- Commercial Leases and Stamp Duty in NSW
- Commercial & Business Law
- March 25, 2022
- By James Wilson
- Commercial & Business Law , Commercial & Retailing Leasing
- No Comments
Stamp duty can be a difficult concept to understand and is particularly challenging when parties are considering whether this is payable across NSW in relation to various commercial leases. It is important that thorough consideration is afforded to this area of law to ensure that no unwarranted penalties are incurred throughout or after the leasing transaction has been completed.
Stamp Duty is a tax imposed on the purchase of assets and certain transactions relating to property. In 2008, NSW abolished stamp duty on new Leases and on Variation of Leases, but there are still some commercial leasing transactions that require stamp duty to be paid.
Stamp duty is payable on the following commercial lease transactions:
i) Transfer/Assignment of Lease – A Transfer/Assignment of Lease is a relatively common leasing transaction, particularly in relation to a Sale of Business. In this transaction the lease is transferred by the current Tenant (Assignor) to the incoming Tenant (Assignee) and is subject to a nominal sum of $10.00 stamp duty for the transfer. The duty is to be paid by the Assignee (incoming tenant).
ii) Surrender of Lease – A Surrender of Lease occurs in matters where the parties agree for the Lease to end. When the Tenant of a lease voluntarily gives up their Lease and forgoes the accompanying rights to the Landlord before the term has expired, a Deed of Surrender of Lease and a Land Registry Services Form 07DL are required to be executed/lodged. Similarlily, this attracts a nominal $10.00 duty sum and is payable by the Lessee when surrendering the Lease.
In some special circumstances, duty can be required in relation to a new lease. This occurs when a proposed tenant puts forward a lump sum payment to entice a landlord to grant a lease and is held to be a capital payment. However, this is a rather infrequent occurrence.
Commercial Leasing transactions can be complex for parties, so it is essential that parties obtain suitable legal advice to ensure that all of the necessary legal requirements are addressed and that there are no hidden costs down the line. Related Tag:- Estate Will Lawyers Newcastle
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Assignment of lease
ADIS Code - LASS
An assignment of lease, including a sub-lease, is a transfer of the lease by the lessee, ie the assignor, to a new lessee, ie the assignee. The lessor is usually not a party to the assignment.
The affected lease or sub-lease is not required. For an assignment of a lease affecting Kosciuszko National Park .
Stamp duty - Required. If not marked Registration insisted upon , is prohibited.
Any alteration to the term or rent must be marked.
Registration copy - Required. If unacceptable, Registration insisted upon is prohibited.
Statement of Title Particulars form - Not required.
NOS form - Not required.
Index Particulars form (completion)
(A) Lodging Party - Must be completed.
(B) Instrument - Lease - Assignment of
(C) Locality - Not required.
Link Conveyance - Not required.
Principal Deed - The registered affected lease or sub-lease.
(D) Indexing - The assignor and the assignee, and the sub-lessor for an assignment of a sub-lease.
(E) Certification - Required.
Date: must be dated with the date of execution. If not dated advise the lodging party. If a date is not furnished, indicate Registration insisted upon and include the reason.
Name: the full names (initials are acceptable) of the assignor and the assignee are required. Advise the lodging party of any discrepancies in names.
Operative clause: "... hereby assigns...".
Principal Deed: the number of the affected lease or sub-lease as stated in the assignment must be identical to the number stated on the IPF. If affecting a sub-lease, the head lease number is also required.
Execution: by the assignor. A power of attorney must be registered, The assignee does not have to sign.
Attestation: required. Must be witnessed by a person of 18 years of age or older who is not a party to the document.
IPF: must be completed.
Staff processing information
A Deeds search may be made for the head lease number.
CA Not required
Link Conveyance: nil.
Principal Deed: required. The registered number of the lease or sub-lease being assigned, and the registered number of the head lease for an assignment of a sub-lease.
Noting: "Affecting [description of the land]".
If the assignment affects:
- an interest, state: "interest in" (or Noting Code: "I"
- a share, state: "[fraction] share"
- part of the land, state: "[affected land description]"
- the land description relies on an attached plan, state: "see attached plan" (or Noting Code: "PL").
V: the assignor, and the sub-lessor for an assignment of a sub-lease, deceased estates or trusts, and any variations thereof.
P: the assignee, deceased estates or trusts, and any variations thereof.
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CPN 027: Leases and change in beneficial ownership
Chapter 2 of the Duties Act 1997 (“ Act ” ) charges duty on transfers of dutiable property and other transactions which include a surrender of an interest in land and a lease in respect of which a premium is paid or agreed to be paid. From 19 May 2022 the Act also imposes duty on transactions that result in a change in beneficial ownership of dutiable property other than excluded transactions.
Under Clause 145 of Part 53 of Schedule 1 to the Act , Section 8(1)(b)(ix) of the Act does not apply to a transaction that occurs on or after 19 May 2022 if the transaction occurs in accordance with an agreement or arrangement entered into before 19 May 2022.
This practice note outlines the circumstances when the grant of a lease will be dutiable and must be read in conjunction with CPN 025 - Change in Beneficial Ownership.
