stamp duty on assignment of lease

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Do You Pay Stamp Duty on a Commercial Lease?

SDLT on commercial leases can be very complex. Many tenants are unaware that Stamp Duty Land tax is payable on commercial leases – and may be hit with a penalty, as well as the full amount owed with interest if they fail to pay the tax on time.

Due to the complexity of the application of SDLT on commercial leases, there are also many circumstances where tenants mistakenly overpay the tax. If this is the case, it is possible to reclaim overpaid SDLT from HMRC, although this process can also be complicated.

If you are negotiating a commercial lease, seeking legitimate savings on SDLT or are attempting to reclaim overpaid tax, using an experienced Stamp Duty Land Tax barrister is highly recommended.

Patrick Cannon has over 35 years of experience working as an SDLT lawyer – first as a solicitor and latterly as a barrister. His in-depth knowledge of the intricacies of this field of tax law makes him the ideal choice to manage, advise and represent private and corporate clients in all aspects of SDLT on commercial leases. For more information, contact Patrick Cannon here .

Do I have to pay stamp duty on a commercial lease?

If you are a tenant of a commercial property, it is your responsibility to calculate and pay SDLT on the lease on time. Landlords bear no responsibility for SDLT on the lease.

For commercial tenants, SDLT may be payable on any of the following elements of your commercial lease: • Grant • Assignment • Variation • Surrender

SDLT is not payable on all commercial leases, however – and for this reason, it is highly recommended that you instruct a specialist tax lawyer or accountant to review your liability for the tax.

How to calculate stamp duty on a commercial lease?

As mentioned, calculating Stamp Duty on a commercial lease is complex, and while it is possible to use an online calculator, the calculators do not allow for all the complexities that may arise and so it is advisable to consult a tax lawyer or accountant who is well versed in handling commercial SDLT.

The SDLT rate is based on any lease premium paid by the tenant and on the rent due under the terms of the lease (including VAT if applicable).

The amount of ‘rent due’ is based on the first 5 years of rent payments. If the lease is longer than 5 years, the ‘rent due’ is based on the highest amount paid over a 12-month period during the first 5 years.

Once the length of the lease is factored in, the Net Present Value (NPV) of the lease can be calculated, and the amount of SDLT owed is based on this figure.

SDLT can also be applied to certain other payments made under the terms of a lease, and also to ‘chargeable considerations’, such as a commercial tenant’s obligations to carry out work or services on a rented property.

When Does Stamp Duty Land Tax Need To Be Paid?

SDLT needs to be paid within 14 days of the ‘effective date’ of the transaction. This could be the date of completion of the transaction, the moving-in date, or when the main part (‘substantial performance’) of the transaction has taken place.

Frequently Asked Questions

Do you have to pay stamp duty on a commercial lease extension.

Lease extensions may give rise to additional SDLT, however, neither the surrender of the old lease nor the grant of the new lease are regarded as ‘chargeable consideration’. It is always worth confirming your liability with a tax barrister or solicitor before you commit to a lease extension and to ensure that you are not missing the deadline for SDLT payment.

Is Stamp Duty the Same for leases on Residential, Mixed and Commercial Properties?

No – SDLT rates for residential vs Commercial property leases are different and the rates for residential leases can be found here.

SDLT rates for non-residential leases are as follows:

Are There Exemptions on Paying SDLT for a Commercial Lease?

Yes – you are exempt from paying SDLT if you are granted a commercial property lease of more than seven years, while the premium is under £40,000 with the annual rent of less than £1,000. There are other exemptions for SDLT on commercial leases, including leasebacks and extensions.

How Patrick Cannon Can Help?

Patrick Cannon is a highly experienced tax barrister and leading expert on SDLT . With his in-depth knowledge of the nuances of this complex area of tax law, Patrick is able to advise on all aspects of commercial lease SDLT, as well as manage all correspondence with HMRC, including claiming refunds for overpaid SDLT and defending clients in HMRC investigations and litigation.

