[2010] UKFTT 353 (TC)

TC00635

Appeal number TC/2009/12372

VAT- reduced rate- student accommodation- whether ‘residential accommodation for students’ liable to VAT at standard rate or ‘ changed number of dwelling conversion’ liable to VAT at reduced rate – Value Added Tax Act 1994 Schedule 7A – over-arching development student accommodation – VAT at standard Rate- appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	OPAL CARLETON LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (VAT)	Respondents

TRIBUNAL: 	David S Porter (Judge)
		Roger Freeston (Member)

Sitting in public in Manchester on 10 May 2010

Michael Conlon QC instructed by Mazars LLP Chartered Accountants for the Appellant

James Puzey Counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	The Appellant (Opal) appeals against the decision of the Respondents (HMRC) in a letter dated 2 October 2009 disallowing VAT at the reduced rate of 5%  in relation to refurbishment works carried out by H G Construction Limited  on behalf of Opal at Tufnell Park Halls of Residence, Huddleston Road, London N7. The Appellant says that the accommodation relates to dwellings and is therefore entitled to the reduced rate as a ‘changed number of dwellings conversion’. (See Item 1, group 6, Schedule 7A VATA 1994). HMRC say that the refurbishment works were part of an overall scheme to provide student accommodation for the University of North London and as such the refurbishment fell to be standard rated as use as a  ‘relevant residential purpose’ namely ‘residential accommodation for students’ (see paragraph 6,group 6, Schedule 7A VATA 1994). Vat at 17.5% amounted to £937,160.75 and at 5% to 267,760.21. Opal have paid the VAT at 17.5%.  Although Opal are the customer for whom H G Construction Limited  carried out the refurbishment works and by whom VAT has been raised, the parties have agreed that Opal have a sufficient interest in the matter to bring this appeal.

2.	Mr James Puzey of counsel appeared on behalf of HMRC, and Mr Michael Conlon QC appeared on behalf of Opal and Mr Andrew Charles Pape provided a witness statement and gave evidence under oath as to the refurbishment works. Three jointly agreed bundles were provided for the Tribunal and both Mr Puzey and Mr Conlon produced skeleton arguments. We were  referred to the following cases:

•	William and Glyn’s Bank  v CCE (1974) VATTR 262
•	Case 416/85,EC Commission v United Kingdom [1988] STC 456
•	Smith v CCE (1997) VTD 5579
•	University of Bath v CCE  (1996) VTD 14235
•	University Court Of University of St Andrews v CCE (1997) VTD 15243
•	CCE v Marchday Holdings Limited [1997] STC 272
•	Thompson v CCE (1998) VTD 15834
•	Sherwin and Green v CCE  (1999) VTD 16396
•	Moore v Secretary of State for the Environment (1999) 77 P&CR 114
•	Look Ahead Housing Association v CCE (200) VTD 16816 
•	Uratemp Limited v Collins [2002] ALL.E.R .46
•	Amicus Group Limited v Collins [2002] VTD 17693
•	Oldrings Development Kingsdere Limited (2002) VTD 177
•	Agudus Israel Housing Association Limited v CCE (2004) VTD 18798
•	JFB & FR Sharples vHMRC (2008) VTD 20779
   The Facts

3.	The parties produced a statement of agreed facts. The Disputed Decision is whether the Building Works are correctly standard rated. Opal contends that they are liable to VAT at 5%, by virtue of section 29A (1)(a) of VATA 1994 read with Item 1, Group 6, Schedule 7A thereof. Opal has carried on business as a property developer at The Place, Ducie Street, Manchester, M1 2TP. H G Construction Limited is registered for VAT under VAT registration number 750 7260 42. On 1 August 2002 the University of North London merged with London Guildhall University to become London Metropolitan University (the University) which took over the rights of University of North London and London Guildhall University. The University is and was the freehold owner of Tufnell Park Halls of Residence (the Development Site).  Prior to the building works carried out by H G Construction Limited, the Development Site comprised a six-storey building, which included a total of 227 individual bedrooms and communal kitchen, dining and bathroom facilities. Those were utilised by University of North London and subsequently the University as residential accommodation for its students. 