Section 8 of the Act operates to charge duty on certain specified transactions dealing with dutiable property. Section 8(1)(b)(ix) of the Act provides that duty will also apply to another transaction that results in a “ change in beneficial ownership ” of dutiable property unless it is an “excluded transaction”. Excluded transactions include “the grant, renewal or variation of a lease for no consideration” (paragraph (e)). Excluded transactions also include any transactions of a kind prescribed by the regulations (paragraph (k)) and a combination of transactions referred to in paragraphs (a) – (k). The Duties Regulation 2022 includes the following additional excluded transactions relevant to leases:
- the creation, variation, or surrender for no consideration, of a tenant’s interest in fixtures that are fit-out for commercial premises (paragraph (f))
- a change in tenancy under a lease for no consideration (paragraph (g))
- the expiry, extinguishment or merger of one of more leases for no consideration (paragraph (j)).
Commissioner's Practice Note
Section 8(3) of the Act defines the change in beneficial ownership to include the creation and the extinguishment of dutiable property. This will include the grant of a lease of land in NSW unless there is an exclusion or an exemption. Leases granted without a premium or other (monetary or non-monetary) consideration generally will not attract duty.
Note: Lease is defined in section 8(3) of the Act as a lease of land in NSW or an agreement for a lease of land in NSW.
What is consideration for the grant of a lease?
Consideration for the grant of a lease includes monetary consideration and/or the value of the non-monetary consideration. Monetary consideration includes any amount paid or payable by the lessee for the grant of the lease. This does not include amounts paid or payable for the right to use the land being rent or rent reserved. Outgoings such as rates, charges, taxes etc are not treated as consideration or premium for the grant of a lease.
Note: If the lease is granted for monetary consideration, the Chief Commissioner will generally not require a valuation. Duty will be calculated on the consideration paid or to be paid.
In Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 , Dixon,J stated that the word “consideration” should receive the wider meaning or operation that belongs to it in conveyancing rather than the more precise meaning of the law of simple contracts. Consideration is the money or value passing which moves the conveyance or transfer.
In Frazier v Commissioner of Stamp Duties (NSW) 85 ATC 4735, the Court considered that the question of whether a sum is premium or rent is to be determined by deciding firstly whether it is a payment required as a consideration for the granting of the lease or whether it is a payment for the use and enjoyment by the lessee of the land. Where a lump sum payment, even if described as rent in advance, is not proportionally refundable by reference to the unexpired term of a lease on an early termination of the lease, it is generally treated as a premium and not as rent.
Improvements constructed by the lessee can take the character of prepaid rent where they are credited against an obligation to pay rent or are accepted by the landlord in satisfaction of an obligation to pay rent, and there is a right of proportionate refund (payment) in the event of an early termination of the lease (other than through the default of the lessee.) 
Note : If the lease is granted for monetary consideration, the Chief Commissioner will generally not require a valuation. Duty will be calculated on the consideration paid or to be paid.
Example 1: ABC Pty Ltd as lessee enters into a 6-year lease of commercial premises in a regional city at a rent of $500 per week. At the commencement of the lease there is a non-refundable upfront payment made by ABC Pty Ltd of $160,000 for the grant of the lease. Duty will be payable on the premium of $160,000 under section 8(1)(b)(viii) of the Act. No duty is payable under section 8(1)(b)(ix) of the Act and no duty is payable on the rent.
Example 2: ABC Pty Ltd as lessee enters into a 6-year lease of commercial premises in a regional city at a rent of $500 per week. At the commencement of the lease ABC Pty Ltd makes an upfront payment of $160,000. This amount is characterised as a combination of a prepayment of rent, the unused portion of which is refundable upon termination of the lease (other than through the default of the lessee, and there are no “break fees” or penalty arrangements) and a “guarantee payment” of $4,000. In this case, the $156,000 ($500 x 52 x 6) attributable to the prepayment of rent will not attract duty and only the amount of the $4,000 guarantee payment will attract duty under section 8(1)(b)(viii) of the Act as premium. No duty is payable under section 8(1)(b)(ix) of the Act.
A grant, renewal or variation of lease for no consideration is generally not dutiable  . Rent is not consideration for the grant of a right to lease the property, but rather a payment for the use and enjoyment of the property by the lessee. It follows that leases where only rent is paid or payable will not be liable to duty. Examples include retail, commercial and residential leases entered into on ordinary commercial terms. Leases or agreements to lease where consideration other than rent is paid or payable for the grant of the lease or the agreement will be liable to duty calculated on that consideration.
A lease or an agreement for lease in respect of which a premium is paid or agreed to be paid is liable under section 8(1)(b)(viii) of the Act and will not be dutiable again under section 8(1)(b)(ix) on the premium. However, it could be liable under section 8(1)(b)(ix) of the Act on any other consideration other than premium  .
However, under section 8(2A) of the Act , an excluded transaction that results in a change in beneficial ownership of dutiable property is a dutiable transaction if it is part of a scheme or arrangement that, in the Chief Commissioner's opinion, was made with a collateral purpose of reducing the duty otherwise chargeable.
Example 3: A lease between a landlord and ABC Pty Ltd has 4 years left to run. XYZ Pty Ltd agrees to purchase the business and assets of ABC Pty Ltd. Rather than agree to a transfer of the lease, XYZ Pty Ltd enters into an agreement with the landlord for a new lease and ABC Pty Ltd and the landlord enter into an arrangement such that the existing lease term is varied to expire in a day.
Depending on the circumstances, including the values of the leases involved, the Chief Commissioner may be of the opinion under section 8(2A) of the Act, that the grant of the lease to XYZ Pty Ltd and/or the variation of the lease to ABC Pty Ltd was made with a collateral purpose of reducing the duty otherwise chargeable on the transfer of the original lease such that the grant of the new lease to XYZ Pty Ltd and/or the variation of the original lease is a dutiable transaction. Penalties may also apply under Part 10A of the Taxation Administration Act 1996 .
