Unexpected effect of VAT rate change of tenancies under Agricultural Holding Act 1986

The High Court held recently in Mason –v- Boscawen [2008] EWHC 3100 (Ch) that the landlord’s Notice to Pay (served under Case D) demanding rent inclusive of VAT, was valid for the purpose of subsequent Notice to Quit. The Landlord had opted to tax and the decision supports the modern understanding of rent as the total amount of the consideration payable by the tenant for the right to possess the land.

How can this affect rent reviews? – If VAT on rent is part of the rent itself, then any changes in the rate of VAT would amount to an increase or decrease in rent. Such variation would restart a three yearly rent review cycle under Schedule 2 Para 4 of the 1986 Act.

The case is significant in view of the decrease in the rate of VAT to 15% on 1st December 2008. This would have had the effect of restarting the review clock and delaying any reviews until after 1st December 2011. The anticipated increase in VAT rate on the 1st January 2010 will again restart the cycle and delay reviews until after 1st January 2013. Unless a speedy legislative solution is found, we will see an unexpected agricultural rent freeze for 1986 Act tenancies.
Growing concerns about this situation may result in a test case so watch this space!

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