4.	On 29 May 2001 University of North London applied for planning permission inter alia to demolish some existing buildings on the Development Site and construct additional student residential accommodation. The Application was refused by the local planning authority on 24 July 2001. Following an appeal by the University under section 78 of the Town and Country Planning Act 1990, the Inspector granted planning permission on 8 November 2002 for the construction of a new building (Ref.PO11088). This planning permission only relates to the new construction works and is not the development that is the subject of this appeal. A further application for planning permission, specifically in relation to the Building Works, was made by the Appellant and granted by the planning authority on 30 August 2008.

5.	On 27 July 2007 the University granted the Appellant a lease of the whole Development Site for a term of 99 years commencing on that date at a peppercorn rent, but for a premium of £37,500,000. By a contract, dated January 2008, between H G Construction Limited and the Opal, H G Construction Limited agreed to carry out the Building Works at the Development Site at the price of £26,244,924.93 together with VAT thereon, if applicable. The Building Works were carried out between January 2008 and August 2009. Following completion of the building works the building has been used as residential accommodation for students during term time with occasional short lettings for others out of term time. 

6.	The Lease to Opal covers the entire site both the rebuild and refurbishment. The Authorised Use in the lease is:

‘ as student residential accommodation together with ancillary use or such other use as the Landlord may consent to, such consent not to be unreasonably withheld or delayed’. (our emphasis)

Clause 8 provides:

‘For the initial ten years of the term, the Tenant to use the Property only for the Authorised Use. Thereafter subject to the provision of clause 8 and any other relevant term of this lease the Tenant is free to use the Property as it desires’.
Clause 10 provides:

Legislation and planning. 
10.1 The Tenant is to comply with all statutes, other legislation and any notice, order, proposal, requisitions, direction or other communication from any public authority in respect of the Property, their use and occupation or the carrying out of any works to the Property and to indemnify the Landlord against any breach of this obligation

The first planning permission, in relation to the demolition of existing buildings and the construction of additional student residential accommodation, was allowed on appeal and was zero rated for VAT purposes. In allowing the appeal the Planning Inspector referred to the planning policy and stated at paragraphs:

‘21. The appeal proposal would result in a building providing accommodation for a total of 776 students on the whole site. The scheme envisages the extension of the southwest wing of the existing hall so that it and the new construction would together form the main spine of the enlarged building.
41. Vehicular Traffic Until 2001 the car park (providing space for about 45 cars) falling within the cartilage of the existing hall of residence was open for use by students….. Under the proposal the 25 spaces which would be available on site would be reserved for staff and students with disabilities. 
43. The appellant’s curtailment of car parking spaces for students within the curtilage of the site has coincided with changes in national planning policy… aimed at reducing reliance on cars as a means of transport. The purpose of these changes is largely concerned with the promotion of sustainable forms and patterns of development on a very long time scale and their effects may not be apparent in the shorter term. Similarly, I anticipate the appellant’s attempts to manage the manner in which the hall of residence generates traffic may not be immediately fully effective. Nevertheless, the provisions of the unilateral undertaking ( our emphasis) submitted by the appellant are in my opinion continued expression of its intention in this regard.’
55 … The appellant’s proposal for the curtailment of cars and the management of taxis has coincided with changes in the planning policy the purpose of which is to reduce dependence on private cars.’

As we understand it the undertaking in relation to car parking, vehicular traffic and disturbances relates to the use of the entire site and therefore impinges on the Development Site.

The second planning permission P080327 issued on 20 August 2008 was a full planning application for premises located at Tufnell Park Hall of Residence and allowed the:-

	‘revisions to fenestration of building including replacement windows; new windows opening to the north elevation, replacement render panels along the boundary wall  and fire access gates and associated reconfiguration and upgrading of internal space resulting in reduction of residential units and associated alterations.’ (Our emphasis)

This is the second phase of the Development started in 2002 and referred to in the inspector’s decision at paragraph 21 above and the already approved scheme under ref PO11088

