Hint & Tips - Business Leases

	Introduction
	Security of Tenure
	Break Clauses
	Service Charges
	Service Charges
	Rent Holidays
	Licences
	Legal costs
	Tenants Repairing Obligations
	Surveys
	Contaminated Land
	Insurance
	Stamp Duty Land Tax

Introduction

These tips are intended as bullet points for prospective Tenants taking a Lease of business premises in England and Wales. They are however not exhaustive and represent only a thumb nail sketch of the main points that a prospective Tenant needs to look out for. They are NOT a substitute for taking detailed professional advice. The law relating to business leasing is complex and only a Solicitor with specialist knowledge and experience in this field should be instructed to deal with this type of work. Remember if in doubt ask!

It should come as no surprise to you that prospective Landlords and Tenants approach commercial leasing from entirely opposite points of view. The Landlord's objective is to extract the maximum possible amount of rent from, and lay as many obligations upon, the Tenant as possible whilst minimising his own responsibilities. Inevitably Tenants wish to redress that situation so that the parties rights and obligations are balanced, fair and give the Tenant as much flexibility as possible. When negotiating with a Landlord or a Landlord's agent the prospective Tenant needs to know what traps have been laid for him and how to negotiate his way around or out of them. The following pointers are intended to assist in those negotiations, but Tenants should be pragmatic, act reasonably and be prepared to compromise with Landlords and their agents in agreeing terms.

Security of Tenure

Business Tenants i.e. those who occupy on Lease or Tenancy Agreement premises used wholly or partly for business purpose have the protection of the Landlord & Tenant Act 1954 (the 1954 Act) and other legislation. The basic principle is that if a Tenant takes a Lease of business premises for more than six months (whether it be for one, three, six, nine or any number of years) he has the right at the end of the Lease to renew for the same period on identical terms other than the amount of the rent. This will not apply if the Tenant has lost the tenancy as a result of forfeiture for non-payment of rent, other breaches of his obligations to the Landlord, or his insolvency i.e. bankruptcy or liquidation. These rights of renewal are contained in Sections 24 to 28 (inclusive) of the 1954 Act.

Landlords are interested in the certainty of their rent roll and often try to tie a Tenant down to as long a Lease as possible. On the other hand Tenants, having the protection of the 1954 Act, may prefer to negotiate shorter term Leases thereby keeping their options open and thereby reducing or avoiding their liability to pay Stamp Duty Land Tax. Fledgling businesses often cannot predict years into the future whether their business will expand and outgrow the premises or simply wither and die. Always remember that whilst a Tenant can generally assign his Lease (with the Landlord's consent which by law cannot be unreasonably refused or delayed) and sometimes sub-let the property in whole or in part, the Tenant will be stuck with paying the rent (and possibly insurance rent and service charge) through to the end of the Lease (even if the Tenant's business has failed and the property is vacant) unless an acceptable assignee or sub-Tenant has been found.

There are two exceptions to the Tenant's security provided by the 1954 Act.Firstly, but only if the Tenant is prepared to agree to it, the Tenant's right to renewal at the end of the Lease can be specifically excluded before (not after) the Lease is executed and the Tenant enters into occupation. A special form of notice must be served by the Landlord upon the Tenant and the latter must make a Declaration or swear a Statutory Declaration for the 1954 Act to be effectively exempted from the letting. A Landlord would be justified in doing this if, for example, he has a settled and genuine intention to demolish and redevelop the property at a future date. The exclusion of the Tenant's statutory protection does not prevent the Landlord granting a new tenancy at the end of the original Lease period, but it removes his obligation to do so. If a renewal Lease is granted for an existing tenancy excluded from the 1954 Act it may not be on the same terms as before and the Tenant may be in a significantly worse position quite apart from an increase in the rent. Unless the Tenant is happy to vacate the premises and move on at the end of the Lease, he would be unwise to accept a Lease excluded from the 1954 Act. Beware in particular those commercial and institutional Landlords who seek to exclude the Tenant's right to renewal as a matter of course.

In those rare circumstances where a Tenant is prepared to take a short term letting extended from the 1954 Act, the Tenant should insist that any legal costs relating to the exclusion of the Act are met by the Landlord alone since they are for his exclusive benefit. In this respect see also Legal Costs.

