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Virtual assignment- ineffective |
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The consequences of ‘virtual assignments’ of leases have been thrown into
disarray, with the general conclusion being that they now seem to be
ineffective. The case arose out of a mass transfer of properties by Abbey
National; many of the properties required consents to assign from individual
Ls and it was therefore felt it would be quicker and easier to simply ‘virtually
assign’ those leasehold properties, rather than go through formal
assignments.
Thus, the assignee took responsibility for paying the rents and
for all of the dealings, with the properties (ie as if it were T), with Abbey simply
paying the assignee a fee that was similar to the rent that would have been
payable if there had been an assignment and sublease back. In effect, the
reality was as if there had been an assignment. The difficulties then arose in
the context of VAT, with the VATman arguing that VAT was payable on the fees
charged by the assignee to Abbey National. Obviously, if that had been been
‘rent’ then it would have been VAT exempt, but, since there had been no
actual transfer, the VATman argued that it could not be ‘rent’ and thus VAT had to be charged. Needless to say, that would be bad news for Abbey National
since it could not recover all the VAT. In the High Court, the judge took a
functional approach to the original VAT legislation and held that the payments
were VAT exempt. However, the CA has now overruled that decision, saying that
there can only be a letting if T has a right to occupy a property with the exclusion
of all others at a rent for an agreed period. Since the assignee did not acquire
an interest in the properties, it could therefore not confer any right of occupation
on Abbey National and the fees payable were not for the ‘leasing or letting’ of
property. Thus, the fees were subject to VAT.
This decision is likely to spell the death knell for virtual assignments. Apart
from the VAT complications, there are also serious questions as to whether
such assignments are in breach of lease provisions that prohibit the holding
of any interest in trust for another party. Given these uncertainties, the
likelihood is that virtual assignments will disappear and parties will simply
have to go the old-fashioned route and obtain the necessary consents to
assignment from each of the individual Ls in the property portfolio. Abbey
National v C&E [2006]. Source: Property Week (21 July 2006).
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October 2006 |