Other transactions that may be liable to duty
Certain transactions not already covered above or liable under section 8(1)(b)(iii) or (viii) could be liable to duty under other sections of the Act . If they are liable under another section of the Act , they will not be liable again to duty as a change in beneficial ownership. The following are some transactions that could trigger duty either under section 8(1)(b)(ix) or any other section in the Act .
- early termination of a lease by the lessor for various reasons including to grant a new lease to another lessee, or to sell the premises, involving consideration for the arrangements,
- grant of a lease where the lessee pays or agrees to pay the lessor’s legal fees which are non-refundable and is greater than $1,000. Payment of legal fees by way of or instead of rent will not be dutiable on an extension or renewal of the lease 
- an option to lease land in NSW for premium 
- an assignment of a lease 
- a novation of an agreement for lease 
- attornment of leases on sale  .
Transactions that may be not liable to duty
Transactions that are not liable to duty and/or are exempt under other sections in the Act will also not attract a liability as a change in beneficial ownership. Examples include:
- the termination of a lease by the lessor before the expiry date where the lessee is facing hardship and there is no value passing to the lessor,
- early termination by the lessee for various commercial reasons and a payment is made to the lessor in compensation for the rent lost by the lessor,
- an option to a right to occupy/lease premises in a retirement village within the meaning of section 5 of the Retirement Villages Act 1999  ,
- a lease or agreement for a lease of residential premises used, or intended to be used, exclusively as a residence 
- a lease or agreement for a lease of a movable dwelling site used, or intended to be used, as the principal place of residence of the lessee  ,
- an extension or renewal of a lease where the lessee pays legal fees as or instead of rent,
- an option to extend or renew a lease.
A lease granted for non-monetary consideration
A liability to duty will arise if a lease is granted or an agreement for a lease is made for non-monetary consideration. For example, where the lessee is under an obligation to undertake improvements to the land and, under the terms of the agreement for lease or leases, the improvements are to become the property of the lessor at the end of the lease. The value of the improvements passing to the lessor could be significant depending on the improvements at the time the property and the improvements pass on to the lessor. Revenue NSW will monitor these transactions more closely.
If a lease is granted for non-monetary consideration comprising improvements to the property, the full cost of the construction (including builder margins) undertaken or to be undertaken by the developer is taken to be the value of the improvements. This value is determined on entry into the agreement for lease or a lease.
Note: The lease or the agreement for lease will generally not require a reassessment if the cost increases or decreases after the lease or agreement for lease is assessed for duty.
Value of non-monetary consideration
The cost of the improvements and additions to the leased premises made or to be made by or on behalf of, or at the expense of, the lessee under an arrangement or covenant by the lessee (other than fit-out costs) will be the percentage attributed to the value that will be for the benefit of the lessor when the leased premises reverts back to the lessor. As a general matter, the longer the term of the lease, the lower the value of the improvements passing to the lessor. This is because the improvements will depreciate over time as will the value of the improvements that the lessor receives at the end of the lease.
Evidence of the value of the improvements must be provided by the lessee/developer at the time of stamping of the lease or agreement for lease. If a valuation is not provided or if the value does not seem reasonable or appropriate, the Chief Commissioner may assess duty on the basis of a valuation or other evidence.
However, in lieu of evidence of value, the Chief Commissioner is prepared to accept evidence of the cost of improvements and to use the following methodology to calculate the proportion of the value attributable to the improvements as the dutiable value for the dutiable transaction that is the grant of the lease. The dutiable value of the improvements will be the cost of the construction activities including GST.
Note: For these purposes, improvements include the cost of public works constructed on the leased premises and surrounding areas, on the basis that these improvements enhance the amenity and income producing potential of the buildings constructed by the lessee.
Note: The term of the lease does not include option periods.
Example 4 : The Landholder grants XYZ Pty Ltd a lease for 99 years. The lease is conditional on XYZ Pty Ltd constructing an office building, public works on the leased area and surrounding areas. Ordinarily all of the value would accrue to the builder/ lessee, and unlikely to be any value of the building passing to the lessor. As the lease is more than 50 years, the Chief Commissioner will accept the dutiable value to be nil and no duty will be payable and no evidence of value or cost will be required to be produced .
Example 5 : The Landlord grants XYZ Pty Ltd a 15-year lease of an industrial building. The lease is granted for a peppercorn rent. The lease is conditional on the lessee making improvements to the currently dilapidated industrial estate. The improvements cost $20 million. However, as per the above table, the dutiable value will be 75% of the cost of the improvements, and duty will be calculated on $15 million.
Example 5A : The Landlord grants XYZ Pty Ltd a 15-year lease of an industrial building. The consideration for the use of the premises under the lease is a prepaid rent of $15 million. There is no separate consideration for the grant of the lease. The lessee can satisfy the obligation to pay rent by either the payment of cash, or by the construction of improvements with an agreed value of $20 million. In either case, if there is an early termination of the lease (other than through the default of the lessee), the lessee is entitled to a proportionate refund. No duty is payable even if the lessee constructs the improvements, as it takes the character of prepaid rent.
