Commercial Leases and SDLT – Don’t Break It

Where Stamp Duty Land Tax (SDLT) is potentially payable by a tenant on a lease transaction, a little thought at the outset could save some significant outlay. A landlord open to a more flexible approach when agreeing the length of a lease may forsake some security on longer term rental, but in an increasingly competitive market, this will make its premises more attractive to tenants.

Although priorities will differ from landlord to landlord, the people doing the heavy lifting (aka: my landlord clients) generally would opt for fully let property on an open market rent now. Vacant property not only impacts on cash flow, but can adversely impact on rental values for investor landlords with other comparative properties within its portfolio.

Interestingly, where SDLT is concerned, there is a simple way to make a lease more attractive to a tenant, whilst not losing too much ground for the landlord’s rental security either.

SDLT is payable on all rent due throughout the term. No account, however, is taken of any break date and so if a landlord wants to let premises for six years, but there is a tenant’s break date at year four, the tenant would still be liable for paying SDLT calculated on a six year term. This is the case, even if the tenant breaks the lease at year four. However, if the tenant took a lease for four years with an option to renew it for a further two years at year four, it would only initially pay SDLT based on the four year term.

If you were a tenant, which one would you opt for? And if you were a landlord, would you not want to let your property now and know that in four years, if things have worked out well, there is a high chance that your tenant will want to renew the lease?

Obviously, each property just like each client and the parties to the transaction are individuals and advice will differ according to their unique needs. Consequently, advice from your property professional should be sought in every case.