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VCONST14140 - Dwellings - an explanation of terms: what ‘designed as a dwelling or number of dwellings� means: Note 2(c) - separate use or disposal.

To qualify for the zero-rate, the sale of a building (whether a new build or qualifying conversion) or the provision of services of construction will only be allowed if it meets the conditions of Note 2. This determines whether the building is one that is “designed as a dwelling�. One of these conditions is Note 2(c) which requires that the “separate use, or disposal of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision�.

If a clause amounts to a prohibition, then the construction or sale/disposal of the building will not be zero rated.

For a condition to amount to a prohibition, it must be an absolute prohibition placed upon the developer by an appropriate body, such as a local planning authority. It does not apply to an arrangement entered into by two contracting parties for commercial purposes.

An absolute prohibition is one that cannot be removed or lifted and that is not time limited. A condition is not an absolute prohibition if Ìýit can be set aside, such as through paying a penalty. ÌýFor example, if planning consent states that further prior consent is required before sale or a penalty is due, then this is not an absolute prohibition. Similarly, if planning consent is conditional upon a property being used for a specific purpose for a period of time, with disposal free from restriction after that date, then it is also not an absolute prohibition. Whereas if a clause states you cannot dispose of the property independently from another or only persons employed by the business can reside in the premises, and this is not time limited, then this is an absolute prohibition. This is because the position of the clause cannot be changed.

Where separate use or disposal is restricted and tied to another building, structure or even land, the condition note 2(c) is met. Accordingly, ‘granny� annexes constructed in the grounds of a main house, and that cannot be used or sold separately are caught by the prohibition. This may include a caretaker’s house at a school or assisted living units within the grounds of care or nursing homes.

Disposal is not restricted to a freehold disposal. It also applies to leasehold interests including the granting of long leases. A long lease is Ìýa major interest grant (21 years or more or, in Scotland, for a period of not less than 20 years).

If there is a prohibition on the disposal of either the freehold or Ìýgranting of a long lease, there is a prohibition on separate disposal. However, if there is a prohibition only on granting a short lease, then there is no prohibition on separate disposal.

Occupancy restrictions do not necessarily prevent the separate use or disposal of a dwelling.Ìý »Ê¹ÚÌåÓýappy are not Note 2(c) prohibitions. Examples that are not prohibitions include :

• working, or last working, in the locality in agriculture or in forestry, or a widow or widower of such a person, and to any resident dependents
• over a certain age.

Where the restriction goes beyond identifying a particular class of person and ties use of a dwelling to, say, a commercial activity being carried on in another building, this is a prohibition on separate use or disposal of the dwelling.

A list of cases with examples of conditions considered is provided atÌýVCONST14170.