Example 6 : The Landlord grants XYZ Pty Ltd a 15-year lease of an industrial building. The lease is granted for a peppercorn rent. The lease is conditional on the lessee making improvements to the currently dilapidated industrial estate. The improvements cost $20 million. A valuation is prepared showing that the evidence of value of the improvements after 15 years is $12 million. The lessee submits a valuation on this basis and after analysis of the valuation, this is accepted by Chief Commissioner and duty will be calculated on $12 million.
Example 7: Goodhealth Pty Ltd was awarded the contract by the NSW Health under a Public Private Partnership project to build a hospital in Southwestern Sydney. The lease for 60 years is conditional on Goodhealth Pty Ltd planning, developing and constructing a hospital. Goodhealth Pty Ltd will lease the hospital for less than market/arm’s length fee. The cost of the construction will be the consideration for the grant of the lease. However, as the lease is for 60 years, the Chief Commissioner will accept the dutiable value to be nil and no duty will be payable and no evidence of value or cost will be required to be produced .
Example 8: Prodev Pty Ltd, a development company, has an agreement with the owner of the land to develop the land. Prodev Pty Ltd pays $5 million for the grant of a 4-year construction licence to enter the land and the adjoining land to undertake the approved works. The development includes site works, public works and building works consisting of new residential development. The development costs are estimated to cost $95 million. When the building is completed, Prodev Pty Ltd is granted a 99-year lease over the development.
The 4-year construction licence with an upfront payment of $5 million for the grant of the licence is not liable as it is not a premium for the grant of a lease. The 99-year lease is granted with building works (non-monetary consideration) of $95m will not be liable to duty under section 8(1)(b)(ix) of the Act.
However, if the lease is for 20 years, then the duty payable will be on 75% of $95 million i.e., duty on $71.25 million.
Example 9: Prodev Pty Ltd is a development company which has an agreement with the owner of the land to develop the land. Prodev Pty Ltd pays $5 million upfront as premium for the grant of a 4-year lease to enter the land and the adjoining land to undertake the approved works. The development includes site works, public works and building works consisting of a new residential development. The development costs are estimated to cost $95 million. When the building is completed, Prodev Pty Ltd is granted a 99-year lease over the development.
The upfront payment of $5 million for the grant of the lease is a premium and is liable to duty as a premium under section 8(1)(b)(viii) of the Act. The 99-year lease granted with building works (non-monetary consideration) of $95m will not be liable to duty under section 8(1)(b)(ix) of the Act.
However, if the lease is for 20 years, then the duty payable will be on 75% of $95 million i.e. duty on $71.25 million.
Duty under sections 8(1)(b)(viii) & 8(1)(b)(ix) of the Act could be aggregated under section 25 of the Act.
- ^ The terms “beneficial ownership” and “change in beneficial ownership” and “excluded transactions” are defined in section 8(3) of the Act .
- ^ See example 5A.
- ^ Section 8(2A) applies to arrangements that, in the Chief Commissioner’s opinion, are made with a collateral purpose of reducing the duty otherwise payable.
- ^ See example 9 in the CPN.
- ^ See transactions that may not be liable to duty.
- ^ An amount paid or payable for the grant of an option to lease is taken to be a premium under section 8(3). Duty is payable when the option is exercised.
- ^ Liable under section 9B of the Act or as a transfer of lease. Transfer includes an assignment.
- ^ Liable under section 9C of the Act .
- ^ Duty will only be payable in cases where the lessee seeks compensation from the lessor as a result of an early termination.
- ^ A lease of premises in a retirement village is exempt under section 65(16)(d) of the Act .
- ^ Section 53A(a) of the Act .
- ^ Section 53A(b) of the Act .
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- Australia: Leases and stamp duty in NSW
Australia: Leases and stamp duty in NSW
Revenue nsw issues practice note on the interpretation of the new beneficial ownership rules in the context of leases, share by email.
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Since the amendment of the Duties Act 1997 (NSW) (" Duties Act ") on 19 May 2022, industry have awaited the release of guidance on the interpretation of the change in beneficial ownership rules. The Chief Commissioner (" Commissioner ") of State Revenue issued a new practice note (CPN 027) in November 2022 setting out the Commissioner's interpretation of the new rules, insofar as they apply to leases ( CPN 027: Leases and change in beneficial ownership | Revenue NSW ).
Key points to note are as follows:
- Leases: Leases for premiums are already dutiable. However, grants of leases other than those for premiums can now also be dutiable. This is because the new 'change in beneficial ownership' rules encompasses the creation an extinguishment of dutiable property, which in turn includes the grant of a lease in land in NSW (unless there is an exclusion or an exemption). The Commissioner takes the view consideration for the grant of the lease includes monetary consideration and/or the value of the non-monetary consideration.
- Monetary consideration includes any amount paid or payable by the lessee for the grant of the lease. This does not include amounts paid or payable for the right to use the land being rent or rent reserved. Therefore, leases for rent only will remain outside the duty net. The Commissioner will generally not require a valuation where the lease is granted for monetary consideration and the duty will be calculated on the consideration paid or to be paid.
- Non-monetary consideration is very fact dependent and will ultimately depend on a proper characterisation of the form and substance of the arrangement. The Commissioner indicates it can extend to obligations to undertake improvements.
