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. But there are still certain circumstances where a tenant must pay stamp duty under a commercial or retail lease. We set these out below.
Creation of Lease
A tenant must pay stamp duty on a new lease only where the tenant makes a lump sum payment to encourage the landlord to grant the lease. For instance, where the landlord requires a premium payment or if the parties enter into a lease after the landlord agrees to grant an option for an agreed amount. The landlord usually sets this amount and parties may negotiate. But 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.
For retail leases, the definition of key money includes premium payments under the Retail Leases Act 1994 (NSW). Key money payments are not permitted under the Act. 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 the tenant pays 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.
There are leases exempt from stamp duty even if a premium is payable, including:
- a lease of a unit in a retirement village
- a lease of premises to the Home Care Service of NSW; or
- a lease executed under Part V of the National Health Act 1953 (Cth) (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 the tenant is paying any money specifically for the transfer.
Even if the tenant is not paying any money for the transfer, they 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.
The tenant must then pay a minimum of $30 if the transfer of lease occurs in conjunction with a sale of business. Importantly, the nominal rate is subject to an increase.
Surrender of Lease
Finally, a surrender of 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 the tenant to surrender its premises and pays the tenant an amount as compensation, then this amount is subject to duty.
On the other hand, if the tenant voluntarily surrenders the lease, then similar to the lodgement of a Transfer of Lease form, you must pay a nominal $10 assessment duty.
- Stamp duty is generally not payable on the registration of a lease unless key money or a premium has been paid;
- Stamp duty will not be payable for the registration of a retail lease;
- There will be nominal $10 duties payable for a Transfer and voluntary Surrender of a lease where no other money is being paid specifically for the Transfer or the Surrender.
If you have any questions about when to pay stamp duty on your lease, get in touch with our specialist commercial leasing lawyers on 1300 544 755.
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