For more information or to instruct Patrick Cannon directly, contact him here .

Last Updated: 18th January 2023

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Renting a Property

Stamp duty is payable on documents relating to leases of immovable properties in Singapore such as :

• Lease or tenancy agreement

Please note that licence agreements are not subject to stamp duty. Licence agreements are commonly used for the letting out of a food stall in a food court, coffeeshop or hawker centre. If you are unsure if your agreement is a licence or a lease/tenancy, you may wish to seek independent legal advice or submit the document for adjudication . Please note that adjudication fees will be payable for the latter.

Lease with Fixed Rent

Lease with premium, lease with variable rent.

A lease with variable rental is one for which the rental varies during the lease period.

• Staggered rental for different periods of the lease
• There is a fixed rental component and an additional rental component based on a percentage of the gross sales turnover (GTO)

In a lease involving an additional rental component based on a percentage of the GTO, you are to estimate the GTO and determine the additional rent payable. This additional rent shall be included for the stamp duty calculation i.e. the rent that is subject to stamp duty is the sum of the fixed rental (if any) and the additional rental derived from the estimated GTO.

Where the additional rental component is subject to a maximum or minimum secured sum, the additional rent that is subject to stamp duty shall be:

Additional rent subject to stamp duty

Please refer to Examples 1 to 3 below on the calculation of stamp duty for leases involving staggered rental or a percentage of GTO.

Variation of Lease or Supplemental Agreement

If there is an increase in rental or the lease period is extended, stamp duty is payable on the document based on the increase in rental or the rental for the extended lease period.

However, if there is a decrease in rental or the lease period is shortened, stamp duty is not payable for the document.

Other variations where stamp duty is not payable

• Changing the use of the property with no additional payment;
• Lifting the restrictions in the lease with no additional payment;
• Amending the terms of the lease that do not affect the rental and lease term such as addition of an option to renew;
• Bringing forward or deferring the lease before its commencement without a change in the lease term or gross rent.

Please refer to Examples 4 to 6 below on the calculation of stamp duty for variation of leases.

Novation of Lease between an incoming tenant and outgoing tenant Assignment of Lease (which was executed between the existing landlord and tenant) to the new landlord

Surrender of lease, rates and computation.

Lease duty is rounded down to the nearest dollar, subject to a minimum duty of $1.

1 AAR refers to the higher of the average annual contractual or annualised market rent and includes other considerations such as payments for:

• Advertising and Promotion charge
• Furniture / Fittings charge
• Maintenance charge
• Service charge
• Any other charges, excluding GST charges

Example 1: Lease with Staggered Rent (4 Years or Less)

Example 2: Lease with Staggered Rent (More than 4 Years)

Example 3: Lease on Commercial Unit Where Rent or Part of Rent is Percentage of Tenant's Sales Turnover (3 Years)

i) A lease with fixed rental and an additional rental based on a percentage of gross sales turnover (GTO), without a maximum or minimum secured sum

To calculate the Stamp Duty payable:

ii) A lease with fixed rental and an additional rental based on a percentage of GTO that is subject to a minimum secured sum

iii) A lease with fixed rental and an additional rental based on a percentage of GTO that is subject to a maximum secured sum

Example 4: Increase in Rental Where the Original Lease Period and Parties Remain the Same (More Than 4 Years)

Example 5: Bringing forward / Deferring the lease without changes in lease term and gross rent

If the lease period has not commenced, and the lease was brought forward or deferred without any changes in the gross rent or lease term, stamp duty is not payable.

i) Bringing forward the lease

ii) Deferring the lease

Example 6: Extension of a lease term without change in gross rent

The landlord grants an extension to the lease period, but provided a rent-free period equivalent to the extended period. Stamp duty is payable on the extended period.

For rates before 22 Feb 2014, please refer to Stamp Duty for Property .

Please refer to How to stamp Lease or Tenancy Agreements for the illustrated guide for stamping a Lease or Tenancy Agreement.