7.	The case officers reporting the planning committee papers, dated 23 July 2008 state:

1.	Proposal. The proposal stems from an internal reconfiguration of the rooms of the existing Halls of Residence to reduce the number of rooms from 233 to 145 rooms…
6.	Relevant History.  The existing buildings were purpose built for university accommodation in the early 1970’s and have remained little altered since then. In November 2002 planning approval was given at appeal for the expansion of the overall site, including the construction of a new block of up to ten storeys and incorporating the existing buildings to provide accommodation for an additional 552 students.
13. Land-use.  There is no proposal to change the land use as a student hall of residence.(our emphasis). It is proposed to reduce the number of existing student rooms by 78; from 223 to 145 in total.  This will allow for the replacement and upgrading of the existing studio rooms. Each new unit will have its own bathroom pod, kitchenette, and sleeping/study area. The changes form part of the overall development of the site in accordance with the approved scheme ref P011088.
23. Conclusion. The alterations to the existing student accommodation are welcome and will provide a visual improvement as well as being compatible with the new build next door. The proposal is therefore recommended for conditional; approval. 

8.	Correspondence and emails have passed between the various parties leading up to this appeal. H G Construction Limited’s own view, expressed in an email dated 4 April 2008, was that the building was used for a relevant residential purpose both before and after the refurbishment works. Opal’s representative, Jackie Wells of Mazars LLP, wrote to the officer dealing with the liability issue, Allen Fletcher, on 2 May 2009 seeking agreement for the reduced rate of VAT on the basis of a ‘change in number of dwellings conversion’. She accepted that the accommodation prior to the works was for a relevant residential purpose and stated that it was then viewed as self-contained dwellings because each studio had kitchen, shower and lounge facilities

9.	Mr Pape, who gave evidence under oath, was employed as a Project Manager for Opal to manage the development of the site through to completion. He was not able to give any evidence as to the VAT position. He confirmed that the floor plans of the site show that the accommodation, which originally consisted of 277 rooms with shared toilet and kitchen facilities, now consisted of 145 self-contained studio units. The units were double the size of original bedrooms with no shared facilities or interconnection. The units could be used as dwellings. 

10.	Mr Conlon produced to the tribunal a copy of the Opal standard terms and conditions for the assured shorthold tenancy agreement, which every tenant is required to enter into prior to taking occupancy of a room within an Opal Accommodation Hall. Neither the tribunal nor Mr Puzey had had the opportunity to consider the agreement and Mr Puzey asked that he be allowed to comment on the same after the hearing, if necessary. The Judge agreed to that application. No further action has been taken by Mr Puzey. The agreement is for students and is in the form of an Assured Shorthold Tenancy and clause 5.4 requires the student to use the premises only as private living accommodation.  Clause 6  requires that the Tenant is at all material times during the tenancy period a student in full time education ... any change occurring to the status of the Tenant, which results in the Tenant no longer being a student in full-time education, will require the student to surrender the agreement . Clause 5.32 requires the student to be bound  by the disciplinary code and rules and regulations relating to student occupancy of residential property as published by the University or College at which the Tenant attends.’

Submissions

11.	Mr Puzey submitted that Opal maintains that the categorisation of the use of the building, which is being refurbished, for VAT purpose under Schedule 7 A, changed from that of relevant residential purpose i.e. student accommodation, to single household dwellings,(as defined in paragraph 4, Group 6,Schedule 7A VAT 1994 [VATA]).  There are three types of residential conversion that qualify for reduced VAT in that group. 

•	The ‘Change in number of Dwellings’ is the first of these and requires:

a.	A conversion of a building or part of a building.
b.	That after the conversion the premises contain one or more single household dwellings, which is different to the number (if any) that existed there before.
c.	That no part of the premises contains the same number of single household dwellings after conversion as it did before.
d.	That a single household dwelling is a dwelling designed for occupation by a single household, which complies with the four conditions of note 4 (3) (a) –(d), i.e. self-contained living accommodation, with no direct internal access between units, nor prohibition on separate use or separate disposal.
These four conditions in note 4(3) replicate those for a dwelling in note 2 of group 5 of schedule 8, which deals with the construction of buildings.