The second exception to the Tenant's security may only arise close to the end of the contractual term and can be wholly unforeseen. In very restricted circumstances even a business Tenant having the full protection of the 1954 Act can lose their right to renewal if the Landlord can prove to the Court's satisfaction that a Lease should not be renewed because of the Tenant's persistent failure to pay rent or breach of other covenants, the Landlord's bona fide intention to redevelop the site, the Landlord's genuine intention to reoccupy the premises for his own business/as his own residence or for other reasons set out under Section 30(1) of the 1954 Act. This is a highly complex area of Landlord and Tenant law and a Tenant should always take immediate professional advice should this situation arise, usually by the Tenant receiving a Landlord's notice under Section 25 of the 1954 Act bringing the tenancy to an end and declining (with reasons) to grant a renewal.

Break Clauses

It has become increasingly common for Tenants to negotiate break clauses in commercial Leases to allow (but not oblige) them to bring the Lease to an end early. Whilst Landlords will almost always resist inclusion of a break clause, Tenants should try to include one for maximum flexibility. There are two types of break clause. The first is a 'fixed' break or series of breaks at one or more definite periods during the Lease such as the third or sixth anniversary. The second is known as a 'rolling' break which can be effected by the Tenant giving written notice at any time after a set point in the Lease has been reached. In either case the Lease will always state that the notice to break must be given in writing not later than a fixed period of time before the break is to be effective, usually three or six months. If the notice is served late, even by a day, it will not be effective in bringing the Lease to an end and the courts have repeatedly held that for this purpose 'time is of the essence'. Also, break clauses are invariably conditional upon the Tenant having strictly complied with all his obligations under the Lease so that if the rent is not up to date or the repair or other covenants have not been complied with, the break notice will be ineffective and the Lease will continue.

Service Charges

Where a Tenant is taking a unit on an industrial estate, offices within a larger block or a shop within a retail mall, the Lease will usually provide for the payment to the Landlord of a Service Charge in addition to rent. This Service Charge represents, or should represent a fair and rateable contribution by the Tenant towards the cost of maintaining and renewing the larger building or estate of which the Tenants premises form part. The Service Charge may include the cost of maintaining and even replacing/rebuilding the roof, walls and foundation of the building or estate, estate roads, common corridors, stair cases, lifts, maintenance and repair of fire fighting and safety equipment, cost of heating, lighting and security of common parts, external decoration of the building, managing agents fees and a myriad of other items. Never assume that the Service Charge will be purely nominal.  

On an annual basis the service charge could be very substantial if the Landlord carries out major and unexpected refurbishment of a larger property of which the premises form part. The Landlord should be asked to produce the Service Charge accounts for the last three years at least, an estimate of the Service Charge in the current and forthcoming year and full detail, with costing, of any anticipated/future expenditure. The prudent Tenant will protect his position by seeking to cap within the Lease the contribution to Service Charge either as a fixed annual sum or as a percentage of the rent. Alternatively, ask whether the Landlord is prepared to accept an increased global rental figure to include Service Charge and Insurance Rent.

See also Insurance and Tenants Repairing Obligations

Rent Holidays

It is unlikely that a Tenant will move into rented accommodation which has already been specifically fitted out and adapted for that Tenants use. This is particularly true of rented shop premises where the Tenant may need to spend a great deal of money on replacing the shop front, signage and internal fittings. Even a modest industrial unit may need the creation of a specific office space, installation of machine bases, upgrading of electricity supply and other work. Bearing in mind that generally all fixtures installed by a Tenant into the Landlord's property (as opposed to moveable chattels and equipment) become by the passage of time and operation of law the Landlord's property, fitting out costs are likely to be irrecoverable and will ultimately only benefit the Landlord. For this reason the Tenant should always seek a 'rent holiday' whereby the commencement day for payment of rent is deferred. The length of the rent holiday should be proportionate to the Tenants expenditure on fitting the property out and the fact that the Tenant will or may not be able to open for business until the works have been finished. Landlords are grudging about granting rent holidays but a prudent Tenant should hold out for a fair deal.