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Out-Law Guide 8 min. read

Stamp Duty Land Tax on Commercial Property

03 Jan 2019, 9:40 am

What are the main characteristics of SDLT?

SDLT is payable on land transactions where the land is in England. Land transactions in Scotland are subject to Scottish Land and Buildings Transaction Tax (LBTT) and from 1 April 2018 transactions involving land in Wales are subject to Land Transaction Tax (LTT).

A 'land transaction' is any "acquisition of a chargeable interest". This is widely defined and can include the transfer of a freehold interest and the grant, assignment, variation or surrender of a lease as well as some other less common transactions.

Exempt interests are not subject to SDLT. These include a licence to use or occupy land and a tenancy at will. However, HM Revenue and Customs (HMRC) has a strict interpretation of what constitutes a licence or a tenancy at will.

When is it payable?

SDLT liability is triggered on the 'effective date' of the land transaction. SDLT must be paid within 14 days after this date in order to avoid interest and penalties. The effective date is usually either the date the contract is completed, or on substantial performance of a contract or an agreement for lease if earlier. For transactions where the effective date was before 1 March 2019, a 30 day time limit applies.

In the case of a lease, substantial performance is broadly the earliest of any rent payment being made, when 90% or more of any premium is paid and when the tenant or a connected person takes possession of the property.

In the case of a freehold, the effective date is usually the date the contract is completed. However the contract may be regarded as substantially performed if 90% or more of the consideration is paid, or if the purchaser takes possession of the property.

HMRC regards 'taking possession' to be when the tenant or purchaser obtains the keys and is entitled to occupy the property, however this is documented.

What is it charged on?

SDLT is payable on "chargeable consideration". This includes both the money and 'money's worth' which is given directly or indirectly by the purchaser or a connected person. It can also include the release or transfer of a debt. Any VAT payable in respect of the transaction is regarded as chargeable consideration. This means that, effectively, you pay SDLT on VAT.

In terms of leases, SDLT is payable on any premium and the rent and there are different rules for each. However SDLT can be payable in respect of other payments made under the lease, or on non-cash consideration such as agreeing to do building works.

Where a contingency affects the eventual amount of consideration that will ultimately be due, purchasers must calculate SDLT on the basis that the contingent amount will be payable. However an application to defer the SDLT payable on contingent amounts can be made in some circumstances.

Where the consideration is uncertain or has not yet been ascertained, purchasers must make a reasonable estimate of the final consideration as at the effective date of the transaction and pay SDLT on that basis. This could happen where, for example, the consideration is based on profits in accounts which have not yet been drawn up. Once the consideration becomes certain or ascertained a further land transaction return will need to be submitted to HMRC within 30 days and any additional SDLT paid or overpayment reclaimed.

What are the rates of SDLT?

On freehold transfers and lease premiums in respect of commercial property.

Remember that SDLT is payable on the VAT-inclusive amount. For the different thresholds and rates which apply to residential property, see the HMRC website .

In the case of rent, SDLT is charged on the net present value (NPV) of the rent payable over the term of the lease. If VAT is payable on the rent, you will have to include the VAT when calculating the NPV. HMRC provides a calculator on its website which will calculate both the NPV of rental payments and the SDLT charged on that rent.

Essentially, if the term of the lease exceeds five years, the NPV is calculated by reference to the actual rent payable for each of the first five years of the lease and then for the remainder of the term the rent is taken to be the highest rent payable in respect of any continuous 12-month period during the first five years of the term of the lease. No account is take in this initial calculation of any rent increases or reductions after the first five years of the term - whether set out in the lease or otherwise occurring.

The SDLT chargeable on the NPV amounts for commercial property is calculated using the following bands. Again, different thresholds apply for residential property.

If there is a rent review or variation provided for in the lease within the first five years of the term then the initial NPV calculation should take into account a reasonable estimate of the rent which will payable after this review or variation. The NPV will then be recalculated using the actual rent figures at the end of the fifth year of the term or once the rent for the first five years becomes certain, if that happens earlier. Again, the highest 12-month figure in the first five years is used for the NPV calculation for the period of the term after the first five years. If this recalculation results in more SDLT being due, the land transaction return has to be amended and the additional SDLT paid.

