I often get asked about VAT on commercial properties. Commercial properties are exempt from VAT however this exemption can be waived.
It is important for a tenant to check at the early stages of the lease negotiations as to whether or not VAT is payable. If it is then VAT at the appropriate rate will be payable on top of the rent. If the tenant is registered for VAT this is not much of an issue it will just effect cash flow in that the tenant will have to pay the VAT out and then reclaim the VAT payment back. The problem is when the tenant is not VAT registered as they will pay VAT on the rent and will not be able to claim it back.
There is then the additional problem in that even if VAT is not payable when you initially tkae on the lease it could become payable during the term of the lease as the landlord can opt to charge VAT on the property at any time.
Is there anything the tenant can do?
Yes. In the initial negotiations if VAT is payable and the tenant is not VAT registered they can try and negotiate a lower rent
If the VAT is not payable at the start of the lease and the tenant wants to ensure that this remains the same throughout the term of the lease, then the tenant can try and negotiate that a clause be included in the lease to state that during the term the landlord will not opt to charge VAT.
Any landlord realistically will wish to avoid both of the options above this is why it is important for a tenant at the early stages of negotiations to instruct a solicitor so that the tenant is aware of all the options available to them and to ensure that they negotiate the best rental terms.
If you are a tenant and are thinking of taking on a lease please feel free to call me on 01623 663244 and I would be happy to assist with any enquires.