a.	The second of the qualifying conversions is the multiple occupancy conversion (Notes 4 and 5), whereby premises are converted into one or more multiple occupancy dwellings, there being none there before
b.	The third type of qualifying conversion is a special residential conversion (Notes 7 and 8), whereby a building or buildings or parts of a building which were nor used for a ‘relevant residential purpose’ before conversion are to be used solely for a ‘relevant residential purpose’ after conversion. Use for a relevant residential purpose is defined in Note 6 as one of seven specific types of home, institution or residential accommodation. Note 6(d) specifies ‘residential accommodation for student or school pupils’. These categories are reproduced in Note 4 to Group 5 of Schedule 8 where zero rating is allowed for the construction of buildings designed as dwellings or intended for use for a ‘relevant residential purpose’ or relevant charitable purpose (Item2 (a)).The first grant by a person converting a non-residential building into dwellings or a building intended for a ‘relevant residential purpose’ is also zero rated (Item 1(b)).

‘Non-residential’ is defined in Group 6, Schedule 7A and Group 5, Schedule 8, as being neither designed. nor adapted for use as

i)  a dwelling or number of dwellings
ii) for a relevant residential purpose
(See Note 9(4) to group 6 and Notes 7 and 7A to group 5)

Lastly, a conversion is not a qualifying conversion under Note 10(1) to Group 6 of Schedule7A, if any statutory planning consent  for the conversion has not been granted.

12.	As Mr Conlon makes clear in his skeleton argument, there is no direct authority on the issue before the tribunal and on the construction of the change of number of dwellings provision. Mr Conlon alleges that there is a different number of units of accommodation to that which existed before, and seeks to restrict the scope of the appeal to consideration of physical characteristics of the accommodation post-refurbishment and to contrast that with what was physically in place beforehand. This approach disregards the use of the premises and the use for which the planning permission was granted. HMRC position is that it is not possible to alter the designation of ‘relevant residential purpose’ accommodation to something else simply by changing the number of rooms and upgrading the facilities, without a permitted change of use. The ‘relevant residential purpose’ categories are defined by the use to which the premise is applied. If following the refurbishment they are still applied for the same use this does not mean that they have been converted into ‘dwellings’ for the purposes of attracting the reduced rate of VAT. Opal’s position appears to be that premises may come within both of the categories at the same time and that it is for the owner/developer to choose how to categorise the property. One problem with this approach is that throughout Schedules 7A, 8 and 9 a distinction is drawn between dwellings and ‘relevant residential purpose’ accommodation. If Opal is correct there would be no need for the ‘relevant residential purpose’ categories because all such accommodation could come within the definition of a ‘dwelling’, be it single or multiple occupancy. It is accepted that the cases pointed out by Mr Conlon make it plain that  a single room without a bath or cooking facilities can be a dwelling (see Uratemp Limited v Collins [2002] ALL.E.R .46; Amicus Group Limited v Collins [2002] VTD 17693; Oldrings Development Kingsdere Limited (2002) VTD 177. It is understandable that Opal does not now claim that the previous rooms in the hall were in the category ‘relevant residential purpose’ because if the above cases are followed the rooms were existing dwellings. HMRC submit that what was on the site before was student accommodation and that remained the case after the refurbishment. The physical characteristics of the accommodation are irrelevant for this purpose. It may be self-contained or not but it can still be a ‘relevant residential purpose’.

13.	Mr Conlon submitted that the key issue is whether the Building Works are standard rated or whether they are reduced rated (liable to VAT at 5%) as a ‘qualifying conversion’. The reduced rate arises under section 29A VATA read with Item 1,Group 6,Schedule 7A VATA.Opal’s case is that the Building Works are within Notes 2(12) (a) to Group 7A as ‘a changed number of dwellings conversion’ as defined in Notes 3, 4(1) (3) and 11 to that group. Note 2 (10) lists three types of work which are considered to be a ‘qualifying conversion’ Only one type is relevant for Opal ‘a changed number of dwellings conversion’ To obtain reduced rating:

1. There must be a conversion of premises consisting of a building where two conditions are satisfied:
•	After conversion the premises must contain one or more single household dwellings different from the number before the conversion
•	No part of the premises, after the conversion,  must contain the same number of single household dwellings as it did before the conversion

The term ‘building’ is to be given its ordinary and natural meaning and connotes a structure of considerable size and intended to be permanent (see: Smith v CCE (1997) VTD 5579).The expression ‘conversion’ involves the alteration of a building for a new use. It may, and often does, involve some change in its appearance: Smith above: CCE v Marchday Holdings Limited [1997] STC 272. As to the two conditions there appears to be no relevant previous cases and whether the conditions are satisfied appears to be a question of fact. Mr Conlon submitted that the Building Works satisfied these two conditions.

