When Do I Pay Stamp Duty on a Commercial Lease in NSW?

In Short

• Stamp Duty Applicability: Stamp duty is payable on a commercial lease only if a premium is paid to the landlord or if you make a lump-sum payment for an option to lease.

• Retail Leases: Retail leases are exempt from stamp duty in most cases, especially concerning key money or premium payments.

• Transfer or Surrender of Lease: A nominal $10 stamp duty applies for lease transfers or voluntary surrenders, even if no money is paid.

Tips for Businesses

When entering into a commercial lease, ensure you understand when stamp duty is applicable, especially if there are premium payments or key money involved. Additionally, be aware of the nominal stamp duty on lease transfers or voluntary surrenders. For retail leases, stamp duty is generally not required, but always confirm with your state-specific legislation.

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Table of Contents

• Creation of Lease
• Transfer of Lease
• Surrender of Lease
• Key Takeaways
• Frequently Asked Questions

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. However, there are still certain circumstances where you, a tenant, must pay stamp duty under a commercial or retail lease. We set these out below.

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Creation of Lease

You must pay stamp duty on a new lease only where you make a lump sum payment to encourage the landlord to grant the lease.

The landlord usually sets this amount and you may negotiate it. However, 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.

Retail Leases

For retail leases, key money payments are not permitted. The definition of key money includes premium payments. 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 you pay 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.

Exempt Leases

Some leases are exempt from stamp duty even if a premium is payable. These include leases:  

• of units in a retirement village;
• of premises to the Home Care Service of NSW; or
• 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 you are paying any money specifically for the transfer.

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 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.

Surrender of Lease

Finally, the surrender of a 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 you to surrender the premises and pays you an amount as compensation, then this amount is subject to duty.

On the other hand, if you voluntarily surrender the lease, then similar to the lodgement of a Transfer of Lease form, you must pay a nominal $10 assessment duty.

Key Takeaways

Stamp duty is generally not payable on the registration of a lease unless key money or a premium has been paid. In addition, stamp duty will not be payable for the registration of a retail lease. You will have to pay a nominal $10 for a transfer or voluntary surrender of a lease if no other money is specifically being paid. 

If you have any questions about when to pay stamp duty on your lease, our experienced leasing lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

When is stamp duty payable on a commercial lease?

Stamp duty is payable if a premium is paid to secure the lease, such as key money or an upfront capital payment.

Do I need to pay stamp duty on a retail lease?

Generally, no stamp duty is required for retail leases, particularly concerning key money payments, which are not permitted in retail leases.