What about linked transactions?

If transactions are linked, the SDLT calculation is more complicated. Transactions will be 'linked' if they form a single scheme, arrangement or series of transactions between the same parties or connected persons. This will be the case irrespective of the dates the transactions are entered into. If transactions are linked SDLT will be calculated as if the consideration for all linked transactions was amalgamated. This prevents transactions being split to take advantage of the nil rate band or a lower rate of SDLT.

In the case of leases, the tax treatment depends on whether they are linked by way of a single scheme or arrangement or as a series of successive linked leases.

SDLT on successive linked leases is calculated as though the series of leases were one lease granted:

• at the time the first lease in the series was granted;
• for a term equal to the aggregate of terms of all the leases in the series; and
• in consideration of the rent payable under all of the leases in the series.

Where leases are linked but are not successive – for example, if leases of two neighbouring properties are granted by the same landlord to the same tenant – then the NPV of each lease will be aggregated for the purpose of applying the thresholds.

What happens where there is an agreement for lease?

Where an agreement for lease is substantially performed – for example, by the tenant going into occupation of the premises – a notional lease is treated as having begun on the date of that substantial performance. SDLT is calculated on this notional lease with the term running until the end of the term agreed in the agreement for lease. When the lease is actually granted the notional lease is treated as running from the date of substantial performance of the agreement for lease until the date of expiry of the actual lease in consideration of the total rent payable under the agreement for lease and the actual lease. This means that unless the terms of the actual lease differ from the agreement for lease there should be no further SDLT filing obligation once the actual lease is granted. An agreement for lease that is not substantially performed will be ignored for SDLT purposes and SDLT will be payable only by reference to the grant of the actual lease.

What if an existing lease is held over?

Where a lease is held over after the end of its term and a new lease is then granted, the SDLT position can be complicated and advice should be sought. An SDLT liability can arise in the holding over period before a new lease is granted, and interest could be running.

However, there should not be an SDLT charge before the new lease is granted, unless it is granted more than a year after the expiry of the old lease. If the new lease is granted more than a year later, an SDLT charge could arise by reference to each anniversary of the expiry of the old lease, until the new lease is granted.

What about intra group transactions?

The basic principle is that land transactions between group companies are eligible for relief. However, that relief must be claimed. Broadly, companies are members of the same group if one is the 75% subsidiary of the other or both are 75% subsidiaries of a third company.

However there are anti-avoidance provisions which prevent the relief being available in some circumstances. HMRC can also claw back SDLT relief in certain circumstances if within three years there are changes in the ownership of the purchaser - or, in more limited cases, the seller.

What about properties held in companies?

There are no specific rules concerning commercial properties held through companies or special purpose vehicles (SPVs). If the shares in such companies are sold rather than the underlying property then stamp duty will be payable at 0.5% rather than SDLT.

Special rules exist for residential properties that are held through companies.  Broadly, SDLT is charged at 15% where UK residential property costing more than £500,000 is purchased by certain non-natural persons, such as companies.  There is a 3% surcharge on residential properties bought by companies for under £500,000.

In addition, from 1 April 2013 the annual tax on enveloped dwellings (ATED) is charged annually on high value UK residential property held by certain non-natural persons. The rate of the ATED depends on the valuation of the property. For more details see our guide on Taxes on High Value Residential Property .

What are the payment/filing obligations?

There is a statutory obligation on the purchaser or tenant to submit a land transaction return and pay SDLT, if due, within 14 days of the effective date of a notifiable transaction. Note that if relief is being claimed then the transaction may still be notifiable, even if there is no SDLT to pay.

A certificate of SDLT paid may be required for the Land Registry in order to register the transaction. This certificate is issued by HMRC on the receipt of payment of SDLT.

