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Cite as: [2006] UKVAT V19917

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Metropole (Folkstone) Ltd v Revenue & Customs [2006] UKVAT V19917 (04 December 2006)

19917

Works of alteration of a listed building - Group 6 Schedule 8 VATA 1994 - the replacement of a demolished stone balcony with one built in modern materials and with additional structural features including new steel props - were these works of alteration which were excluded from zero rating because they were works of repair or maintenance - held yes.

LONDON TRIBUNAL CENTRE

METROPOLE (FOLKSTONE) LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: CHARLES HELLIER (Chairman)

MISS S WONG CHONG FRICS

Sitting in public in London on 9 October 2006

Mr Hays, chairman of the Appellant, for the Appellant

Jess Connors of counsel instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

The Metropole Hotel in Folkstone was built in 1887 in Folkstone's heyday. It was a grand hotel in the early part of the last century. Later Folkestone fell into decline and the Metropole Hotel declined with it. In the second world war it accommodated Canadian troops and had a gun placement in its garden. After that it was acquired by property developers who turned part, and later all of it, into flats. Some of the flats were let and some were sold.

In 1995 the freehold was purchased by a company representing the flat owners. The company set about restoring the Metropole. There was a lot to do and they could not do it all at once. They are still making progress in restoring it, as far as possible, to its former glory.

That company is the Appellant. And Mr Hayes, its chairman (he describes himself as its "voluntary chairman"), presented the company's case to us with patience and clarity. He is one of a number of directors of the company and clearly spends a lot of time working for the benefit of the company, the flat owners and the Metropole. The company is not a large commercial enterprise and its directors are not full time remunerated professionals. When they need advice they seek it, and in respect of the issues material to this appeal have followed it.

On the third floor of the building are a number of ornate balconies. One is on the south side and adjoins and benefits flat 303, and the other is on the west side and benefits flat 308. This appeal relates to the balcony on the south side adjoining flat 303. We call it "Balcony 303". Facing the south it no doubt benefits from a fine view over the sea, but it also bears the brunt of the salty south-westerly rain and wind.

Following the acquisition of the freehold the Appellant set about restoration. In 2002 they appointed a building surveyor who was charged with producing a schedule of works to be spread across the next 10 years. He set about inspecting the building and in due course got to balcony 303. What he saw worried him.

The balcony had been constructed with terracotta. Iron rods ran within the terracotta reinforcing the structure. Under the balcony were decorated triangular brackets in which there were imbedded further iron rods supporting it. The balcony's floor was cantilevered out from the building with reinforced iron rods within it.

Over the 120 odd years since the Metropole was built the rain had permeated the terracotta and the iron had begun to rust. As the iron quietly rusted, it expanded and began to break apart its casing. And as its casing broke it let in more water and the iron rusted more.

In about 1985 (the 100 years after the Metropole was built and 10 years before the Appellant acquired its freehold) it appears that someone became concerned about the safety of Balcony 303. Two temporary vertical iron props were placed under it resting on a terrace or balcony two floors below. There was also some attempt made to protect and to hold together the banisters: they had been covered in fibreglass: originally in a colour to match the terracotta of the building; but by 2002 the colour had faded.

When the Appellant's building surveyor saw Balcony 303 he became concerned. He called in a structural engineer. The structural engineer came in about May 2003 and inspected Balcony 303. He too became concerned, and called in builders to investigate the structure. As they removed various parts he became alarmed. The more they removed the worse it got. The structural engineer told the Appellant's directors that he was not prepared to guarantee the stability of Balcony 303. He said it was unsafe and put in danger those who might be below: it should be demolished. The directors, as we have said, were volunteers who lived in the Metropole. They took the advice given to them. The builders were on site and the Appellant's directors gave the go ahead. Over two days the builders took the balcony down.

The demolition of Balcony 303 caused consternation to the residents - particularly those of flat 303: no longer could they contemplate sitting on their balcony in the summer sun. The directors recognised that some compensation might be due to the owners of flat 303 when initially they contemplated not replacing the balcony.

But the Metropole is a splendid building. It has been Listed under the provisions of the Planning (Listed Buildings and Conservation Areas) Act 1990. Section 7 and 8 of that Act provide:

"7. Subject to the following provisions of this Act, no person shall execute or cause to be executed any works for the demolition of a listed building or for its alteration or extension in any manner which would affect its character as a building of special architectural or historic interest, unless the works are authorised."

"8.—(1) Works for the alteration or extension of a listed building are authorised if—

(a) written consent for their execution has been granted by the local planning authority or the Secretary of State; and

(b) they are executed in accordance with the terms of the consent and of any conditions attached to it.

