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.

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.

For example, this occurs where the landlord requires a premium payment or if you enter into a lease after the landlord agrees to grant an option for an agreed amount.

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:  

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.

For example, if the sale of business includes a transfer of lease and goods, then the following nominal stamp duty amounts will be payable:

  • $10 on the Sale of Business Agreement;
  • $10 for the duplicate Sale of Business Agreement; and
  • $10 for the Transfer of Lease.

You must then pay a minimum of $30 if the transfer of the lease occurs in conjunction with the sale of the business. Importantly, the nominal rate is subject to an increase.

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, get in touch with LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

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