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Guidance on ‘Hand Shake’ Contracts

MansionIn a decision which helps to define the status of informal, ‘hand shake’ agreements, a tribunal has ruled that a man who initiated a £43 million property deal over coffee in a top London restaurant was ‘acting in the course of a business’ and was thus liable to pay 20 per cent VAT on his success fee.

The man had known for some time that a friend of his was keen to sell his palatial home and they were having dinner together when they spotted an extremely wealthy Russian businessman sitting at a nearby table. They made contact and, that same evening, the Russian offered £43 million for the property. Contracts were exchanged at lightning speed within 48 hours.

The man, who subsequently received just over £108,000 for the part he played in the deal, insisted that he did nothing more than help out a friend and that the payment was purely gratuitous. However, HM Revenue and Customs were equally adamant that he had expected a success fee and was acting on a commercial footing.

The First-tier Tribunal accepted that there had been no written contract between the friends and that the deal had been a ‘one-off’. However, it ruled that a ‘hand shake agreement’ had been concluded that the man would be remunerated for his efforts in pushing through the sale.

In dismissing the man’s appeal, the Tribunal concluded that it was clearly implicit in the deal between the friends that the man would perform some introductory role in relation to the sale and that he would be entitled to a substantial cash payment if his efforts bore fruit. His role was not performed in the course of ‘social engagements’ or pleasure but was ‘deliberate, business-like and very much designed to generate a fee receipt’.