 44(6) provides that it is immaterial whether possession is taken under the contract or under a lease or licence of a temporary nature. To trigger a charge, the possession taken must be of the chargeable interest which is to be acquired under the contract. A purchaser of, say, a 21 year lease of vacant land who enters onto that land for the purpose of carrying out works pursuant to a licence would not normally be regarded as having taken ‘possession’ of the leasehold interest as his possession in such a case is not to the exclusion of the rights of the legal owner, rather it is pursuant to the licence. The effect of section 44(6) is unclear. 

So I think you would be OK but it’s a grey area!"


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