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HMRC internal manual

VAT Land and Property

HM Revenue & Customs
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Exemption: European concept of 'leasing or letting of immovable property': essential characteristics: it must confer right of occupation as owner and the right to exclude others from enjoying that right

For there to be a leasing or letting of immovable property, the tenant/licensee must have the right to exclude others from enjoying the right of access to, and enjoyment and use of, the property. However, the right to exclude others can be restricted in certain circumstances as illustrated by the examples below.

Cases where landlord retains right to use property

There will not usually be a leasing or letting where the landlord retains the right to use the property and to let others use the property. However, this does depend on the degree of the retained rights.

For example, there can still be a leasing or letting where a landlord reserves the right to visit the property regularly to inspect for want of repair (ECJ judgement in Temco Europe SA, paragraphs 24 and 25).

By contrast, the ECJ found there was no grant of the right to exclude others in a case where a person granted the right to take fish from bodies of water but retained the right to fish there herself and to allow one guest per day to do the same (Gabriele Walderdorff v Finanzamt Waldviertel C-451/06, paragraphs 21 to 23 of ECJ judgement).

Joint exclusivity

There can be a leasing or letting where there are two or more tenants who share premises, with no individually designated areas, but who have the joint right to exclude others from access to, use and enjoyment of the property.

The ECJ decision in Temco C284-03 and the Tribunal decision in Holmwood House School Developments VTD 18130 illustrate this point. In both of those cases, tenants were found to have the joint right to exclude others.

In Temco C284-03, the landlord entered into contracts with three companies within its business group. None of the companies was granted exclusive rights in respect of any specific part of the building, but jointly, the companies could exclude others (including the landlord) from the property. The Advocate General stated, at paragraph 22 of his opinion:

‘…an exclusive tenancy is not synonymous with a sole tenancy, since there is the possibility of joint possession [see paragraph 65 Advocate General’s opinion in EC Commission v Ireland [2000] ECR 1-630]. The decisive feature is the monopoly enjoyed by the tenants, who are seen by everyone to be in possession of the leased property and are entitled to prohibit anyone else from using it.