Licences

When applied to the grant of a business Lease or business tenancy the word Licence is a misnomer. As a matter of law any Tenant having exclusive occupation of premises or part of premises for business purposes has the protection of the 1954 Act whatever the 'letting document' purports to call itself. A Licence in the proper legal sense of the word can only apply to a situation in which a person has no exclusive occupation of a property but shares everything with the Landlord or other occupants. If as a Tenant you are presented with a document of this type take independent legal advice immediately.

Legal Costs

A prospective Tenant of business premises should always take independent legal advice on the from of Lease presented to him by the Landlord or the Landlords Solicitors. The Tenants Solicitor will 'vet' and if necessary amend the draft Lease, carry out all necessary searches against the property and raise extensive pre-Lease Enquiries of the Landlord's Solicitor. Whilst the Tenant will incur costs in doing this, he will have the satisfaction of knowing that his Solicitors are protecting his interest and will be made fully aware of the obligations he is taking on as a Tenant and his legal rights should the Landlord default on his responsibilities. The Tenant's Solicitor will also ensure that where necessary a Stamp Duty Land Tax return is submitted to the Inland Revenue and that the correct duty is paid.

By long standing convention Landlords usually expect the Tenant to meet not only their own legal costs but also those of the Landlord. If the Tenant agrees to pay these they can be unexpectedly high and, perversely, the more the Tenant's Solicitor argues for a fair deal for his client by insisting on Lease amendments and raising searching enquiries of the Landlord's Solicitors, the higher those costs will be.

The convention that a Tenant should always pay the Landlords costs is not written in stone. As with everything else when agreeing Lease terms it is a matter for negotiation. The Tenant should take a robust approach and either insist that both sides pay their own costs or as a minimum, that the Tenant's contribution to the Landlord's costs is capped at a fixed figure and that the VAT element of the bill is paid by the Landlord, who, unlike the Tenant, can reclaim it. If the Landlord is immovable on this point ask for a quid pro quo on extending the rent holiday, a rent reduction or some other concession.

Tenants Repairing Obligations

It is generally (but not always) the position that the Tenant is responsible for maintaining and repairing the premises throughout the period of the Lease (damage caused by insured risks excepted) and returning them to the Landlord in good repair and condition when the Lease comes to an end. This can be a very onerous and expensive obligation for the Tenant. The extent of this liability is a matter for negotiation with the Landlord (or his agents) and will depend upon the age and type of the property, the amount of the rent, the length of the Lease, the physical condition of the premises before the Lease commences and the extent and cost of Tenant's (and sometimes Landlord's) fitting out works.

As a rule of thumb, a Tenant taking a Lease of the whole of a free standing building will be required to repair and maintain the property internally and externally, which will extend to roofs, foundations, external load bearing and other walls, floors, ceilings, Landlords fixtures and fittings and all other parts of the structure including, for example, gutter and down pipes. A prospective Tenant of such a property should however insist upon excluding liability for 'inherent defects' in the property such as design and construction faults. Also, the Tenants liability should be restricted to repair and maintenance so as not to include renewal and/or rebuilding.

Conversely, where a Tenant is taking a Lease of part only of a larger building, the Tenants repair obligations are usually limited to the interior of the property (and shop front, if any). The Landlord should have a corresponding repair obligation to maintain the structure of the remainder of the building including the common services, access ways, lifts, stairwells and communal car parking areas etc. The Landlord may or may not seek to recover a proportionate part of the cost of these liabilities from the Tenant by way of a Service Charge. See Service Charge ante.

The extent of your repair obligation as a Tenant is of crucial importance. It is therefore vital that you take specialist legal advice and that of any surveyor you employ before agreeing terms with the Landlord.

Surveys

Solicitors should raise comprehensive enquiries of the Landlords Solicitors which include queries as to the structural soundness of the property and the condition of its services and appliances. Nevertheless, Landlords invariably decline to provide comprehensive replies to these enquiries and simply invite the Tenant to carry out his own survey and inspection. These are therefore matters upon which the Tenant should satisfy himself by means of professional surveys, personal inspection and/or direct questioning of the Landlord. The Tenant should satisfy himself that the property is free from timber defects, structural defects, subsidence, drainage or plumbing defects, dry or wet rot, rising damp or woodworm, although this list is not exhaustive. Never lose sight of the fact that the doctrine of 'caveat emptor' or 'let the Buyer beware' applies to leasing as well as buying property and that there is no obligation on the Landlord to disclose defects to you.

