What is the effect of a purchaser going onto land under a building licence?
I wonder if you could answer a question for me please. I went to an Stamp Duty Land Tax course a few years back where they discussed substantial performance of a freehold purchase contract when a developer (the purchaser) goes on site under a building licence. 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!
Where there is an exchange of contracts under which a land transaction is to be completed by a conveyance and the contract is ‘substantially performed’ without at that time being completed, the contract is treated as if it were the land transaction provided for in the contract with the date of substantial performance as the effective date thus accelerating payment of the SDLT.
‘Substantially performed’ means that either the purchaser or a person ‘connected with’ the purchaser ‘takes possession’ of the whole or substantially the whole of the ‘subject matter’ of the contract (the ‘taking possession test’) or a ‘substantial amount’ of the consideration is paid or provided (the ‘payment test’).
Whether a person has taken possession will be a question of fact. In Marsden v. Miller and Others , 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) FA 2003 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.
At the time of publication this response was correct however as tax legislation and practice change from time-to-time you should take specific advice before taking any action.
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