Reservation Agreements: Case Study Example

Overview

The acquisition of UK property.

Our client first became aware of a potential property purchase when reviewing plans for the proposed property (on digital imagery) showing a view of its completed state. At this point, our client completed a reservation agreement and effectively purchased land.

What is a reservation agreement?

Prospective purchasers commonly enter into reservation agreements when buying residential properties ‘off-plan’. A reservation agreement enables a buyer (‘A’), to pay a reservation fee to the developer (‘B’), in exchange for the reservation of a plot of land until a specified date and at a pre-agreed cost.

Upon completion of the property sometime later, contracts were exchanged, and a residential property was transferred to our client. Subsequently, the residential rates of SDLT were paid to HMRC in the view that a residential transaction had taken place.

Our View

One must take a view on what is residential and non-residential at the time of each transaction. A question to first ask is ‘Is the building in the process of being adapted or constructed for use as a dwelling on the date of the reservation agreement?’ Additionally, ‘do the linked transaction rules come into effect on my case?’

Finance Act 2003 (options and rights of pre-emption) explain a “land transaction” which was argued for the former transaction in this particular case. Our view on this matter and most importantly, in line with the legislation, was that this transaction as a whole constituted as a non-residential transaction (which was unknown to the client and their solicitors at the time).

Outcome

This is a simple example of recognising that SDLT had been incorrectly overpaid and luckily for this client, the 12-month window had not lapsed since the initial filing of the SDLT return, therefore time was available to reclaim an SDLT refund of over £20,000. We have reclaimed SDLT for other clients with circumstances which are not too dissimilar to this case which amounted to SDLT savings of over £23,000 and £115,000, respectively.

It should be noted that each case has its own characteristics and therefore advice should be sought which is suitable to each individual and their transaction/s.

Please see our full Signpost document regarding Reservation Agreements for more information. Reservation Agreements – All Rights Reserved.

If you have any queries about this Reservation Agreement case study, or Reservation Agreements in general, then please do not hesitate to get in touch.