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Landlords beware – this smoking issue could be a drag
Real Insights - Property Update

Real Insights - Property UpdateIssue 17 | March 2017

Date
30 March 2017

The Government has launched a consultation proposing new sanctions for tackling tobacco duty evasion.


Landlords beware – this smoking issue could be a drag

The Government has launched a consultation proposing new sanctions for tackling tobacco duty evasion. It is keen to crack down on the UK's black market in untaxed tobacco products, given the important contribution to the public finances from tobacco duty. 

As part of the new sanctions, the Government is proposing to impose positive obligations on landlords to "police" their tenants or face a civil penalty, the equivalent of a fine. The focus is on those landlords who turn a blind eye to, or are complicit in, the illicit trading, but all landlords will be caught by the proposals.

The plan is to impose a statutory duty of care on landlords to take reasonable steps to ensure their property is not used for trading in untaxed cigarettes or other tobacco products. 

This obligation would kick in once a landlord has been notified that its tenant has evaded tobacco duty. If the tenant then continues its illicit trade and the landlord cannot show it has taken reasonable steps to address the issue, HM Revenue & Customs will levy a civil penalty on the landlord. 

The Government suggests that "reasonable steps" would include the landlord:

  • carrying out periodic checks at the premises
  • requesting information from the tenant about its business
  • contacting the authorities if the landlord has concerns
  • inserting clauses in all new leases, expressly providing for termination if there is any illicit tobacco trading at the premises; and
  • evicting anyone who subsequently violates these provisions.

There may be some practical concerns about these proposals.  Almost all leases contain a standard clause prohibiting illegal activity, so the requirement to add an express covenant against illicit trading would make no difference except cosmetically.  

A duty to forfeit the lease would be expensive for landlords, as this often requires court proceedings, and tenants have statutory right to apply for relief (i.e. cancellation of the forfeiture). We doubt the Government really intends to abolish the long-standing rules protecting tenants against forfeiture.

More fundamentally, it is questionable whether the Government should use private sector landlords to police their tenants. No honest landlord would condone tax evasion, but should they be forced to act as unpaid tax inspectors?

Details of the consultation, including how to respond, can be found here.  The consultation closes on 12th May 2017.