A freeholder has land which is the subject of a lease to a developer who has built a three story commercial premises (mixed office and retail). The lease specifies a ground rent in respect of the building, which is charged with the addition of VAT at the appropriate rate to the management company of the building, due to the freeholders option to tax. The management company then charges a service charge and ground rents to the leaseholders with the addition of VAT (it too has opted to tax). In recent years there have been applications for change of use in regard to a number of the units from office premises to domestic premises (appartments). The management company (which is VAT registstered) has continued to charge the ground rent to appartment owners with the addition of VAT, which I beleive is incorrect. The owner of one of the appartments is adamant that the freeholder must now apportion the ground rent invoice, to the management company, between the commercial and the domestic premises. Is this correct? I believe that the freeholder should charge VAT but the management company then has to charge VAT to commercial leaseholders but not to residential leaseholders.
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