- Improvements: The Commissioner considers that non-monetary consideration can be provided by a lessee where the lessee is under an obligation to undertake improvements to the land and the improvements are to become the property of the lessor at the end of the lease. Where a lessee undertakes to build on the lessor's land, duty may be assessed on the value of the improvements. In this context, the Commissioner sets out a scale referable to the length of the lease, determining the proportion of the construction cost which will be subject to duty. Where the term of the lease is less than 10 years, 100% of the cost of improvements will be taxed. If a taxpayer does not wish to use the scale, they may tender evidence of value.
- Works in lieu of rental payments: Where a lessee agrees to undertake landlord's works in lieu of rental payments, the Commissioner may treat that non-monetary consideration as taking on the characteristic of a non-dutiable payment of 'rent reserved'.
Example 5A: The Landlord grants XYZ Pty Ltd a 15-year lease of an industrial building. The consideration for the use of the premises under the lease is a prepaid rent of AUD 15 million. There is no separate consideration for the grant of the lease. The lessee can satisfy the obligation to pay rent by either the payment of cash, or by the construction of improvements with an agreed value of AUD 20 million. In either case, if there is an early termination of the lease (other than through the default of the lessee), the lessee is entitled to a proportionate refund. No duty is payable even if the lessee constructs the improvements, as it takes the character of prepaid rent.
- Transfer of a business: Where in a transfer of business, a lease over the business premises is not simply transferred to the new owner of the business but there is a cancellation of the old lease and the grant of a new lease, the Commissioner indicates that duty will be payable as if there were an assignment.
- Early termination of a lease: Duty will apply where there is early termination of the lease by the lessor if the lessor pays the lessee in order to have the lessee vacate the premises.
- Lessee agreeing to pay lessor's legal fees: Where in consideration for the grant of a lease, the lessee agrees to pay the lessor's legal fees which are non-refundable and greater than AUD 1,000.00, duty will apply.
- Attornment: The attornment of leases on a sale, is also potentially dutiable. Where land is sold subject to leases and under the law of real property, the leases are attorned such that they become leases between the new owner and the lessee, duty potentially applies. This is quite a radical change, the legal basis of which is not clear. We expect that industry would welcome further guidance on the basis of the position put forward by the Commissioner.
- Expiration of a lease: Where fit out and fixtures of value are not removed/severed from the property at the end of the lease, they can be subject to duty unless provided for no consideration. The Commissioner provides the following examples in this regard:
Example 4: A grants a lease of NSW land to B for a term of five years. B defaults on the rental payments. At the end of the 5-year term, B surrenders their rights in some fixtures and fit out on the leased premises in exchange for the release of a debt equivalent in value to the surrendered items. The surrender of the fixtures and fit out will be liable on the value of the fixtures & fit out.
Example 5: A leases three floors of a commercial office tower in NSW from B for 10 years. The lease includes a provision that requires the lessee to remove all fit out and fixtures at the expiration of the lease. At the end of the lease the lessor allows the lessee to leave without removing the carpet, office partitions etc. No duty is payable on the expiry of the lease.
- Taxpayers can apply for a private ruling if a transaction is not covered under the CPN or if there is any doubt that a transaction could be liable to duty. This may be a prudent pathway for some taxpayers given the potential uncertainties raised by the CPN.
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When Do I Pay Stamp Duty on a Commercial Lease in NSW?
Stamp duty is a tax that’s imposed on the purchase of assets and transactions of property. If you are transferring or surrendering a lease, chances are, you will have been asked to pay stamp duty. So when is it payable and when is it not? In 2008, New South Wales abolished stamp duty on new leases. But there are still certain circumstances where a tenant must pay stamp duty under a commercial or retail lease. We set these out below.
Creation of Lease
A tenant must pay stamp duty on a new lease only where the tenant makes a lump sum payment to encourage the landlord to grant the lease. For instance, where the landlord requires a premium payment or if the parties enter into a lease after the landlord agrees to grant an option for an agreed amount. The landlord usually sets this amount and parties may negotiate. But note that as long as an amount is payable, this will be a capital payment (i.e. the actual amount paid upfront). If it is a capital payment, it will be subject to stamp duty.
For retail leases, the definition of key money includes premium payments under the Retail Leases Act 1994 (NSW). Key money payments are not permitted under the Act. As such, if you are a retail tenant, it is unlikely that you must pay any stamp duty on the registration of a retail lease.
Premium Payment v Up-Front Rent
There is a difference between premium payments and rent up-front or in lump sum instalments.
The payment must be considered a capital payment. In general, if the tenant pays a sum simply to gain access to the right to lease, rather than the use of the premises, this is likely to be considered a premium. Payments made for the use of the premises will be seen as ordinary rent, and no duty is required.
There are leases exempt from stamp duty even if a premium is payable, including:
- a lease of a unit in a retirement village
- a lease of premises to the Home Care Service of NSW; or
- a lease executed under Part V of the National Health Act 1953 (Cth) (for approved nursing homes).
Transfer of Lease
You must pay stamp duty on the assignment or transfer of a lease. The amount will depend on whether the tenant is paying any money specifically for the transfer.
Even if the tenant is not paying any money for the transfer, they must still pay a nominal sum of $10 for each time you transfer your lease to the NSW Office of State Revenue. The Land and Property Information office is unlikely to accept a transfer without the nominal stamp duty, which will, in turn, delay the assignment.
As the assignment or transfer of a lease often occurs together with the sale of a business, there may also be other dutiable amounts payable. For example, if the sale of business includes a transfer of lease and goods, then the following nominal stamp duty amounts will be payable:
- $10 on the Sale of Business Agreement;
- $10 for the duplicate Sale of Business Agreement; and
- $10 for the Transfer of Lease.
