Kwasi Adomako Bonsu & Anor v The Commissioners for HMRC

In summary, Mr Cannon submitted as follows:

In summary, Mr Thompson-Jones submitted as follows:

As set out above, it is common ground that Mr and Mrs Bonsu acquired an easement over the Garden Areas (which I will hereinafter refer to as “the Easement”). Indeed, this is a right granted by the Lease and is included within the demise by virtue of schedule 4 of the Lease. It is well settled that a right to use a communal garden is capable of being an easement (see Re Ellenborough Park, supra, per Sir Raymond Evershed MR at 173 to 175). It is also well settled that it is possible for an owner of one property to grant an easement to a leaseholder of another property, even if the grantor owns the freehold of both. The point is succinctly put in Gale on Easements, 21^st Edition, 2020 at paragraph 1-47 as follows:

“1-47 An owner of two pieces of land can, of course, grant, expressly or impliedly, an easement over one to a tenant of the other. ...”

An easement is a proprietary right rather than a merely personal one. Lord Briggs summarised the position as follows in Regency Villas Title Ltd v Diamond Resorts (Europe) Ltd [2018] UKSC 57 at [2]:

“[2] The essence of an easement is that it is a species of property right, appurtenant to land, which confers rights over neighbouring land. The two parcels of land are traditionally, and helpfully, called the dominant tenement and the servient tenement. The effect of the rights being proprietary in nature is that they “run with the land” both for the benefit of the successive owners of the dominant tenement, and by way of burden upon the successive owners of the servient tenement. By contrast merely personal rights do not generally have those characteristics. Although owing much to the Roman law doctrine of servitudes, easements have in English law acquired an independent jurisprudence of their own, the essentials of which have been settled for many years, even if the uses of land during the same period have not stood still. Since the question whether a particular grant of, or claim to, rights is capable of having the enduring proprietary quality of an easement is usually (as here) fact intensive, it is convenient to begin with a summary of them.”

It is clear in the present case that the Easement is proprietary rather than personal. The grant is contained within the Lease and paragraph 3 of the Lease and the Fourth Schedule confirm that the grant is one of the rights included within the demise. Crucially, the Lease envisages the rights passing to successors in title as the definition of the Lessee “includes the person for the time being entitled to the Term,” and paragraph 7.2 provides as follows:

“7.2.

That all rights and obligations of the Lessor and the Lessee respectively under this Lease shall be incidental to and devolve with the legal reversion immediately expectant on the Term and with the leasehold interest hereby created and shall accordingly be enjoyed and performed by the persons in whom the reversion and leasehold interest respectively shall for the time being be vested.”

As such, the Easement granted by the Lease is not purely personal to the lessee and so is not a licence to use or occupy land. In turn, this means that the Easement is not an “exempt interest” for the purposes of section 48(2).

Notwithstanding Mr Cannon’s well-argued submissions, I do not accept that the Easement is the main subject matter for the purposes of section 43(6). Instead, I find that the main subject matter of the transaction is the leasehold interest in the Property. This is for the following reasons.

First, the natural construction of section 43(6) is that it envisages there being a single main subject matter within a transaction. Section 43(6) refers to the chargeable interest, the main subject-matter, and the interest or right appurtenant or pertaining to it and acquired with it (my italics). The use of the words “the” and “it” envisage a singular main subject matter rather than the possibility of multiple main subject matters.

Secondly, I do not agree that, “together with any interest or right appurtenant or pertaining to it that is acquired with it,” cannot include a chargeable interest or that this is a “sweeping up clause” covering conveyancing matters. Put simply, it does not say that. There is no exclusion of a chargeable interest. The examples given by Mr Cannon are all capable of being chargeable interests, other than those which are exempt interests. Again, however, there is no exclusion of exempt interests within section 43(6). Crucially, the words “any interest or right” are broad enough to include a chargeable interest and the proposed limitation would be inconsistent with this broad scope.

Thirdly, the easement is not being ignored; instead, it is being given the significance required by the legislative structure. Section 43(6) refers to the subject matter being the combination of the main subject matter and any interest or right appurtenant or pertaining to the main subject matter. However, sections 55(3) and (4) each identify the relevant land by reference to the main subject matter rather than the subject matter as a whole or any other part of the subject matter. It follows that it is the relationship between the rights and interests within the subject matter as a whole which defines whether an interest or right is treated as the main subject matter or alternatively appurtenant to the main subject matter. Once one interest or right is identified as being appurtenant or pertaining to another interest or right, it is that other right which becomes the main subject matter. For example, if an easement is the only interest or right acquired, then it will be the main subject matter. However, where the easement is appurtenant or pertaining to another interest which is acquired, then it is the other right that is the main subject matter.

Fourthly, the leasehold interest in the Property is clearly the main subject matter of the transaction and the Easement is clearly appurtenant to or pertaining to that leasehold interest. As explained by Lord Briggs in Regency Villas Title Ltd v Diamond Resorts (Europe) Ltd, supra, at [2] (set out at paragraph 24 above), the very nature of an easement is that it is appurtenant to a dominant tenement. The dominant tenement here is the Property by virtue of the Lease. Further, the Easement was granted within the Lease, was one of a package of rights contained within the Fourth Schedule, is paid for by way of service charges together with other rights and obligations relating to the Lease, and was for use in connection with the Lease. Indeed, Mr and Mrs Bonsu only acquired the Easement by virtue of the transfer of the Lease; the grant of the Easement itself was to Mr and Mrs Bonsu’s predecessors in title (and, even then, was as a right granted within the Lease). It is also of note that the contract of sale and the TR1 provide for the transfer of the Lease and make no separate reference to the Easement (albeit that the easement is one of the rights contained within the Lease). Similarly, the consideration appears to be for the transfer of the Lease as a whole (including the rights within it) and there is no evidence of any apportionment to represent the easement or any evidence as to any independent value.