2.	The single household dwelling must be a dwelling.  Mr Conlon referred us to the case law above and we are satisfied that the studio units, as constructed, are self- contained units and in that respect could amount to ‘dwellings’. 

There are two further requirements:

•	 It must be designed for occupation by a single household. There is no case law in this regard and the requirement appears to be a question of pure fact.

•	 It must comply with four physical  conditions or characteristics (‘The Physical Test’) namely
o	It must consist of self-contained living accommodation. This is a question of fact
o	There must be no provision for direct internal access from it to any other dwelling or part of a dwelling. This is a question of fact.
o	Its separate use must not be prohibited by any covenant statutory planning consent or similar provision. This raises a question of fact and law. (See Thompson v CCE (1998) VTD 15834) .There the self-contained unit was to be used as ancillary to the main household and was not to be an independent residence. The tribunal held that the unit was subject to a planning condition prohibiting its separate use or disposal. 
o	Its separate disposal must not be prohibited by any such items. In Sherwin and Green v CCE (1999) VTD 16396 Sir Stephen Oliver held that a section 106 Agreement did not prevent the disposal of the individual dwellings. The section 106 agreement only required that the workshop should continue to belong to the 3 dwellings and there was therefore no prohibition of disposal.

Note 10 provides that a conversion is not ‘qualifying’ if carried out without any necessary planning consent or building control approval. On 12 April 2010 HMRC served notice amending the statement of case by alleging that the original planning consent granted for the Development Site in the 1970s was for “relevant student accommodation” and there was  no application for change of use and as a result the building Work breached Note 10 above. Mr Conlon referred the tribunal to the Town and Country Planning (Use Classes) Order 1971 (SI 1987/764). He submitted that the building both before and after the Building Works falls within Class 3 Dwellinghouses which covers ‘the use of a dwellinghouse (whether or not as a sole or main residence)-

a.	by a single person or people living together as a family, or
b.	by not more than 6 residents living together as a single household (including a household where care is provided for residents.)
Class 2 Residential Institutions covers use

a.	for the provision of residential accommodation and care to people in need of care ( other than within Class 3 (dwelling houses).
b.	As a hospital or nursing home
c.	As a residential school, college or training centre
d.	
 The building did not fall within Class 2. Judge Porter asked if the Use Class referred to was the current use class as he believed that there had been amendments to the 1987 statute. Following the hearing Mr Conlon and Mr Puzey have confirmed that the Use Class Order has been amended. For the present circumstances the only amendments of note were made under in The Town and Country Planning (Use Classes) (Amendment) Order 1994 SI 1994/724 (1994 Order) and The Town and Country Planning (Application of Subordinate Legislation to the Crown) Order 2006. SI 2006/1282 (2006 Order).  With effect from 4 April 1994, article 2(1) of the 1994 Order inserts a new sub-paragraph  at the end of article 3 (6) of the 1987 Order:

 “(i) as a hostel.”

With effect from 4 April 1994, article 2(2) of the 1994 Order substitutes a new Class 1 in the Schedule to the 1987 Order, as follows:

	 “Class C1. Hotels
    Use as a hotel or as a boarding or quest house where, in each case, no significant element of care is provided”

With effect from 7 June 2006, article 5 of the 2006 Order applies the 1987 Order to the Crown with modifications including the insertion, in part C of the Schedule, of a new class as follows:

     “Class 2A Secure residential institutions.
Use for the provision of secure residential accommodation, including use as a prison, young offenders institution, detention centre, secure training centre, custody centre, short-term holding centre, secure hospital, secure local authority accommodation or use as a military barracks.”

