assignment of lease stamp duty nsw

• Commercial Leases and Stamp Duty in NSW
• Commercial & Business Law
• March 25, 2022
• Commercial & Business Law , Commercial & Retailing Leasing
• No Comments

Stamp duty can be a difficult concept to understand and is particularly challenging when parties are considering whether this is payable across NSW in relation to various commercial leases. It is important that thorough consideration is afforded to this area of law to ensure that no unwarranted penalties are incurred throughout or after the leasing transaction has been completed.

Stamp Duty is a tax imposed on the purchase of assets and certain transactions relating to property. In 2008, NSW abolished stamp duty on new Leases and on Variation of Leases, but there are still some commercial leasing transactions that require stamp duty to be paid.

Stamp duty is payable on the following commercial lease transactions:

i)      Transfer/Assignment of Lease – A Transfer/Assignment of Lease is a relatively common leasing transaction, particularly in relation to a Sale of Business. In this transaction the lease is transferred by the current Tenant (Assignor) to the incoming Tenant (Assignee) and is subject to a nominal sum of $10.00 stamp duty for the transfer. The duty is to be paid by the Assignee (incoming tenant).

ii)     Surrender of Lease – A Surrender of Lease occurs in matters where the parties agree for the Lease to end. When the Tenant of a lease voluntarily gives up their Lease and forgoes the accompanying rights to the Landlord before the term has expired, a Deed of Surrender of Lease and a Land Registry Services Form 07DL are required to be executed/lodged. Similarlily, this attracts a nominal $10.00 duty sum and is payable by the Lessee when surrendering the Lease.

In some special circumstances, duty can be required in relation to a new lease. This occurs when a proposed tenant puts forward a lump sum payment to entice a landlord to grant a lease and is held to be a capital payment. However, this is a rather infrequent occurrence.

Commercial Leasing transactions can be complex for parties, so it is essential that parties obtain suitable legal advice to ensure that all of the necessary legal requirements are addressed and that there are no hidden costs down the line. Related Tag:- Estate Will Lawyers Newcastle

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Commercial Leases in NSW: Common Questions & Answers

Commercial Leases in NSW: Common Questions & Answers

1. what is a commercial lease.

A commercial lease refers to the lease of commercial property. This includes office space, industrial units, workshops and warehouses, retail shops (whether they are within a shopping centre or not), storage sheds, working yards and other non-residential property.

2. How long can a commercial lease term be?

Generally there is no restriction on the term of a Lease, but it must be fixed with certainty.

3. Is stamp duty payable on the creation or assignment of a lease?

Since 1 January 2008, stamp duty has not been payable on a Commercial Lease executed on or after that date. However, it is still payable on the transfer or assignment of a Lease.

4. Must the landlord allow a tenant to renew a lease?

If the Lease contains an option to Lease for a further term, the landlord will be bound by that option.

5. Is the landlord allowed to charge any amount for rent?

Essentially “yes”. No restrictions apply to the amount of rent that can be charged for commercial and industrial premises. However, during the term of the Lease, rent can only be increased in accordance with the rent review provisions in the Lease. Retail leases, which are a special type of commercial lease, do have statutory restrictions imposed on the timing and method of increasing rent during the term of the lease.

6. Can a tenant assign the Lease, or sublease, without landlord’s consent?

Generally, unless the Lease specifically prevents assignment or sub-leasing, the tenant has that right and doesn’t require the Landlord’s consent. However, most Commercial Leases will contain a term requiring the Landlord’s consent to be obtained before the Lease can be assigned or sub-let, or prohibiting it entirely.

7. What is a Security Deposit?

A security deposit is typically an amount equivalent to one or two month’s rent, which is deposited by the tenant to secure, as far as money can, the tenant’s performance of the tenant’s obligations under the Lease. Under the Retail Leases Act 1994 (NSW) a Landlord is required to lodge a security deposit with the Director-General of the Department of State and Regional Development. However, under your normal Commercial Lease, a Landlord generally is at liberty to deal with the Security Deposit as they see fit, so long as it is repaid, in part or in full, if required under the Lease.

Related Article: Why should I require security if I’m a landlord and leasing my commercial or retail premises?