So far as services are concerned (e.g. air conditioning systems, lifts, cranes, intruder and fire alarms and central heating systems) the Tenant should ensure that they are all in full working order by requesting the Landlord to operate them in his presence or that of a surveyor. Remember that the Tenant may be responsible under the terms of the Lease for repairing these facilities and replacing them if and when they wear out. If you are at all concerned, you should make arrangements for appropriate tests to be carried out by a qualified expert or contractor. The same applies to the electrical supply of the property, which you should have tested by a qualified electrician if you are at all dubious about its condition.

If it becomes clear, either from inspection and enquires or following the results of professional surveys or tests, that the premises intended to be Leased suffer from any defects the Tenants Solicitor should pursue these matters with the Landlords Solicitors. These checks on the physical condition of the property must however, be carried out at an early stage since once the Lease has been legally completed it will be too late to back out of the transaction or seek any rent reduction or other concession for defects discovered afterwards and, the Tenant may have to pay to put them right.

If the premises are in poor repair, but the Tenant still wishes to proceed with the Lease, he should insist that his repair obligation is limited to keeping the property in no better state of repair and condition than it is in at the beginning of the Lease as evidenced by an agreed Schedule of Condition. Where the property is being Leased for a lengthy period and/or at a high rent, this Schedule should be prepared by the Tenant's Chartered Surveyor, see below. If the length of the Lease is short and the rent low, an annotated photographic Schedule, prepared by the Tenant in duplicate, will usually suffice. Remember that the Lease is prepared in duplicate, one part held by the Tenant (‘the Lease) and the other by the Landlord (‘the Counterpart). A copy of the Schedule needs to be passed to the Tenants Solicitor to be attached to each document.

In addition to the Tenant carrying out normal repairs and maintenance, the Landlord will almost always insist that the Tenant carry out internal and external painting and decoration works at set points during the course of the Lease.

We very strongly recommend for all the reasons set out above that prospective Tenants obtain their own full independent structural survey report from a qualified surveyor upon which they can rely. The surveyor will also give advice on the Lease terms proposed by the Landlord and what is a fair/open market rent for the property, which may well be less than the rent the Landlord is seeking. Please note that we are not experts on advising what is or is not a fair and reasonable rent, this being a matter beyond our professional expertise and retainer.

If the Tenants Surveyor fails to notice a material defect in the property, or to bring it to the Tenant's attention, he may well be able to sue the Surveyor for negligence and recover damages equal to the cost of any necessary remedial work to put the defect right. The Surveyor will have professional indemnity insurance to cover any such claim.

Most Surveyors will qualify their report and liability by stating for example, that they have not inspected inaccessible parts of the property or tested all the services or appliances and will suggest that the Tenant obtain additional specialist reports from electrical, plumbing/heating, cavity wall tie, damp proof and other experts. If the Tenant does not follow up that advice he will be unable to hold the Surveyor himself responsible for any defects which would have been revealed as a result.

We have contact with a number of independent professionally qualified Chartered Surveyors who will be able to carry out a full structural survey on your behalf, advise as to what is the appropriate level of rent and if necessary, prepare a Schedule of Condition. Please do not hesitate to contact us if you require advice as to which Surveyor to instruct and the likely cost of doing so.

Contaminated Land

Please note the possibility that the fabric of the property the Tenant intends to Lease is contaminated (e.g. by the presence of asbestos) or is built on land contaminated by previous industrial or other use, of which there is estimated to be more than half a million acres in the UK. A new statutory contaminated land regime came into force on 1^st April 2000. The basic principal underlying the contaminated land regime is that the polluter pays but, if the polluter no longer exists or cannot be found, the current owner/occupier may be liable for what could be very substantial clean up costs.

A Tenant will clearly be concerned to ensure that he is not liable for any contamination existing at the date of the Lease which could occur either as result of liability under the legislation or, liability to the Landlord under the terms of the Lease.