The expression “hostel” (which, until 4 April 1994, formed part of Class C1 but is now excluded from the Schedule by virtue of article 3 (6) as amended) is not defined in either the primary or secondary legislation. The New Shorter Oxford English Dictionary (1993 Edition) defines “hostel” as follows:

		“-hostel (noun)”
1.	A place to stay; a lodgings
2.	Lodging, entertainment.
3.	A public house of lodging and entertainment for strangers and travellers; an inn, a hotel.
4.	A house of residents for students at a university or on a course, especially at a non-residential college, or for some other special class of people.
5.	A town mansion

“-hostel(verb)”
1.	Provide with lodging.
2.	lodge (at)
3.	Lodge at youth hostels, take a holiday lodging at youth hostels (hostelling)

Mr Conlon submits that either, as a dwelling or students lodgings the development falls in the same use class, namely Class 3 and as such Note 10 does not apply as further planning consent is not therefore required.. Whether Mr Conlon or not it appears to us that if Opal wished to use the premises for domestic sales or leases it would have to go back to the Local Planning Authority because of the necessary variation to the undertaking given by the University.

Mr Conlon further submits that in construing the legislative scheme it is helpful to note that Group 6 of Schedule 7A covers two other types of conversion-a house in multiple occupation conversion and a special residential conversion. For the purposes of those provisions, use for residential purpose is mentioned expressly and excluded from relief. Similar express limitations are found in Group 7 of Schedule 7A (Residential Renovations and Alterations). In both Group 5 and 6 of Schedule 8 buildings used for a residential purpose are expressly defined and dealt with separately from dwellings. The terms of the legislation are specific and it is therefore unnecessary to look for further implications. ‘Relevant residential purpose’ does not feature in the relief, which is relevant to this appeal. If Parliament had intended any such limitation or implication, it would have expressly said so.

The Building Works amount to a qualifying conversion (changed number of dwellings conversion) and the reduced rate of VAT of 5% applies. The appeal should be allowed.

The Decision

14.	We have considered the law and the facts and we dismiss the appeal. The reduction of the VAT rate to 5% is an exception to the general rule and the legislation in that regard must be interpreted strictly. In those circumstances it is not appropriate only to consider the physical attributes of the Building Works alone. It is quite likely, in view of the case law above, that many units may fall within the definition of ‘a dwelling’. This does not mean, interpreting the legislation strictly that the relief will automatically apply. It is necessary, as it is with many of the decisions relating to VAT, to look at the substance of this transaction. The buildings on the entire development site were and are students’ Halls of Residence. Opals has rightly insisted on that usage for the purposes of the construction of the new building and has been allowed to zero rate the development.  It is accepted that the refurbishment of the remaining original section of the Halls of Residence occurred some six years later and as a result of a different planning permission, which referred to associated reconfiguration and upgrading of internal space resulting in reduction of residential units and associated alterations.’ (Our emphasis). This clearly related to the refurbishment of the Students’ Hall of Residence and the residential units are undoubtedly students’ residence. That planning consent is also affected by the earlier consent, granted on appeal. The inspector, in that appeal, was prepared to allow the development because of an undertaking given by the University (inter alia) in relation to vehicular access and parking. There is, as a result, no provision for parking, which would be unsatisfactory for a domestic let or sale of any of the units, the subject of this appeal. The substance of the transaction is even clearer when considering the Lease. The Lease is dated 27 July 2007 well after the original planning appeal of November 2002 and before the granting of the planning permission for the refurbishment and relates to the entire site. The lease anticipated that the entire site (defined as ‘the Property’ in the Lease) would be used as student residential accommodation. Clause 8 required the property for the initial ten years to be used only for the authorised use. Clause 10 required Opal to comply with the planning conditions. The user clause also allowed the Property to be used for such other use as the Landlord may consent to, such consent not to be unreasonably withheld or delayed.  The lease clearly anticipates that the property is to be used as a students’ Hall of Residence for the first ten years of the term. We suspect that there was a a possibility that the alternative use would arise thereafter.  The University has no control over that right. It is a matter for the Landlord to agree, albeit reasonably. It might well be reasonable for the Landlord to refuse the use of the building for other than students’ residential units because, for example, Landlord would require Opal to obtain an amendment to the planning authority’s undertaking to accommodate the proposal that 145 ‘dwellings’ would want vehicular access. We consider that the Development site was intended to be Halls of Residence for students for at least, in the case of the appeal site, ten years. We accept that the units might well qualify as ‘dwellings’ as might many other units, which would fall under any of the items in Group 6 of Schedule 7A. The units in the refurbished buildings are for a relevant residential purpose under paragraph 6 (d) residential accommodations for students or school pupils and as such are liable to VAT at the standard rate.