The tenant must then pay a minimum of $30 if the transfer of lease occurs in conjunction with a sale of business. Importantly, the nominal rate is subject to an increase.
Surrender of Lease
Finally, a surrender of lease is also subject to stamp duty. This is where you voluntarily give up the lease to the landlord before your lease term has expired.
The amount of duty will also depend on the specific circumstances of the surrender. If the landlord requires the tenant to surrender its premises and pays the tenant an amount as compensation, then this amount is subject to duty.
On the other hand, if the tenant voluntarily surrenders the lease, then similar to the lodgement of a Transfer of Lease form, you must pay a nominal $10 assessment duty.
- Stamp duty is generally not payable on the registration of a lease unless key money or a premium has been paid;
- Stamp duty will not be payable for the registration of a retail lease;
- There will be nominal $10 duties payable for a Transfer and voluntary Surrender of a lease where no other money is being paid specifically for the Transfer or the Surrender.
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Duty uncertainty for NSW lease transactions
NSW has introduced new duty laws that will apply to lease transactions, but there are many unresolved questions about how the new rules will work.
The most important aspect of tax policy is certainty.
For any given transaction, businesses need to know if tax applies (and if so, how much and when). Presently, parties engaging in lease transactions in NSW that may involve non-monetary consideration will need to wait longer for that certainty.
NSW introduced new duty laws that commenced on May 19 this year. The laws extended transfer duty to “another transaction that results in a change in beneficial ownership of dutiable property, other than an excluded transaction”.
There are many unresolved questions as to how the new duty laws will apply.
This change will impact lease transactions . On Monday of this week, Revenue NSW published a statement to its website confirming that, as of May 19, “leases granted for consideration (monetary or non-monetary) will be liable [for duty]“.
Duty has applied in NSW to leases granted for a monetary premium since July 1, 2006. The change to apply duty to leases granted for non-monetary consideration is significant.
As an example, assume a church enters into an agreement for lease with a developer. Under the agreement, the developer will construct a new retirement village on a certain parcel of land at a cost of $80 million. The developer is also required to construct a new school for the church on an adjoining parcel at an additional cost of $10 million.
The developer will have a licence to access the land for development purposes. Subject to the developer satisfying those work requirements, the church will grant a 99-year lease to the developer over the completed retirement village. The rent is set at a nominal amount of $1. When the 99-year lease expires, the land and all of the retirement village improvements will revert to the church’s possession.
There are many unresolved questions as to how duty may apply to such a transaction in NSW. In the worst case, will the developer be taken to have provided $90 million of non-monetary consideration, thereby triggering almost $5 million of duty at general rates?
In this example, the church will only take possession of the retirement village improvements after 99 years, at which time they will have much lower value (if any at all). Will this be taken into account?
Further, would it make any difference if the church was to grant the 99-year lease to the developer prior to the retirement village works being commenced? In a GST context, this does make a difference.
The ATO has issued a public ruling, GSTR 2015/2, which refers to such transactions as “development lease arrangements”. The ruling provides GST guidance on projects involving state government agencies and local councils.
Similar duty issues also arise in more common lease scenarios where a tenant must fit out or improve premises as a condition of the grant or renewal of a lease. Duty is not expected to apply if the tenant retains ownership and is required to remove the fit-out at the end of the lease period.
Some lease transactions will not be subject to duty because they will qualify as “excluded transactions”. This term is defined in the Duties Act to include “the grant, renewal or variation of a lease for no consideration”. Similarly, easements granted for no consideration are also expressly excluded.
In this context, it should be noted that reimbursements of a landowner’s costs will generally be taken to involve a payment of consideration that triggers duty (similar to GST).
For example, assume a landlord agrees to vary an office lease at the request of a tenant on the condition the tenant pays $2000 to reimburse the landlord’s legal costs. This payment is consideration and likely to trigger duty. On $2000, the assessed duty is only $25, but nonetheless a lodgement is now required.
Regulations are expected to be released which will exclude further transactions. Those regulations are not yet available, but are expected to apply retrospectively from May 19 this year. Hopefully, the additional exclusions will reduce the need for nuisance lodgements on low-value transactions.
Revenue NSW’s statement confirms it will be publishing a Commissioner’s Practice Note to provide detailed guidance on duty and lease transactions. This will be a welcome addition to Revenue NSW’s excellent guidance products.
In NSW, duty is payable within 3 months of a dutiable transaction occurring. For leases that may have been granted for non-monetary consideration on May 19 this year, that period expires on August 18 – before the release of the regulations and Revenue NSW guidance.
This creates uncertainty as to whether transactions may be retrospectively excluded and, if duty is applicable, how it should be calculated and dealt with administratively.
Transition periods should apply when significant new state taxes are introduced. This allows time for clarifying regulations, the publication of guidance documents and public awareness campaigns. In other words, more certainty.
Matthew Cridland is a partner at K & L Gates.
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How Can I Transfer or Assign a Commercial Lease?
June 7, 2021 Dean Wolman
In certain cases, a tenant can choose to exit their commercial lease prior to the end of their lease term by either transferring or assigning the lease to another party, known as the assignee. Transfers or assignment of leases require explicit permission for this mechanism in the original lease. Assuming it does exist however, this scenario usually occurs when a tenant sells their business to another party (who agrees to accept the current lease rather than entering into a new one with the landlord), or when a tenant wishes to exit their lease and finds a party willing to take on the existing lease.