8. Are there any formal requirements for the execution of a lease?

For land under the provisions of the Real Property Act 1900 (NSW) (which is most land in NSW) a Lease for a term in excess of three (3) years must be effected by executing a Lease in the approved form and the Lease must be registered, in order to pass to the Tenant an enforceable leasehold estate. If such a Lease is not registered, the Tenant would only have an equitable interest and it would be unenforceable against a competing registered interest.

9. If a commercial building gets a new owner, can the new owner renegotiate the existing lease?

No, unless the tenant is a willing negotiator.

If you purchase a commercial building with an existing lease, the term of which extends into your ownership, then you own the property subject to that lease.

As to whether the tenant will likely be a willing negotiator… this will depend on their circumstances. In short, if there is a benefit to the tenant then they will likely be a willing negotiator. For example, if there is one year left on the lease and the tenant would like to remain in the premises for a period longer than that, then there’s no reason why you can’t negotiate with the tenant to extend the term of the lease.

If you are a landlord in this situation you need to target those things that will result in the tenant achieving an improved position, as well as you, if you are going to achieve a favourable outcome

10. Who gets to keep the registered commercial lease?

In most situations, the registered commercial lease is duplicated and both parties receive a copy.

However, only one of these copies will have a ‘registration sticker’ from Land & Property Information (LPI) affixed to it. This copy is usually held by the landlord.

• Commercial Leases: Understanding the Basics
• Commercial Leases: Get Them In Writing!

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

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.

Retail Leases

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.

Exempt Leases 

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.

Key Takeaways 

• 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.

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• Australia: Leases and stamp duty in NSW

Australia: Leases and stamp duty in NSW

Revenue nsw issues practice note on the interpretation of the new beneficial ownership rules in the context of leases, share by email.

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Since the amendment of the Duties Act 1997 (NSW) (" Duties Act ") on 19 May 2022, industry have awaited the release of guidance on the interpretation of the change in beneficial ownership rules. The Chief Commissioner (" Commissioner ") of State Revenue issued a new practice note (CPN 027) in November 2022 setting out the Commissioner's interpretation of the new rules, insofar as they apply to leases ( CPN 027: Leases and change in beneficial ownership | Revenue NSW ).

Key points to note are as follows:

• Leases: Leases for premiums are already dutiable. However, grants of leases other than those for premiums can now also be dutiable. This is because the new 'change in beneficial ownership' rules encompasses the creation an extinguishment of dutiable property, which in turn includes the grant of a lease in land in NSW (unless there is an exclusion or an exemption). The Commissioner takes the view consideration for the grant of the lease includes monetary consideration and/or the value of the non-monetary consideration.
• Monetary consideration includes any amount paid or payable by the lessee for the grant of the lease. This does not include amounts paid or payable for the right to use the land being rent or rent reserved. Therefore, leases for rent only will remain outside the duty net. The Commissioner will generally not require a valuation where the lease is granted for monetary consideration and the duty will be calculated on the consideration paid or to be paid.
• Non-monetary consideration is very fact dependent and will ultimately depend on a proper characterisation of the form and substance of the arrangement. The Commissioner indicates it can extend to obligations to undertake improvements.
• Improvements: The Commissioner considers that non-monetary consideration can be provided by a lessee where the lessee is under an obligation to undertake improvements to the land and the improvements are to become the property of the lessor at the end of the lease. Where a lessee undertakes to build on the lessor's land, duty may be assessed on the value of the improvements. In this context, the Commissioner sets out a scale referable to the length of the lease, determining the proportion of the construction cost which will be subject to duty. Where the term of the lease is less than 10 years, 100% of the cost of improvements will be taxed. If a taxpayer does not wish to use the scale, they may tender evidence of value.
• Works in lieu of rental payments: Where a lessee agrees to undertake landlord's works in lieu of rental payments, the Commissioner may treat that non-monetary consideration as taking on the characteristic of a non-dutiable payment of 'rent reserved'.

Example 5A: The Landlord grants XYZ Pty Ltd a 15-year lease of an industrial building. The consideration for the use of the premises under the lease is a prepaid rent of AUD 15 million. There is no separate consideration for the grant of the lease. The lessee can satisfy the obligation to pay rent by either the payment of cash, or by the construction of improvements with an agreed value of AUD 20 million. In either case, if there is an early termination of the lease (other than through the default of the lessee), the lessee is entitled to a proportionate refund. No duty is payable even if the lessee constructs the improvements, as it takes the character of prepaid rent.