A purchaser or tenant who fails to file a land transaction return by the filing date is subject to penalties. Interest is payable on SDLT which remains unpaid within 14 days of the effective date of the transaction.

Are there any anti-avoidance rules?

There are various anti-avoidance rules designed to prevent the avoidance of SDLT by using schemes. There is also an obligation on promoters of schemes to disclose them to HMRC.

Scotland and Wales

In Scotland, from April 2015, UK SDLT was replaced by a Land and Buildings Transaction Tax (LBTT) collected by the Scottish Government.  LBTT applies to all real estate transactions in Scotland.

Different rates of LBTT apply to residential and commercial property; however, both systems involve staggering rates, whereby different rates apply to different consideration bands and only consideration falling in each band is tax at that rate.  For more information on LBTT, see our guide on Land and Buildings Transaction Tax in Scotland .

For transactions taking place on or after 1 April 2018 involving land in Wales, Land Transaction Tax applies rather than SDLT. See our guide to Land Transaction Tax in Wales .

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Stamp Duty Land Tax (SDLT) on leases

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Stamp Duty Land Tax (SDLT) is sometimes payable by tenants on leases. The SDLT payable is determined by the value of the lease, which is calculated based on any premium paid, the rent payable and the length of the lease. SDLT is more likely to be payable with medium to longer term leases or when the rents are higher. 

The SDLT becomes payable on the ‘effective date’ of the lease. This is usually the date of completion of the lease, though this date can sometimes vary if there has been ‘substantial performance’ before completion. The current filing deadline is 14 days from the effective date of the transaction. If SDLT is payable then an SDLT form will need to be lodged with HMRC within the relevant time frames along with any payment due.

Please note that whether or not SDLT is payable on your lease transaction, an SDLT form will still need to be filed with HMRC if the lease is for a term of seven years or longer.

Should you have any concerns regarding SDLT issues please do not hesitate to contact our commercial property solicitors on  01616 966 229 or complete our online enquiry form and we will contact you directly.

There are a number of circumstances during the term of your lease when SDLT may again become payable. It is imperative that you are aware of these circumstances as HMRC are becoming more and more aggressive in their pursuit of individuals and companies who have avoided, forgotten or simply not been aware that an SDLT payment has become due. You could be liable to fines and interest payments if you fail to correctly pay SDLT when due. The Inland Revenue have the ability to query for many years after they were due, and this gives them a large amount of leeway to chase missed SDLT payments. 

Below are a number of circumstances which may arise during, or at the end of your current lease, and which may give rise to an SDLT liability. Should you require any advice in respect of the same either now, or at any stage in the future, please do not hesitate to contact us closer for further advice. Please note that the responsibility for SDLT payments is your own and not knowing the rules will not be a valid excuse for HMRC.

Common SDLT requirements under leases

Rent review.

The SDLT payable on a lease is calculated by reference to the first five years’ rent. Therefore, if you have a rent review within the first five years and the new rent amount was not known at the outset (for example where rents are to be reviewed in line with market rents or business results as at a future date, or index-linked) then an additional return may need to be filed once the revised rent is determined. A further payment of SDLT may also be due at that stage.

Accordingly it is advisable to seek advice prior to or on the determination of any rent review, to ascertain the likely SDLT implications and whether any payments are required.

Lease expiry and holding over

If your original lease term expires, but you continue in occupation of the premises, then you are deemed to be ‘holding over’ your lease. Once your lease continues after its contractual expiry date then it is treated as if the original term of your Lease has been extended by one year. i.e. a five year lease will be treated as a six year lease. If SDLT was paid at the start of your lease (or if the extra year takes the lease over the SDLT threshold), then at this stage a further SDLT payment will be required and will need to be filed with HMRC. For each subsequent year that the lease is ‘held over’ another SDLT form needs to be filed. This is known as the growing lease regime. Failure to file further returns within the relevant short timescales could could result in fines.