So far as the liability of a Tenant under the legislation is concerned, it is highly unlikely that a normal commercial Tenant (who has no beneficial interest in the land other than the rack rent Lease) will be liable for the cost of cleaning up contamination of the property which he did not cause and which was present in the premises or the land on which it stands, before the Lease began. Essentially, if the original polluter cannot be found, the Landlord as current owner, will be responsible for any clean up costs. The Landlords Solicitors are (or should) be aware of this, hence attempts are often made to transfer the liability for cleaning up historic contamination of the site to the Tenant. We will of course try to resist any such clauses being inserted in your Lease and ensure the Landlord expressly accepts these liabilities.

Some institutional landlords will insist that clauses transferring liability for historic contamination to the Tenant are included in the Lease or the transaction will not proceed. If you accept that position you should bear in mind that whilst the Landlord will invariably insure the property against normal commercial risks (claiming the insurance premium back from you by way of insurance rent) such insurance is unlikely to cover environmental clean up costs because the pollution/contamination will have long preceded the policys inception. Your own public liability insurance will fail to cover this risk for the same reason.

The benefits of environmental due diligence are threefold. The first is that it may enable you as prospective Tenant to negotiate that the Landlord cleans up any contamination before the Lease is entered into. The second is that it will enable your Solicitors, to draft clauses to specifically address the actual situation. The third is that in the last resort you can withdraw from the deal if these problems cannot be adequately addressed.

We implement a progressive approach to environmental due diligence. Firstly, we always raise specific environmental enquiries before Lease of the Landlords Solicitors at an early stage of the transaction. These cover the site's previous history and usage (so far as the Landlord is aware), whether an environmental survey has been undertaken and whether (and if so what) decontamination work has been undertaken.

Secondly, enquiries can be made of the Local Authority. Whilst such authorities are now obliged to begin the creation of a local register of contaminated land, the results of which will in due course be disclosed in Local Search results, it may be some time before all contaminated land has been identified and registered as such. Enquiries of the Local Authority may therefore not give any meaningful information.

Thirdly we recommend, in all cases, that you instruct us to commission on your behalf a desk top environmental search against the property. Quotations for search fees will be provided on request. The report provides details on the environmental setting and previous land use, incorporates current and historic ordnance survey mapping and, environmental data from numerous statutory and non-statutory sources including the Environment Agency, the British Geographical Survey and the local planning department. If you instruct us to act for you we will ask you to confirm to us in writing whether we are or are not to commission an environmental desk top search on your behalf. If you do not instruct us to obtain such a report and it later transpires the premises are contaminated (whether or not the cost of putting this right falls upon you) and a search would have put you on notice of this, the responsibility will be yours.

Whilst a 'desk top' search result is likely to identify problem sites, a 'clear' result is no guarantee that the property is free from contamination and only a comprehensive expert analysis of the site (including for example the taking of soil samples) the cost of which will be substantial, will provide a definitive result. It is important that you note that we are not experts in advising upon whether a property is or is not contaminated, this being outside our responsibility and retainer. We will however refer you to specialist environmental consultants if you wish.

The extent of due diligence in the context of actually or potentially contaminated land will depend upon the value of the transaction to you and your perception of the degree of risk.

Insurance

As already indicated, it is generally the position that the Landlord will insure the premises against all normal commercial risks and recharge that insurance premium to you as 'Insurance Rent' over and above the basic rent and Service Charge. We will obtain on your behalf a copy or at least a summary of the landlords insurance cover to ensure that it is adequate. Whilst we always ask that your interest as Tenant are noted on the Landlord's policy, some Landlords and their insurers refuse to co-operate. Similarly, most Landlords and insurers refuse to provide a letter of waiver of their subrogation rights against you as Tenant in the event that the property is damaged or destroyed as a result of your or someone for whom you are responsible's negligence or recklessness. Because the Landlord's insurers may reserve this right of subrogation i.e. the right to commence proceedings against you in the Landlord's name for recovery of their outlay, you must ensure that this risk is covered by your own public liability insurance. It is likely that this will be part of a larger policy covering your contents of the Leased premises (including stock), business interruption cover/consequential loss and employers liability insurance.