Process of transferring a Commercial Lease
The first steps involved in exiting a commercial lease and considering assignment include:
- Reviewing the current lease to determine whether it can be transferred or assigned;
- Determining what requirements must be fulfilled to obtain the landlord’s consent; and
- Communicating with the landlord to obtain their consent to be able to assign the lease.
The landlord must approve of the proposed tenant whom the existing tenant wishes to assign the lease to. The landlord will determine their approval by assessing whether the new tenant can pay rent as well as deciding if the new tenant is the appropriate fit. A landlord will generally ask that the proposed new tenant provides both financial and business references to perform this assessment.
Deed of Assignment
Once the landlord’s consent is obtained, a legal document known as a deed of consent and assignment will be developed. The deed of consent transfers all obligations of the current tenant under the existing lease, to the new tenant.
A deed of consent includes:
- Confirmation of the landlord’s consent to transfer the lease
- An agreement from the existing tenant to transfer their entire interest in the lease to the new tenant. This will include a specified date of transfer (date of assignment)
- The new tenant agrees to undertake all rights and obligations of the lease from the date of transfer.
The Current Tenant
For the successful transfer of a commercial lease, the current tenant must be relieved from all rights and obligations under the lease from the specified transfer date. To ensure this occurs:
- A deed of assignment will legalize the tenant’s relief from any claims or liabilities under the lease, from the date of transfer.
- Any security provided by the exiting tenant will be refunded.
It is important to remember that the tenant is bound to the terms of the lease and is required to fulfill their obligations until the completion of the deed of assignment and subsequent formal transfer of the commercial lease.
The Proposed New Tenant
The proposed new tenant’s approval to take on the commercial lease is dependent on the landlord’s acceptance of the lease transfer. This approval is specified in the deed of assignment whereby the landlord accepts the proposed new tenant as assignee from the specified date of transfer. Prior to entering the commercial lease, there are a number of things that the incoming tenant should consider. These include:
- Reviewing the contents of the existing lease prior to signing the deed of assignment
- Ensuring that the terms of the lease are reasonable and that sufficient security and tenure is provided
What happens if the lease being transferred is a Retail Lease?
If the lease being transferred takes the form of a retail lease, the tenant will be required to give the new tenant (assignee) a disclosure statement. A disclosure statement will detail any changes agreed to by the landlord during the duration of the lease.
The disclosure statement provides the assignee with information that is essential to consider including:
- The terms of release and any renewal options;
- proposed commencement date of the lease
- details of the premises;
- the requirements to use the premises;
- Annual base rent payable under the lease; and
- Outgoings payable under the lease
A tenant is entitled to request an up to date disclosure statement prior from the landlord, prior to transferring the commercial lease. The landlord has an obligation to fulfill the tenant’s request. This must be provided within a specific time frame, usually 14 days after the tenant makes the request.
Failure to provide a disclosure statement may result in consequences. However, these consequences often differ between states and territories. Consequences may include:
- The assignee withholding their rental payment;
- The assignee seeks compensation from the landlord; or
- The assignee terminates the lease prior to the end of the lease term.
Parties entering into a commercial lease must be aware of the specific requirements and consequences of disclosure statements, within their particular state.
Do you need to pay stamp duty?
In NSW it is essential that you pay stamp duty upon assigning a commercial or retail lease. Stamp duty is a tax imposed on the purchase of assets and transactions of property. The value of stamp duty required to be paid depends on whether there is any money involved in the transfer.
Should the commercial lease transfer not involve any form of monetary payment, the exiting tenant is still required to pay the NSW Office of State Revenue a nominal $10 fee. It is essential that this stamp duty fee is paid to ensure that the transfer is accepted.
Failure to pay this nominal stamp duty will delay the transfer of the commercial lease.
What to take away from this article?
A tenant who wishes to exit their commercial lease can either transfer or assign this lease. It is essential that the tenant is aware of their rights and obligations under the lease and the process involved with transferring the lease to a proposed new tenant. Additionally, it is important to consider that a transfer requires the approval and consent of the landlord. Should the transfer take the form of a retail lease, there are a number of additional requirements that need to be fulfilled, including a disclosure statement. To ensure a smooth commercial lease transfer, it is imperative that you familiarise yourself with a deed of assignment and the requirements necessary for it to be satisfied.
If you have any questions regarding the transfer or assignment of a commercial lease or require assistance with any aspect of commercial property, get in touch with us via the contact form or by calling 1300 337 997.
About Dean Wolman
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NSW “change in beneficial ownership” stamp duty reforms: Significant changes to leases, trusts and option transactions
The changes were made pursuant to the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 (NSW) , and significantly broadened the duty base in New South Wales. The amendments apply retrospectively to transactions first executed on or after the 19 May 2022.
The Chief Commissioner has now issued two Practice Notes setting out the circumstances when certain transactions will be subject to duty under the new rules, and in what circumstances the change in beneficial ownership provisions apply to the grant of a lease:
- Commissioner’s Practice Note CPN 025: Change in Beneficial Ownership
- Commissioner’s Practice Note CPN 027: Leases and change in Beneficial Ownership
CPN 027 must be read in conjunction with CPN 025.
Some key examples from the practice notes are set out below.
As duty outcomes for transactions will be heavily impacted by the drafting of transaction documents, now is the time for taxpayers and their advisers to review their NSW transaction structures and documentation and determine whether any practice or procedures need to be changed to accommodate the amendments.
