Harper James is a full-service UK commercial law firm advising ambitious businesses on the laws of England and Wales. When taking new premises, a tenant should assess tax alongside rent, service charges, repair obligations and the lease term.
Stamp Duty Land Tax (SDLT) can apply to both a lease premium and the rent payable over the term. The rent element is assessed by reference to its net present value, while a premium is considered separately. The calculation must account for VAT where it forms part of the consideration, linked transactions, rent reviews and any later variation that increases the chargeable amount. Before signing, prepare the full rent schedule and confirm who is responsible for filing and paying SDLT. Further reading on commercial lease transactions provides a useful starting point for reviewing the wider legal process.
A landlord’s decision to opt a property to tax usually means VAT is charged on rent and certain other payments. Check whether the tenant can recover that VAT, particularly where it makes exempt or partially exempt supplies. The lease should deal clearly with VAT on rent, the premium, service charges, insurance and other sums. Business rates are generally payable by the occupier, with liability changing on assignment, subletting or vacancy. A tenant should also check available reliefs and understand the landlord’s obligations when premises are empty.
Ask for the landlord’s VAT status, the latest business rates demand, service-charge budget and any tax wording in the heads of terms. Model the total occupancy cost, including SDLT, VAT that is not recoverable, rates, insurance, repairs and dilapidations. The lease should identify which party bears each tax, prevent unexpected gross-up obligations where appropriate, and set out the treatment of incentives such as rent-free periods. Rates and tax treatment change, so confirm the position at completion and obtain transaction-specific advice before execution.