(2) [Deals with the works for the demolition of a listed building in its entirety].

(3) Where—

(a) works for the demolition of a listed building or for its alteration or extension are executed without such consent; and

(b) written consent is granted by the local planning authority or the Secretary of State for the retention of the works,

the works are authorised from the grant of that consent.

…

(7) Consent under subsection (1), (2) or (3) is referred to in this Act as "listed building consent" .

and section 38 provides:

"(1) Where it appears to the local planning authority—

(a) that any works have been or are being executed to a listed building in their area; and

(b) that the works are such as to involve a contravention of section 9(1) or (2),

they may, if they consider it expedient to do so having regard to the effect of the works on the character of the building as one of special architectural or historic interest, issue a notice under this section (in this Act referred to as a "listed building enforcement notice").

(2) A listed building enforcement notice shall specify the alleged contravention and require such steps as may be specified in the notice to be taken within such period as may be so specified -

(a) for restoring the building to its former state; or

(b) if the authority consider that such restoration would not be reasonably practicable or would be undesirable, for executing such further works specified in the notice as they consider necessary to alleviate the effect of the works which were carried out without listed building consent; or

(c) for bringing the building to the state in which it would have been if the terms and conditions of any listed building consent which has been granted for the works had been complied with.

(3) A listed building enforcement notice shall specify the date on which it is to take effect (in this section referred to as "the specified date" ).

(4) A copy of a listed building enforcement notice shall be served, not later than 28 days after the date of its issue and not later than 28 days before the specified date—

(a) on the owner and on the occupier of the building to which it relates; and

(b) on any other person having an interest in that building which in the opinion of the authority is materially affected by the notice.

(5) The local planning authority may withdraw a listed building enforcement notice (without prejudice to their power to issue another) at any time before it takes effect.

(6) If they do so, they shall immediately give notice of the withdrawal to every person who was served with a copy of the notice.

(7) Where a listed building enforcement notice imposes any such requirement as is mentioned in subsection (2)(b), listed building consent shall be deemed to be granted for any works of demolition, alteration or extension of the building executed as a result of compliance with the notice."

The demolition of the balcony was effected without any such consent. It was an emergency measure. The directors thought they had no alternative open to them.

The Appellants' advisers had discussions with Stepway Council, the local authority. The council architect wanted the balcony put back. There was also the balcony on the west side to consider. The architect did not like the idea of a balcony on one side but not one on the south side. There were further discussions between the Appellants' advisers and the council as to the mode of reconstruction. Modern materials were to be used and stainless steel rather than iron was to be used to provide reinforcement. The council acceded to these suggestions so long as the visual appearance of the balcony remained as it originally had been. Reconstituted stone coloured to look like terracotta was to be used rather than more expensive terracotta.

But the structural engineer had seen the remains of the old balcony. He also was able to see Balcony 308. The balcony had weighed three tons. He was concerned that the new balcony should be safe. He specified two new additional features for the replacement balcony. First, that within the rim of the balcony should be embedded stainless steel rods which should go back through the wall of the building and be attached to the joists under the floor of flat 303. And second, that two props should be positioned under the balcony in the manner of the temporary props put under it 20 years before.

The structural engineer said that it would be "impossible to substantiate the structural integrity of the balcony props when relying only upon the embedment of the cantilevers within the brickwork." He persuaded the council architect to accept the new balcony being propped. The council gave listed building consent to the reconstruction of Balcony 303, and in January 2005, some 18 months after its demolition, the work commenced on the reinstatement of Balcony 303. (Consent was also obtained for the replacement of Balcony 308 but these works have not yet been done and are contemplated for a couple of years' time.)

As restored, the new balcony is visually identical to the original balcony - the decorative features - the swirls and the devices in the terracotta are now replicated in the moulded reconstituted stone; the balusters and the rail are identical. The details were taken from the pieces salvaged in the demolition, from the balcony's twin sister, Balcony 308, and by reference to the holes in the wall where the balcony had been placed. But there are three differences between the 1887 balcony and that of 2005:

(1) the 2005 balcony has two vertical steel props underneath it;

(2) the 2005 balcony has stainless steel rods holding it back into the building attached to the joists under flat 303; and

(3) the new balcony is made of reconstituted stone and stainless steel struts held together with modern mortar fixtures rather than terracotta iron and the mortar and fixtures of 1887.

The Issue

The Appellant contends that the supply of the works of replacement of Balcony 303 is zero rated under Group 6 Schedule 8 VATA 1994. The Respondents contest this.