Where the premises you are taking on Lease include plate glass it is generally the position that the Landlord will require you to insure this separately. We will let you know if this is the case so that you can make the necessary insurance arrangements.

Please make sure that all necessary insurance cover is in force not later than the date the Lease commences (earlier if you are allowed into occupation as licensee before the Lease is legally completed), that your cover includes, as a minimum, the risks mentioned above and that such insurance cover is reviewed regularly.

We recommend that you re-inspect the property immediately before you enter into the Lease to ensure that it is in the same condition as when you first inspected it. If any damage has occurred you must make arrangements with the Landlord for repairs to be carried out immediately since your own insurance will only provide cover from the date the policy goes on risk.

Stamp Duty Land Tax

Background

“Stamp Duty” has existed since 1694 as a government tax on certain legal documents, including transfers of land and a tenant taking the grant of a lease. In the past, rates of duty were low (usually one percent) and the legislation for levying this relatively simple tax, collected via the legal profession using a single sheet form, mostly took care of itself – the 1891 Stamp Act survived the 20th century with only minor amendments.

The SDLT compliance procedure is much more onerous and complex than the old one. The Finance Act 2003 replaced Stamp Duty with SDLT on 1st December 2003. It is a tax on transactions, not documents, which are no longer physically sent in to the Inland Revenue and ‘stamped’. Landlords for example need no longer have counterpart leases stamped with £5.00 fixed duty and ‘certificates of value’ on legal documents are no longer required.

