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Stamp Duty on Leases

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By Guanqi (Lucky) Zhou, Lawyer, Commercial Property and Leasing, Mason Sier Turnbull

Application of the lease provisions

Stamp duty on leases was re-introduced in 2009 as an anti-avoidance measure to ensure that leases are not used to acquire ownership-like rights.

The Duties Act (Vic) 2000 (“the Act”) now imposes duty on the granting, surrender, transfer or assignment of a lease for which any ‘consideration’ other than ‘rent reserved’ is paid or agreed to be paid in respect of:

  • the lease (including subleases and concurrent leases);
  • a right to purchase or a transfer of the land;
  • an option to purchase or for the transfer of the land;
  • a right of first refusal in respect of the sale or transfer of the land;
  • any other lease, licence, contract, scheme or arrangement where the lessee (or an associated person) obtains any right or interest in the land other than the leasehold estate.

In determining whether the provisions apply to a lease, it is important to bear in mind that ‘consideration’ may be monetary or non-monetary.

For example, non-monetary consideration can include an obligation under a lease requiring a tenant to carry out works (structural works, construction works or fit-out by the tenant) in relation to the land whereby such works becomes the property of the landlord at the end of the lease. The consideration here is the value of the improvements carried out by the tenant.

An example of monetary ‘consideration’ is an upfront payment in relation to a long term lease based on the freehold value rather than the net present value of the leasehold. Such payment is more likely to be capital in nature and therefore falls within the category of ‘consideration’ rather than ‘rent reserved’.

There is no exhaustive list as to what might be regarded as ‘consideration’ as opposed to ‘rent reserved’ for the purpose of determining whether duty is payable on a lease. In determining whether a payment is ‘rent reserved’ or ‘consideration’, the nature and the circumstances of the transaction as a whole, including the value of the underlying land the subject of the lease, the amount paid, how the payment is calculated and the duration of the lease, must all be considered.

It is important that, prior to entering into any lease agreements, the parties seek legal advice as to whether there may be stamp duty implications in their proposed leasing arrangement to avoid nasty surprises.

Exemptions and Concessions

The standard exemptions for stamp duty as contained in Chapter 2 of the Act apply to leases. There are also specific exemptions under the lease provisions to exclude its application to caravan parks, retirement village and options for further term contained in a pre-21 November 2008 lease.

Depending on the specific circumstances, the stamp duty liability in relation to a leasing arrangement may be exempt or reduced in accordance with the available exemptions or concessions.

Liability for payment of stamp duty

The time frame for the payment of stamp duty depends on whether the dutiable transaction occurs before or after 1 April 2012. If before 1 April 2012, the stamp duty must be paid within 3 months. If after 1 April 2012, the timeframe is only 30 days.

The liability for payment of stamp duty generally falls with the tenant of a dutiable lease, or the assignee or transferee of an assignment or transfer of a dutiable lease.

In relation to a surrender of a dutiable lease, it is the landlord that incurs the liability for the payment of stamp duty. It would therefore be prudent for a landlord to first find out whether a lease is dutiable prior to giving consent for the surrender of such a lease.

If you need help with a leasing related matter, contact our Commercial Property and Leasing team on 03 8540 0200.