The precise reasoning given by the Respondents for their position has varied from time to time, but that is not of concern to us. The question is whether the Respondents are correct.

The Evidence

We heard evidence from Mr Hays and had before us copies of various documents including pictures of the building and plan. We were grateful for the clear and calm way in which Mr Hays presented his case.

The Facts

We find the facts set out above. We should note one finding in particular. It is that the balcony was demolished in 2003 without Listed Building Consent having been given for the demolition and then reinstated in 2005. Some doubt on this history was cast by various pieces of correspondence. We preferred the evidence of Mr Hays on the topic which was clear, immediate and robust.

The Respondents' understanding of the case prior to hearing Mr Hays' evidence had been that Listed Building Consent had been obtained for the demolition and reinstatement of the balcony. As a result, Miss Connors had to make some speedy modifications in the presentation of their case. She also kindly provided (and within 3 days of the hearing) some additional submissions in relation to the effect of enforcement notices issued under section 38 of the Planning (Listed Buildings and Conservation Areas) Act 1990, for which we were most grateful.

The VAT Law

Section 30 VATA 1994 provides that supplies of goods or services of the description specified in Schedule 8 are zero rated.

So far as material, Group 6 of Schedule 8 specifies the following goods and services:

"Item No….2 the supply, in the course of an approved alteration of a protected building, of any services other than the services of an architect or any person acting as a consultant or in a supervisory capacity."

The services which the Appellant maintains are zero rated are services other than those of an architect there or a person acting as a consultant, or in a supervisory capacity. The only question for us therefore was whether the services were supplied in the course of an "approved alteration".

Note (6) provides that:

""Approved alteration" means…(c) in any other case, works of alteration which may not, … be carried out unless authorised under any provision of -

(i) Part 1 of the Planning (Listed Building and Conservation Areas) Act 1990…

and for which…, consent has been obtained under any provision of that Part,

but does not include any works of repair or maintenance, or any incidental alteration to the fabric of the building which results from the carrying out of the repairs, or maintenance work."

Note (9) provides:

"Where a service is supplied in part in relation to an approved alteration of a building, and in part for other purposes, an apportionment may be made to determine the extent to which the supply is to be treated as falling within item 2"

Since 1972 there have been provisions zero rating work to listed buildings. The legislative provisions defining the zero rated work have been broadly in three different forms.

Prior to 1983 the legislation referred to "the supply, in the course of the construction, alteration or demolition of any building or any civil engineering work of any services…" (2) and provided that this did" not include - (a) any work or repair or maintenance…".

The "ACT Case" (ACT Construction Ltd v Customs and Excise Commissioners 1982 STC p24) was decided in relation to this legislation. The House of Lords held that because of the sandwiching of "alteration" between "construction" and demolition", "alteration" meant structural alteration.

By 1994 the reference a supply "in the course of construction, alteration or demolition" had been replaced by the concept of "approved alteration" as defined in the current provision. It seems to us clear that the reasoning which compelled the House of Lords to hold that "alteration" meant structural alteration is no longer relevant, and that "alteration of a building" should be given its normal meaning, namely of something which alters the building.

The 1994 change left the exception relating to repairs. It "provided that, in item 2 "alteration" did "not include repair or maintenance; and where any work consists partly of an approved alteration and partly other work an apportionment should be made to determine the supply which falls within item 2."

It will be noted that the extension of the inclusion expressly to incidental alterations to the fabric of the building which is in the current provisions was not included in this formulation; and also that the words currently found in note 9 relating to apportionment followed directly after the alteration language in note 6.

In the ACT Case Lord Ruskill, who gave the only reasoned speech said that "repair or maintenance" was a composite phrase in which repair and maintenance are not used in antithesis to one another. There is nothing in the change of legislative words which would in our view alter that conclusion.

In that case Lord Ruskill also approved the judgment of Brandon LJ in the Court of Appeal where he indicated that the work done which was at issue in that case "was not to any existing part of a building; it was entirely new work. It involved a radical and fundamental alteration to the construction of the building as it had been before… such work was not maintenance…"

C&E v Sutton Housing Trust 1984 STC 352 concerned the replacement of the roofs of a number of properties. The relevant legislation was that in the Finance Act 1972. Browne-Wilkinson LJ said at p.357h:

"In my judgment work undertaken on an existing structure of a building in the ordinary course of managing property for the purpose of keeping up the building without improvement can only properly be described as a work of "repair or maintenance" to that building".