Lease renewals

Unless your lease is expressly excluded from the Landlord and Tenant Act 1954, then as a commercial tenant, you are entitled to a new lease (on substantially the same terms) at the expiry of your current lease. Such renewal leases could have SDLT implications. 

You should always seek legal advice when taking a renewal lease as you have numerous rights to which you will be entitled. SDLT issues will also apply in this scenario.

Lease extension

If you agree to extend the term or the extent of the land included in your lease, then the extension is treated as a surrender and re-grant, and SDLT may be payable on the value of the re-granted lease. 

Breaking a lease

Please note that if you decide to break your lease early, you are not entitled to get any money back from HMRC, despite having paid SDLT for the full lease term. 

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Tá an chuid seo den suíomh idirlín ar fáil i mBéarla amháin i láthair na huaire.

Stamp Duty and leases

• Residential houses and apartments
• Agreements, assignments and surrenders
• Difference between a lease and a licence
• Paying Stamp Duty on residential leases
• Varying a lease
• Transitional arrangements

Leases of land and buildings

You pay Stamp Duty on a lease of land situated in Ireland. Land includes agricultural land and buildings on the land. Buildings include commercial as well as residential buildings. You also pay Stamp Duty on leases that have anything to do with land such as rights of way.

When you purchase an apartment, you do so by way of a lease. You pay Stamp Duty on the lease. Stamp Duty is chargeable regardless of the period of the lease.

If the land is situated outside Ireland, there may still be a charge to Stamp Duty.

For further information, please see When is an instrument chargeable to Stamp Duty.

You do not pay Stamp Duty on leases of property when the property is not land or relating to land.

You treat the lease as a gift if you pay less than market value for it. For more information, see Stamp Duty and Gifts and Inheritances .

Exemptions and reliefs

You may be able to claim an exemption or relief . For example, you may be able to claim the exemption for leases on residential houses and apartments.

Property Services Regulatory Authority (PSRA)

There is a legal obligation on tenants to register commercial leases with the PSRA. You must register the lease within 30 days of receipt of the stamp certificate. To register the commercial lease with the PSRA, you should go to www.psr.ie .

Next: Residential houses and apartments

Published: 27 July 2023 Please rate how useful this page was to you Print this page

• Stamp Duty and Property
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• Practical Law

SDLT - Calculator for SDLT on lease transactions (Inland Revenue)

Practical law resource id 2-106-7215  (approx. 2 pages).

• Taxation: Land and Buildings

Stamp duty land tax and Land Registry requirements for assignments of leases

Registering an assignment of a lease at the land registry.

SDLT—common lease transactions

Published by a lexisnexis tax expert.

This Practice Note provides an overview of the stamp duty land tax (SDLT) treatment of the following common lease transactions:

grant of a lease

linked leases

surrender and re-grant of a lease

agreement for lease

assignment of an agreement for lease

reverse premium

assignment of a lease

variation of a lease

surrender of a lease

lease to a bare trustee or nominee, and

reversionary lease

For information on when SDLT applies generally, see Practice Note: Land transactions, chargeable interests and chargeable transactions and for details of how to calculate SDLT payable on lease transactions, see Practice Note: SDLT chargeable consideration—leases.

This Practice Note does not cover leases and holding over. For more on this topic, see Practice Note: SDLT and holding over.

SDLT ceased to apply to any land transaction involving any interests in or over land in Scotland from 1 April 2015. From that date, land and buildings transaction tax (LBTT) applies to such transactions, subject to transitional provisions. Consequently, references in this Practice

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Related legal acts:

• Finance Act 2003 (2003 c 14)

Key definition:

Stamp duty definition, what does stamp duty mean.

A transfer tax payable on documents and instruments, rather than in respect of a transaction. It is most commonly encountered on the transfer of UK certificated shares, where the stock transfer form is the instrument that is stamped.

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Stamp duty—meaning of group.