15.	If, which we do not accept, the units were to be considered to be  ‘a changed number of dwellings conversion’ under paragraph 2 (1) A(a) we consider that the restriction in the lease referred to above is a prohibition within paragraph 4 (3) (c). Although it is a conditional covenant it could result in Opal being prohibited to exercise the right because the Landlord acted reasonably in refusing the request. We were not provided with a copy of the undertaking by the University in relation to the use of the Development Site by the University, but we consider that it must have been fundamental for the inspector on the occasion of the appeal of the first planning application. At page 10 paragraphs 44, 45, 46 and 47 of the appeal decision letter of 8 November 2002:-

“44. Amongst other matters, the undertaking provides for the revision of the appellants Accommodation Licence Agreement to prohibit students from parking within a 1 mile radius of the hall. In the event of students parking in Huddleston Road thereof (or in other locations the relevant area), this provision would be enforceable by the Council (our emphasis) against the appellant. In the light of the limited quantity of university accommodation in comparison with the total number of students, I have no doubt that an effective sanction would be available to the university authorities. There would in such circumstances be little purpose in prospective occupants wishing to keep a car either at or near the hall, and in my view the majority of students would be likely to conclude in the future that there would be little purpose in bringing a car to London.

45. The undertaking also provides that in the event of the introduction of a controlled parking zone in the vicinity of the hall, the appellant would prohibit students from applying for a resident’s permit…..

46. Paragraphs 1 and 2 of the Schedule to the undertaking effectively seek to prevent access to the site itself by coaches, taxis and mini-cabs by confining them to Station Road….(The Inspector added that he was not convinced that the relevant provisions of the undertaking (in this regard) would be totally effective….)

47. Nevertheless, I also believe that the restrictions which are included in the undertaking would be beneficial – especially over time- in dissuading students from seeking to use their own cars while resident in the proposed hall”.

In spite of not having seen the undertaking it is clear from the Inspector comments that he was persuaded, in part, to allow the first appeal because he felt there were sufficient constraints as to the use of vehicles on the Development Site and that undertaking is a restriction on the ultimate planning permission. In view of that, we believe that the Planning Authority would need to be approached to ascertain whether the proposal to let or sell the units in the building for ‘dwellings’ would be in breach of the undertaking. The undertaking would appear to have similar force to a section 106 agreement and as such would bring paragraph (3) (c) of item 4 into play and the separate use of the ‘dwelling’ would be prohibited by the provisions of the statutory planning consent.

Further more, for the purposes of a ‘single household dwelling’ paragraph 4 of Item 4 states:

                     “for the purpose of this paragraph, a dwelling “is designed” for occupation of a particular kind if it is so designed –
a.	as a result of having  been originally constructed for occupation of that kind and not having been adapted for occupation of any other design, or
b.	as a result of adaptation”
All the surrounding circumstances confirm that the development is of Halls of Residence for Students and has been originally constructed for occupation of that usage. As a result the Building Works were for the upgrading of the students units, which are relevant residential purpose and not a ‘dwelling’ within item 2 (1). Mr Puzey is quite correct when he states it is not open to Opal to choose which of the headings suit it best. It is necessary to consider more than the “Physical Test”. It is necessary to decide what the real purpose of the Building Works is and what in substance they represent. If it were not so, as the meaning of ‘dwelling’ in the case law is now very wide, nearly any development could be brought within Item (2) ‘a changed number of dwellings’.  For all the above reasons we dismiss the appeal and VAT is to be paid at the standard rate

15. The case is outside the costs regime and we therefore make no award as to costs.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

TRIBUNAL JUDGE
RELEASE DATE: 29 July 2010