It seems clear to us, however, that Browne-Wilkinson LJ was not providing an exhaustive definition of repairs or maintenance, and the work done to Balcony 303 although it was not clearly in the ordinary course of managing property, or clearly without improvement, might still be repairs or maintenance of the Metropole.

Later in his judgment Browne-Wilkinson LJ considered the argument that replacing the roof of a building was not repairing or maintaining the roof. He said, the relevant question was whether there was repair or maintenance of the building as a whole not just the roof. There is nothing in the revised wording of the relevant provisions which in our view effect that conclusion.

Customs and Excise Commissioners v Windflower Housing Association 1995 STC 860 again concerned the replacement of a roof. But as part of the replacement, various changes and improvements were made. The tribunal held that the work exceeded repair or maintenance. In the High Court, Ognall J adopted the test of integrality which appears in the judgment of Woolf J in Parochial Church Council of St Lukes v CCE 1982 STC 856:

"A house could be divided into flats. The work required to divide the property would be zero-rated. If the roof of the property did not require alteration but, at the same time as the work was going on it was thought desirable to overhaul the roof, this would be work of repair or maintenance, and therefore it would not be zero-rated. The work on the roof would have to be distinguished from the work inside the building. Again, as part of the division of the property, rooms which had previously existed would have to be redecorated. As long as this was an integral part of the alterations, but redecoration would be treated in the same way as the alteration, even though, if the rooms had been redecorated otherwise than in the course of the alterations, the work would have been standard-rated."

On that basis he found that the change which consisted of the raising of the roof pitch by one inch was integral to the remainder of the work of repair or maintenance and was no more than de minimis when answering the question: is it an alteration over and above repair and maintenance? The judge also helpfully offered a definition of the concept of "maintenance" as a "task designed by the owner… to minimise, for as long as possible, the need for, and future scale and cost of further alteration to the fabric of the building."

Windflower was a case on the 1983 Act. The change in the wording affecting nature of the word "alteration" had taken place, but the addition of the words "or any incidental alteration"… had not been included. Potentially these new words: "any incidental alteration to the fabric of the building which results from the carrying out of the required or maintenance work", might bring in the question whether Ognall J's reasoning is still apposite. It seems to us however that it is. The new phrase relates to alterations which result from the repairs or the maintenance; it is not necessarily anything to do with things which are over and above or could be seen as in addition to the repair or maintenance. Neither does the new phrase affect the question of whether tasks which may be seen as integral to the repair or maintenance should be treated as part of the repair and maintenance: there is no suggestion in these new words that items which may not on their own be repair or maintenance, should become part of repair or maintenance only when incidental thereto and consequent thereon rather than whenever they are integral therewith.

In Browne v CCE (VATD 11388) concrete lintels and breeze blocks were introduced to remedy movement and distress in a listed building. The Appellant argued that the architectural integrity had been varied, that the works were not repair and maintenance and that the intention was not repair but to rectify a design fault. The tribunal said that this however was not alteration "for the sake of alteration" but alteration for the repair and maintenance of the building and was therefore "repair or maintenance".

In SH and VS Kain (VATD 12331), the tribunal developed and relied upon the concept of the reason for the task alluded to in Browne: it said that "alteration" looks at what actually happens whereas "repair and maintenance" looks at what is done and why it is done. The tribunal distinguished between alteration which was gratuitous improvement (which was not repair or maintenance), and work which "needed doing (which was). This reliance on the reason for the work was followed by the tribunal in Dodson Bros (Thatcher) Ltd) VATD 13734.

From this discussion we draw the following principles in relation to the legislation in its current form:

(i) alteration means any alteration to the building not just a structural alteration;

(ii) repair or maintenance is a composite phrase to be construed in its ordinary sense; the words are not antithesis (the ACT case);

(iii) maintenance, if one is to be permitted to consider it separately, reflects a task designed to minimise for as long as possible, the need for and future time scale of further attention to the fabric of the building (Windflower);

(iv)"repair or maintenance" refers to the listed building as a whole, not to specific parts of it (Sutton Housing Trust);

(v) a radical and fundamental alteration to the building will not be repairs or maintenance (the ACT case);

(vi) because "repair or maintenance" is an exclusion from "alteration" the repairs or maintenance under consideration will always be works of alteration;

(vi) the effecting of a repair using modern building materials does not prevent the work from being repairs and maintenance (Browne);

(vii) if an alteration is an integral part of wider works of repair and maintenance it should be viewed as repairs or maintenance (Windflower); "integrality" implying a measure of necessity (Nicholas Furra Rhodes VATD 14533).