The person who drafts a contract or agreement must, as a matter of course, take into account myriad factors when ensuring the best result for both parties to that contract or agreement. When it comes to ensuring that the tax implications of a contract or agreement are favourable for the party upon whom a tax liability may fall, the drafter needs to ensure they consider not only the income tax implications but also the implications for capital gains tax (CGT), value-added tax (VAT) and in some cases estate duty. Therefore, the responsibility that rests upon the shoulders of a drafter is considerable. Here, we discuss an example of what can happen when a drafter fails to take into account specific tax-related nuances in the context of lease agreements, and improvements to rental premises in particular.
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