Commercial lease with premium
Duty is charged on commercial lease agreements where a premium is paid by the lessee for the lease. A premium is considered to be any consideration (whether monetary or non monetary) that is paid, or agreed to be paid, for the lease. The payment of a large premium is indicative of a de facto land transfer occurring; the charging of duty on a premium is an anti-avoidance measure.
Duty will be levied once the premium amount exceeds the determined threshold of 25 per cent above market rent over the term of the lease. This threshold ensures that where a minor premium is paid for a lease (for example, in a competitive market) the transaction will not become liable for duty.
A premium does not include any payments that could reasonably be considered as rent reserved. Rent reserved includes rent paid or payable during the term of the lease that is market rent, and any reasonable amount paid or payable for the right to use the land under the lease (for example: rates; services and utilities; turnover rent or administration).
If a premium is paid for the grant or transfer of a commercial lease and the premium exceeds the determined threshold of 25 per cent above market rent over the term of the lease, duty is payable on the total premium component and will be payable at the rate applicable when the lease was entered into.
If a premium is paid for a lease in excess of the determined threshold, the lessee is required to lodge the lease document along with any other documents that may be relevant to ascertaining the dutiable value of the transaction (for example, any separate agreement in relation to the payment of a premium). Duty is required to be paid within 90 days of the execution (signing) of the lease. You should be aware that giving false or misleading information is a serious offence.
Long-term lease duty
A long-term lease is a commercial lease with a term that is 30 years or greater (over single or multiple terms). Duty is applicable to long-term leases entered into before 29 April 2014. Long-term leases entered prior to this date will be liable for duty at conveyance rates and require the lodgement of a valuation for conveyancing purposes to determine the dutiable value of the lease.
Duty must be paid within 90 days of the execution (signing) of the lease, or interest may apply to the assessment.
Abolition of duty on short-term commercial leases
Short-term commercial leases first executed after 30 June 2009 are not liable for duty.
A lease includes an agreement for a lease. To ensure consistent and equal treatment for all lessors, any lease first executed before 1 July 2009 is liable for duty on the full cost or value for its full term and there are no pro rata refunds for any period of the lease that continues beyond the abolition date.
Any lease instrument entered into prior to 1 July 2009 remains liable for duty for the full term of the lease under the provisions in force at that time. A lease executed after 1 July 2009 that purports to commence before that date may also be liable for lease duty.
Section 421 of the Duties Act 1999 makes it clear that the repealed provisions continue to apply where:
- a lease instrument replaces a lease instrument evidencing or effecting a lease that was entered into before 1 July 2009, or
- an option or other arrangement, where the purpose, or main purpose, was to defer the execution of, or variation to, the lease instrument until 1 July 2009 (or later) so that Chapter 5 would not apply.
A variation to a lease (other than long-term lease) commencing after 30 June 2009 is not liable for duty. Refunds are only be available to the lessor where duty has been overpaid. On termination of a lease, a refund will only apply if neither the lessee nor any associated person will continue to lease the property under a new arrangement.
The lessor is required to lodge the lease document and pay the duty within 90 days of the execution (signing) of the lease. You should be aware that giving false or misleading information is a serious offence.