Stamp duty—meaning of groupRelief from stamp duty is available where beneficial ownership of stock or marketable securities is transferred between two bodies corporate that are members of the same stamp duty group provided that anti-avoidance provisions do not apply to bar relief. A successful claim

Growth market exemption from stamp duty and SDRT

Growth market exemption from stamp duty and SDRTFORTHCOMING CHANGE: Autumn Finance Bill 2023 (AFB 2023, which is also known as FB 2024) includes a measure (which was first announced at Autumn Statement 2023) to widen the growth market exemption from stamp duty and SDRT, with effect from 1 January

SDLT and partnerships—transfers to a partnership

SDLT and partnerships—transfers to a partnershipThis Practice Note explains the special stamp duty land tax (SDLT) rules which apply when an interest in land is transferred to a partnership from one or more partners or persons connected with one or more partners. This includes a transfer on

Application letter—stamp duty group relief—FA 1930, s 42

Application letter—stamp duty group relief—FA 1930, s 42HMRC—Stamp Office[insert HMRC Stamp Office email address or address]Application for stamp duty group relief under section 42 of the Finance Act 1930 (as amended)in the matter of a transfer of shares in [insert name of target company] (Target)

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Stamping and Registration of Lease Agreements: An Insight on Defaults

Stamp duty and registration of instruments has always been a complex and talked about issue. Several questions are usually asked by people, such as:

“ Why do we need to pay stamp duty on instruments?” 

“Why should one get lease agreements registered ?”  

We have come across several cases where individuals and corporate entities choose to ignore the requirements of payment of proper stamp duty and the registration of such instruments in accordance with applicable law. The circumvention of these mandatory laws often leads to serious complications at a later date, either when disputes arise between the parties or when the instrument is impounded by a government authority on account of a deficit in payment of stamp duty.

In this article, we have endeavoured to address certain important aspects in respect of the payment of stamp duty and the registration of leases and the risks involved in failing to do so.

• When does a lease agreement attract stamp duty?

For the execution of any lease agreement, stamp duty needs to be paid in the manner prescribed under the relevant stamp laws of the State in India where the property is situated. Stamp duty on such instruments is a ‘State Subject’ under the Constitution of India and therefore, the applicable stamp duty / rate may differ from State to State. Generally, stamp duty is chargeable on the basis of the tenure of the lease, the amounts of rent, premium and / or any other form of rent and premium which may be mentioned in the lease agreement proposed to be executed. In some Indian States, minimum circle rates have also been specified by respective State Governments. In such States, one is required to pay stamp duty either on the actual rent / premium amounts shown in the lease agreement or the minimum circle rates issued by the relevant state government – whichever is higher. For leases which are for a long term, stamp duty may be chargeable under the same category as a conveyance or sale of such property. Stamp duty is mandatorily payable on instruments mentioned in the Schedules of the applicable Stamp Acts of various States, unless specifically exempted by the relevant authority.

• Who has to bear the stamp duty?

If it has not been specifically agreed to in the lease agreement between the parties executing it, it is the responsibility of the lessee to pay the applicable stamp duty. 

• What happens if one does not pay the requisite stamp duty?

If proper stamp duty is not paid on lease instruments, any government authority competent to take evidence on oath can impound it and send it to the jurisdictional Collector of Stamps for adjudication and payment of proper stamp duty, along with a penalty which may extend up to ten times of the deficient stamp duty amount. Further, if in court proceedings, the court comes to the conclusion that the instrument is not properly stamped with applicable duty, it would not be admissible as evidence until the stamp duty (with penalties) as adjudicated by the Collector of Stamps is fully paid.

• When and why should a person register a lease agreement?

In terms of the Transfer of Property Act, 1882 and the Registration Act, 1908, leases of immovable properties from year to year or for any term exceeding twelve months or reserving a yearly rent requires mandatory registration at the office of the Sub Registrar of Assurances having jurisdiction over the location where the property to be leased is situated. In terms of the Registration Act 1908, an instrument which requires mandatory registration, should be registered within a period of four months from the date of its execution. An extension of an additional four months may be granted by the aforementioned Registrar, at his discretion, by levying a penalty of up to ten times the registration fee, provided such non-presentation of the instrument within first four months of execution was due to genuine reasons or unavoidable circumstances.

