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HMRC internal manual

VAT Land and Property

Exemption: European concept of 'leasing or letting of immovable property': essential characteristics: the right of occupation must be for an agreed duration

For there to be a leasing or letting of immovable property, there must be an agreed duration for the right of occupation

In Commission v Ireland, C-358/97 (Tolls cases), the ECJ found that the provision of right of access to roads in return for a toll was not a ‘leasing or letting’. One of the reasons was that there was no agreed period of use of the roads. In paragraphs 56 and 57 of its judgement, the ECJ stated that the term ‘leasing or letting’

‘……cannot be considered to cover contracts in which, as here, the parties have not agreed on any duration for the right of enjoyment of the immovable property, which is an essential element of a contract to let.

57 Where access to roads is provided, what interests the user is the possibility offered to him of making a particular journey rapidly and more safely. The duration of the use of the road is not a factor taken into account by the parties, in particular in determining the price.’ [Emphasis added]

The fact that there must be an agreed duration does not, however, mean that the duration must be fixed from the outset. Therefore, periodic tenancies can be leasing or letting. A periodic tenancy is a tenancy which is renewed periodically (eg weekly, monthly, quarterly, annually), until terminated by either party. This point was addressed in Temco Europe SA C-284/03. The Advocate General stated at paragraph 29 of his opinion

‘an ‘agreed period’ is not the equivalent of a ‘specified period’…… is irrelevant if, after the minimum period, it is extended. In this respect, it is of little importance that the period of the relationship might be made dependent on the will of one of the parties or of both, or indeed on an external circumstance outside their control, because, in any event, contractual consent is expressed by the intention to make the property available for a period, even if its duration is uncertain.’

Furthermore, the period granted does not have to be continuous so, for instance, the granting of the use of a specific space on Tuesday and Thursday afternoon each week may still be a leasing or letting, even though other parties occupy the same premises at different times.