	It is your obligation in law to notify ‘liability to tax’ by submission of a Land Transaction Return form (‘LTR’) within thirty days of completion of the transaction even though, in practice, we will do this on your behalf. Where appropriate any mortgage lender will insist upon it. The reason for this is that HM Land Registry will not register the grant of a lease of more than seven years - now compulsory - unless or until the Inland Revenue provide to us and, we in return provide to the Land Registry, a ‘Land Transaction Return Certificate’ issued by the Revenue confirming receipt of the LTR and payment of tax. The application for registration must be made within the priority of the searches obtained before completion in order to protect your interest in the property and the priority of any lender’s charge.
	You will incur penalties with the Inland Revenue if the LTR is returned late. There is a fixed penalty for delay in submitting the LTR of £100.00 if only a day late, rising subsequently to £200.00 plus a tax related penalty. These penalties apply for failure to lodge the LTR on time even if no tax is payable because, for example, the ‘net present value’ of the rental stream over the full period of the lease is less than £150,000.00 (gross of VAT if any charged on rent), see post.
	To ensure that the LTR is completed properly and submitted on time we will go through this form with you (which is a self-assessment form comprising more than seventy sections) as early as possible in the transaction and in all cases before completion of the lease takes place. Where completion of the LTR is straight forward we have no present intention of charging for the extra work. It should however be noted that in complex cases and/or where supplementary forms of the LTR are required we reserve the right to make an additional charge for dealing with them based on the hourly rate set out in the Client Agreement.
	If, as will generally be the case, we complete the LTR form(s) on your behalf it must be emphasised that this will be in reliance on the information you provide to us and that you have ultimately responsibility for the accuracy of the information. You are warned that if the LTR is not completed properly (e.g. information required from you is missing) this could delay acceptance of the LTR and the incurrence of the late return penalty already mentioned.
	It is your responsibility (which cannot be delegated to us other than under a specific Power of Attorney) to sign the LTR as the taxpayer and your obligation to pay the tax due. Where there is more than one tenant/lessee (e.g. husband and wife, a business partnership or two or more companies acting on a joint venture basis) the liability to pay the tax is joint and several even if in reality the funds are provided in unequal shares or by only one party.
	The LTR requires us as your solicitors to give our details as your ‘Tax Agent’. Tax Agent is a term common to other taxes and tax forms. The fact that we as your solicitors are your Tax Agents does not create an agent/principal relationship under the law of agency and therefore there is no corresponding liability on us unless we collude with you in defrauding the Inland Revenue. For the purpose of SDLT the Tax Agent is a person who is advising the client with whom the Revenue may correspond about the taxpayer’s tax affairs. By using the LTR which includes this firm’s details as agent, you the client are in effect consenting to the Inland Revenue communicating with us and thereby enable the Revenue to comply with data protection requirements. If by any chance (and notwithstanding our insertion of ourselves as your Tax Agents in the LTR) the Land Transaction Return Certificate is sent to you direct in error, you should deliver or post it to us immediately so as not to delay registration at HM Land Registry.
	SDLT operates on a ‘process now check later’ basis. This means that you may be liable to pay any shortfall from the self-assessed amount after an Inland Revenue enquiry. It is also conceivable that on occasion SDLT may be accidentally overpaid. In either case we will inform you immediately of the position.
	Beware that the Inland Revenue will on a regular basis be conducting tax enquiries to check whether LTR forms have been accurately and honestly completed and the correct amount of tax paid. The enquiry window will usually be for a period of nine months from the filing date. Leaving aside civil liability for any tax paid short, penalties and interest, it is a new criminal offence to evade SDLT punishable by up to seven years imprisonment. In the case of a limited company purchaser its directors and secretary are personally liable to the same extent. Whilst in practice such enquiries will be dealt with by ourselves, it is important that you are forewarned at this early stage that any costs incurred in connection with responding to the enquiry will be over and above those incurred in dealing with the transaction and will be charged for at the hourly rate set out in our Client Agreement with you. This will be the case even if, at the end of the enquiry, no additional tax is payable.
	Please remember that if the seller has made a VAT Election (Option to Tax) upon the property you are buying and VAT is payable on the price, SDLT at the appropriate rate is payable on the price gross, not net, of VAT. VAT may not be payable (and thus no SDLT on the VAT element) where a property occupied by a commercial tenant or tenants and run as a letting business is bought/taken over as a going concern (‘TOGC’) provided you the buyer make your own VAT Election (Option to Tax) before exchange of Contracts. No SDLT is payable for goodwill.
	SDLT on new leases completed after 1st December 2003 is levied on ‘net present value’ (‘NPV’) the most controversial change from the old Stamp Duty regime which charged tax at 1% (2% for long leases) of the first year’s rent only if more than £5,000.00. With SDLT leases are chargeable at one percent of the rental steam over the full length of the lease, subject to a discount rate and an exemption for the first £150,000.00 of the consideration. No duty will be payable (nor will the transaction be notifiable to the Inland Revenue i.e. no LTR will be required) where the lease is for seven years or less and the total rental stream does not exceed £150,000.00 (£127,659.57 where the rent is VATable). Where the term is for more than seven years and/or the total rental stream exceeds £150,000.00 (including any VAT on rents) duty is payable and a LTR must be completed. Calculation of tax due is complicated if performed manually because the discount is compounded. NPV has to be separately calculated for each year of the term. In year one the NPV is the annual rent divided by 1.035. in year two the NPV is the annual rent divided by 1.035 to the power of 2, in year three to the power of 3 and so on. You will note that the annual NPV reduces as the lease term progresses. Having added the annual totals, average them, multiply by 1% and then deduct £1,500.00 (the £150,000.00 exemption x 1%) and you are left with the tax payable. Fortunately the Inland Revenue website contains an interactive NPV calculator which works out the tax for you on entry of the initial rent and the lease term. The website address is www.inlandrevenue.gov.uk/so. High value commercial leases will therefor suffer a tax charge which is on average seven times higher than before. No refund of SDLT will be made to a tenant who breaks the lease early, surrenders the lease or assigns it to a third party. Premium paid on the grant of a lease remain taxed as under the old regime.
	The Inland Revenue will reject all LTR forms which do not contain the national insurance number or numbers of the tenant(s) (if individuals or a partnership) or the company number and corporation tax reference number of a limited company or tenant. You must accordingly provide us with your national insurance number(s), alternatively company number and tax reference at the outset of the transaction.
	Note please that 'Disadvantaged Area Relief' for commercial (as opposed to domestic properties) was abolished on 17th March 2005.
	Because a tax enquiry could be raised for anything up to six years after your lease of a property, we will retain your file for at least that period and ordinarily will make no charge for doing so.

To enquire about any aspect of leasing business premises please email John Norcliffe - john@norcliffe-law.co.uk or contact us