Fifthly, whilst I am not bound by the other First-tier Tribunal decisions referred to by the parties, I note that my reasoning as set out above is consistent with those decisions (see, in particular, Sexton, per Judge Baldwin at [31] and Espalier, per Judge Brown KC at [41] to [45]).

Mr Cannon’s primary case appears to apply section 55(1B) (as supplemented by section 55(3)). On the basis of his submission, the acquisition of the Lease and the acquisition of the Easement constitute two main subject matters.

My findings as to section 43(6) are fatal to this argument. For the reasons set out above, the Lease is the main subject matter of the transaction and the Easement is appurtenant to it or pertaining to it. Pursuant to section 55(3)(a) the relevant land is the Property (being the land an interest in which is main subject-matter of the transaction). Pursuant to section 116(1)(a), the Property is residential property as it is a building that is used or suitable for use as a dwelling (about which there is no dispute). Table A is therefore applied as the relevant land consists entirely of residential property.

Mr Cannon’s alternative case is that section 55(1C) applies (as supplemented by section 55(4)), whereby the acquisition of the Lease and the acquisition of the Easement are two land transactions, with the Lease as the main subject matter of one and the Easement as the main subject matter of the other.

I do not agree that there is more than one transaction. The only contract was for the transfer of the Lease and the only transfer is the Lease itself. The right to the Easement is one of the rights that was transferred with the transfer of the Lease rather than being acquired independently. It would therefore be artificial to separate out the Lease and the Easement; it is the transfer of the rights under the Lease which transfers the Easement. Further, pursuant to section 108, linked transactions “form part of a single scheme, arrangement or series of transactions between the same vendor and purchaser.” Here, there is no such scheme, arrangement or series of transactions; again, the only transactions relate to the Lease itself. It is therefore section 55(1B) which applies, not section 55(1C).

It follows that whether the Easement (taken alone) is residential property is of no consequence. However, I still propose to make a determination as to this issue as it has been the subject of submissions and in case I am wrong in my analysis as set out above.

In my judgment, the Easement is residential property in any event. This is for the following reasons.

First, section 116(1)(c) includes within the definition of residential property, “an interest in or right over land that subsists for the benefit of a building within paragraph (a) ...” where paragraph (a) includes, “a building that is used or suitable for use as a dwelling ...” This does not include a requirement that the right is exclusively or solely for the use of a building within paragraph (a). I do not accept Mr Cannon’s submission that there is what he terms, “an implied limitation in the statutory language that confines section 116(1)(c) to interests or rights that solely benefit a particular dwelling.” This is not what section 116(1)(c) says and such an implication would be inconsistent with the clear wording of the section given the use of the word a in “benefit of a building” and the absence of any limiting words.

Secondly, whilst the Garden Areas are used by others within the Building (including the commercial unit), section 116(1)(c) deals with the interest in or right over land rather than the use of the land. The interest or right acquired by Mr and Mrs Bonsu is the transfer to them of the benefit of the Easement granted by the Lease. That right is included within the demise of the Property and is enforceable by the leaseholders of the Property from time to time. Although it is a right that is enjoyed in common with the leaseholders of the other properties within the Building (including the commercial property) they must obtain their rights from another source as it is not granted to them by the Lease. Although I am not bound by Sexton, I agree with what Judge Baldwin says at [36]:

“[36] There is nothing in section 116(1)(c) which suggests that, to fall within (c), the right or interest over land has to be an interest in or right over other residential property. The only requirement in (c) is that the interest in or right over land subsists for the benefit of a building within (a) or land within (b). If (as is the case with this Easement) a right has no independent existence other than by reference to an interest (it was created by the Lease and passes with the leasehold interest created by the Lease), it is hard to see how that right does anything other than subsist for the benefit of that interest and, if that interest falls within (a), then the right must surely fall within (c). This addresses the situation discussed above of the purchase of a cottage surrounded by farmland with a right of way over the farmland. Either the main subject matter of the transaction is the cottage alone or, if the cottage and the right of way are to be analysed separately for these purposes, the right of way will fall within (c).”

As such, even if Mr Cannon is right to say that the interest or right must solely benefit a particular dwelling, the Easement does solely benefit the Property as only Mr and Mrs Bonsu (as leaseholders of the Property) can enforce the particular right granted to the leaseholders of the Property by the Lease.

Thirdly, it is common ground that the Property was residential property. As such, the fact that the easement subsists for the benefit of the Property is sufficient to make the Easement residential property.

I note that Mr Thompson-Jones only relies upon section 116(1)(c) and does not argue that the Garden Areas constitute land that is or forms part of the grounds of the Property for the purposes of section 116(1)(b).

For the reasons set out above, I dismiss the appeal.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.