VAT and relaxation of the permitted development rights… article banner image

…possible legal implications for landowners and tenants.

sunset by an old barn

The recent change to the permitted development rules has been good news, allowing redundant agricultural buildings to come back into use, without (subject to certain exceptions) the need for full planning permission.

However, this comes with a health warning as some people are finding they are  unwittingly becoming liable for VAT if they use redundant buildings for storage.
Supplies of land (or an interest in land) are normally exempt from VAT, however, from 1 October 2012, supply of storage facilities became expressly subject to a VAT charge. The change happened with little fanfare, and only now that more redundant buildings are coming back into use, are the implications of the change being fully realised.

There are some exemptions where VAT would not be liable, which include storage of live  animals and the supply of buildings to someone who provides storage facilities to others. However it is often unclear what is the primary use of the building and it is important to clearly set this out, preferably in writing, between the parties either in a lease or a licence, which ever is appropriate.

It is now even more important for landlords to obtain written confirmation of how their tenant uses the property and a requirement that tenants notify them of any change of use. Problems may arise where the lease allows a range of possible uses. In those  circumstances it will be crucial to ensure that the user provision is clear.

Clearly, this is an issue that you should discuss with your accountant, however, from a legal perspective there are a number of issues to consider too. For landlords, it is
essential that any letting of redundant buildings should be properly documented and that care is taken about what tenants are allowed to use the buildings for. It is also important that new leases contain wording allowing for the recovery of VAT.

From a tenant’s point of view it will be important to check the terms of their lease, particularly if they intend to sub-let any buildings.

Kate Theophilus is a partner and commercial property specialist in the rural services team at Stephens Scown. To contact Kate, please call 01872 265100 or email