Elizabeth Court (Bournemouth) Ltd v Commissioners for Revenue & Customs

Stamp duty land tax – Leaseholders – Right to enfranchisement (RTE) – Appellant management company entering taxable transaction by acquiring freehold interest and headlease of property – Leasehold Reform, Housing and Urban Development Act 1993 providing conditional RTE – Amendments to RTE in Commonhold and Leasehold Reform Act 2002 not yet in force – Whether transaction constituting “chargeable transaction entered into by RTE company in pursuance of right of collective enfranchisement” – Appeal dismissedThe appellant company had been formed for the purpose of exercising the right to collective enfranchisement of a block of 133 flats; its members comprised most of the flat owners. The respondent Commissioners issued the appellant with two closure notices. The first related to the appellant’s acquisition of the freehold interest in the property and amended the taxpayer’s land transaction return to indicate that: (i) collective enfranchisement relief was not available; (ii) stamp duty land tax (SDLT) was due at the rate of 4%; and (iii) the tax due was £22,100. The second notice concerned the appellant’s acquisition of the headlease of the property and indicated that: (i) collective enfranchisement relief was not available; (ii) SDLT was due at the rate of 3%; and (iii) the tax due was £11,025. The appellant appealed to a special commissioner.It was common ground that the appellant’s acquisition of the freehold and the headlease were chargeable transactions. The appellant applied for relief from SDLT on the ground that it met the conditions, in section 74 of the Finance Act 2003, relating to collective enfranchisement by leaseholders because it fell within the statutory definition of a right to enfranchisement (RTE) company in the new section 4A of the Leasehold Reform, Housing and Urban Development Act 1993.The respondents contended that the appellant was not entitled to relief since it was not an RTE company as defined in section 74(4)(a) of the 2003 Act and had not entered into a chargeable transaction in pursuance of a right of collective enfranchisement, as defined in section 74(4)(b). The definition of an “RTE company” in section 74(4)(a) provided that the phrase had the meaning given by section 4A of the 1993 Act, and section 4A was inserted into the 1993 Act by section 122 of the 2002 Act, which was not yet in force. The appellant contended that although an RTE company could not exist for the purposes of the 1993 Act, a company might meet the definition of an RTE company for the purposes of the 2003 Act.The special commissioner accepted the respondents’ submissions ((2007) SpC 648). The appellant appealed. Held: The appeal was dismissed.The appellant’s acquisition of the freehold interest and the headlease was not a transaction entered into by an RTE company in pursuance of a right of collective enfranchisement within the meaning of section 74(1) of the 2003 Act, applying the definitions in section 74(4).It was inappropriate to take a narrow, technical approach to the legislation. The 1993 Act, without the amendments introduced by the 2002 Act, did not give the right of collective enfranchisement to a company that met the definition of an RTE company, but gave it to a proportion of tenants acting through a nominee purchaser. The tenants might choose as their nominee purchaser a company that met the definition of an RTE company. However, that would not alter the fact that the legislation had not yet given the right of collective enfranchisement to the RTE company.Section 74 did not apply until the provisions of sections 121 to 122 of the 2002 Act had come into force. It was parliament’s intention that, once the relevant parts of sections 121 to 125 of the 2002 Act had come into force, the right of collective enfranchisement could be exercised only by an RTE company that met all the statutory requirements. Before those provisions came into force, the previous provisions remained. Thus, the right to collective enfranchisement could be exercised by a proportion of tenants acting through a nominee purchaser. Until then, there could be “no right of collective enfranchisement exercisable by an RTE company” within the meaning of section 74(4)(b) of the 2003 Act.David Southern (instructed by Laceys, of Bournemouth) appeared for the appellant; Dr Katherine Selway (instructed by the legal department of HM Revenue & Customs) appeared for the respondents.Eileen O’Grady, barrister