While CPN 025 and CPN 027 provides a number of examples to assist taxpayers in providing certainty to their transactions, the ability to apply for a private ruling if there is any doubt as to the application of the provisions remains.
Change in Beneficial Ownership – Overview
Historically, transfer duty (particularly in NSW) has been concerned with imposing duty on certain dealings in land which amount to a change in legal interest. From 19 May 2022, a new category of dutiable transaction was introduced to extend the tax base to changes in “beneficial ownership”.
The concept of “change in beneficial ownership” is defined to include:
- The creation of dutiable property
- The extinguishment of dutiable property
- Change in equitable interests in dutiable property
- Dutiable property becoming the subject of a trust
- Dutiable property ceasing to be the subject of a trust
The Duties Act and the Duties Regulation 2022 (NSW) also includes an extensive number of “excluded transactions”.
More detail around the legislation is available in our article, NSW state taxes changes to commence shortly .
CPN 025: Chief Commissioner’s examples
CPN 025 provides a number of examples for the types of transactions that will fall within the scope of the new provisions.
Creation of extinguishment of dutiable property
Examples of transactions that are a “creation or extinguishment of dutiable property” include the grant of an option to purchase dutiable property, the grant of a life estate, the grant of a lease, or the grant of a mining lease.
Key takeaways from the Chief Commissioner’s examples include:
- In respect of the grant of options , the Chief Commissioner will generally assess duty on the consideration paid for the option assuming the parties are unrelated and acting at arm’s length. A valuation may be required in circumstances where the parties may not be acting at arm’s length, or there is a question as to whether the transaction is part of a scheme to avoid duty.
- Where an option arrangement involves a security deposit , if that security deposit is not refundable, it will be consideration for the grant of an option.
- An obligation on a tenant to undertake construction or fit out works or improvements on land, will be non-monetary consideration for the grant of a lease on which duty is chargeable.
Change in equitable interest in dutiable property & becoming or ceasing to be the subject of a trust
CPN 025 specifically provides that trust cloning and a change of capacity in which a trustee holds dutiable property as examples of where duty becomes chargeable under the new rules. Varying a trust in such a way that the interests become fixed after being discretionary, or where a fixed trust becomes a discretionary trust, will also be dutiable to the extent of the change in interest in the dutiable property.
CPN 027: Leases and changes in beneficial ownership
Prior to the introduction of the new legislation, the grant of a lease in NSW has only been subject to duty where a premium by way of monetary consideration has been provided by the lessee for that grant. Under the new rules, the duty base is broadened to include circumstances where non-monetary consideration is provided.
CPN 027 provides a number of significant changes to the way leases are assessed, particularly where the lessee has an obligation or undertakes improvements.
The practice note provides that a lease may be dutiable on its grant where under the terms of the lease, the lessee has an obligation to undertake improvements and where the improvements become the property of the lessor at the end of the lease. Similarly, a lease may be dutiable on its surrender where valuable improvements are surrendered to the lessor.
Importantly, the Chief Commissioner has released a methodology that the Commissioner is prepared to accept to calculate the proportion of the value attributable to the improvements as the dutiable value for the dutiable transaction that is the grant of the lease.
The methodology is based on the principle that the longer the term of the lease, the lower the value of any improvements passing to the lessee. In accordance with the table released by the Chief Commissioner, where the term of a lease is more than 50 years, where a lessee has an obligation to undertake improvements under the terms of the lease, the Commissioner will accept the dutiable value of the lease to be nil and no duty will be payable in respect of the grant of the lease.
In contrast, where the term of the lease is 10 years or less, subject to any other valuation evidence, the dutiable value is 100% of the cost of improvements undertaken.
CPN 027 also addresses the duty treatment of a number of common leasing arrangements, the outcome of which can vary depending on the specific circumstance including:
- Upfront lessee payments and pre-paid rent
- Lessee’s obligation to undertake works in lieu of rent
- Lessee’s obligation to pay lessor’s legal fees
As the new legislation is complex and untested, care should be given in drafting transaction documents, particularly where there are changes to the nature of rights and interests in New South Wales property.
If you require assistance with understanding the new provisions and the Chief Commissioner’s practice notes, please get in contact with a member of our State Taxes team.
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In this transaction the lease is transferred by the current Tenant (Assignor) to the incoming Tenant (Assignee) and is subject to a nominal sum
An assignment of lease, including a sub-lease, is a transfer of the lease by the lessee, ie the assignor, to a new lessee, ie the assignee.
Even if you are not paying any money for the transfer, you must still pay a nominal sum of $10 for each time you transfer your lease to the NSW
Chapter 2 of the Duties Act 1997 (“Act”) charges duty on transfers of dutiable property and other transactions which include a surrender of an
Transfer of a business: Where in a transfer of business, a lease over the business premises is not simply transferred to the new owner of the
A tenant must pay stamp duty on a new lease only where the tenant makes a lump sum payment to encourage the landlord to grant the lease. For
A deed of assignment of lease used for the assignment of a tenant's leasehold estate under a registered commercial or retail lease in New South Wales to a
NSW introduced new duty laws that commenced on May 19 this year. The laws extended transfer duty to “another transaction that results in a
Should the commercial lease transfer not involve any form of monetary payment, the exiting tenant is still required to pay the NSW Office of
Prior to the introduction of the new legislation, the grant of a lease in NSW has only been subject to duty where a premium by way of monetary