VAT Change Alters Rent

It is by no means common for a question as simple as ‘what is rent?’ (or, as more exactly put by Mr Justice Lewison, “What counts as ‘rent’ for the purposes of a notice to pay given under Schedule 2 of the Agricultural Holdings Act 1986 (AHA) as a prelude to the service of an incontestable notice to quit?”) to come before the courts. However, a recent case dealt with this point in the context of an agricultural tenant’s failure to pay rent demanded by the landlord. The landlord had opted to tax his land which made the rent payable carry a charge to VAT at the standard rate.

At issue was a notice demanding rent stated as being ‘£6,047.94 inclusive of VAT’. For such a notice to be valid, it must be for rent alone, not for any additional charges. The tenant argued that VAT is not rent and the notice was therefore invalid. The court rejected that argument, ruling that VAT was part of the rent payable. However, this brought a different question into play. If VAT is part of the rent, when the VAT rate changes, is that a variation in the rent? This is a significant issue, as any change in the rent re-starts the three-year period set out by the AHA during which the rent cannot be referred to an arbitrator to be reassessed.