• What would happen if a lease agreement which requires registration is not registered?

If a lease agreement which requires mandatory registration is not registered by the parties, it cannot be received as evidence of any of the agreed terms and conditions affecting the leased property contained therein, whatsoever, except for certain limited purposes including, inter alia in suits for specific performance or merely as evidence of a collateral or correlated transaction.

• Would it make any difference if a lease agreement contains an arbitration clause?

If a lease agreement contains an arbitration clause, it would, as held by the Supreme Court of India in various judgements, be treated as a separate agreement between the lessor and lessee and the process of arbitration can be invoked by either party to such lease agreement as an arbitration agreement does not require any registration. However, the arbitrator would not rely on an unregistered lease deed for enforcement of any of the terms and conditions contained therein, except as evidence of contract in a claim for specific performance, or evidence of any collateral transaction which does not specifically require registration.

The content of this document does not necessarily reflect the views / position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up, please contact Khaitan & Co at  [email protected] .

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• Real Estate
• Khaitan & Co

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When a company sells its rights to leasehold land to a third party for the remaining lease term, the transaction typically attracts stamp duty.

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Stamp Duty Land Tax Manual

Sdltm17090 - miscellaneous provisions: lease assignments: treated as new lease.

If the grant of a lease (that is, the original lease) is exempt from charge under any of the following

FA03/S57A - sale and leaseback arrangements

FA03/SCH7/PART1 - group relief

FA03/SCH7/PART2 - reconstruction and acquisition relief

FA03/S66 - transfers involving public bodies

FA03/SCH8 - charities relief

FA03/S123(3) - regulations reproducing in relation to SDLT the effect of enactments providing for exemption from stamp duty (SI 2003/2867)

Paragraphs 6 and 8 of Part 3 of Schedule 61 to the Finance Act 2009 (alternative finance investment bond relief)

Part 1 or 2 of Schedule 7A (PAIF seeding relief and COACS seeding relief

then the first assignment of the lease that is not exempt under any of the above provisions is treated as the grant of a lease by the assignor - FA03/SCH17A/PARA11

Any such deemed grant is treated as being for a term equal to the unexpired term of the original lease and on conditions (for example, rent and review periods) equal to those on which the assignee holds that lease after assignment.

Any capital amount paid for the assignment is chargeable in addition to any charge underFA03/SCH17A/PARA11.

FA03/SCH17A/PARA11 does not apply where

• group relief
• reconstruction and acquisition relief or
• charities relief
• PAIF seeding relief, COACS seeding relief

is withdrawn due to a disqualifying event occurring before the effective date of theassignment. Refer to SDLTM23000 and SDLTM26000.

This provision will only apply where the initial grant of the lease was or would otherwisehave been subject to SDLT.

A Ltd grants its subsidiary, B Ltd, a lease for a term of 25 years and B Ltd claims group relief on the grant

after one year B Ltd assigns this lease to C Ltd, an unconnected third party

As the lease benefited from a relief at the previous transaction, (the grant by A Ltd to B Ltd), the assignment is treated as the grant of a lease for 24 years, this being the remainder of the original term. This transaction is treated as the grant of a new lease by B Ltd to C Ltd for notification purposes.

C Ltd would have to file a land transaction return and pay SDLT on the net present value of the remaining rent as for a normal grant and on any capital sum paid to B Ltd for the assignment.

A Ltd grants a lease to an unconnected company B Ltd

B Ltd pays stamp duty land tax on the chargeable consideration of the new lease

B Ltd subsequently assigns this lease to C Ltd

As the lease hasn’t been subject to a relief claim in respect of the previous transaction (the grant from A Ltd to B Ltd), the assignment from B Ltd to C Ltd is not treated as the grant of a new lease.

Any capital sum paid to B Ltd is chargeable to stamp duty land tax.

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