• Transfer of a business: Where in a transfer of business, a lease over the business premises is not simply transferred to the new owner of the business but there is a cancellation of the old lease and the grant of a new lease, the Commissioner indicates that duty will be payable as if there were an assignment. 
• Early termination of a lease: Duty will apply where there is early termination of the lease by the lessor if the lessor pays the lessee in order to have the lessee vacate the premises.
• Lessee agreeing to pay lessor's legal fees: Where in consideration for the grant of a lease, the lessee agrees to pay the lessor's legal fees which are non-refundable and greater than AUD 1,000.00, duty will apply. 
• Attornment: The attornment of leases on a sale, is also potentially dutiable.  Where land is sold subject to leases and under the law of real property, the leases are attorned such that they become leases between the new owner and the lessee, duty potentially applies. This is quite a radical change, the legal basis of which is not clear. We expect that industry would welcome further guidance on the basis of the position put forward by the Commissioner.
• Expiration of a lease: Where fit out and fixtures of value are not removed/severed from the property at the end of the lease, they can be subject to duty unless provided for no consideration. The Commissioner provides the following examples in this regard:

Example 4:   A grants a lease of NSW land to B for a term of five years. B defaults on the rental payments. At the end of the 5-year term, B surrenders their rights in some fixtures and fit out on the leased premises in exchange for the release of a debt equivalent in value to the surrendered items. The surrender of the fixtures and fit out will be liable on the value of the fixtures & fit out.

Example 5:  A leases three floors of a commercial office tower in NSW from B for 10 years. The lease includes a provision that requires the lessee to remove all fit out and fixtures at the expiration of the lease. At the end of the lease the lessor allows the lessee to leave without removing the carpet, office partitions etc. No duty is payable on the expiry of the lease.

• Taxpayers can apply for a private ruling if a transaction is not covered under the CPN or if there is any doubt that a transaction could be liable to duty. This may be a prudent pathway for some taxpayers given the potential uncertainties raised by the CPN.

Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership : This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion : All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites.  Attorney Advertising : This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction : Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.

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NSW “change in beneficial ownership” stamp duty reforms: Significant changes to leases, trusts and option transactions

The changes were made pursuant to the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022 (NSW) , and significantly broadened the duty base in New South Wales. The amendments apply retrospectively to transactions first executed on or after the 19 May 2022.

The Chief Commissioner has now issued two Practice Notes setting out the circumstances when certain transactions will be subject to duty under the new rules, and in what circumstances the change in beneficial ownership provisions apply to the grant of a lease:

• Commissioner’s Practice Note CPN 025: Change in Beneficial Ownership
• Commissioner’s Practice Note CPN 027: Leases and change in Beneficial Ownership

CPN 027 must be read in conjunction with CPN 025.

Some key examples from the practice notes are set out below. 

As duty outcomes for transactions will be heavily impacted by the drafting of transaction documents, now is the time for taxpayers and their advisers to review their NSW transaction structures and documentation and determine whether any practice or procedures need to be changed to accommodate the amendments.

While CPN 025 and CPN 027 provides a number of examples to assist taxpayers in providing certainty to their transactions, the ability to apply for a private ruling if there is any doubt as to the application of the provisions remains.

Change in Beneficial Ownership – Overview

Historically, transfer duty (particularly in NSW) has been concerned with imposing duty on certain dealings in land which amount to a change in legal interest. From 19 May 2022, a new category of dutiable transaction was introduced to extend the tax base to changes in “beneficial ownership”.

The concept of “change in beneficial ownership” is defined to include:

• The creation of dutiable property
• The extinguishment of dutiable property
• Change in equitable interests in dutiable property
• Dutiable property becoming the subject of a trust
• Dutiable property ceasing to be the subject of a trust

The Duties Act and the Duties Regulation 2022 (NSW) also includes an extensive number of “excluded transactions”.  

More detail around the legislation is available in our article, NSW state taxes changes to commence shortly .

CPN 025: Chief Commissioner’s examples

CPN 025 provides a number of examples for the types of transactions that will fall within the scope of the new provisions.

Creation of extinguishment of dutiable property

Examples of transactions that are a “creation or extinguishment of dutiable property” include the grant of an option to purchase dutiable property, the grant of a life estate, the grant of a lease, or the grant of a mining lease. 

Key takeaways from the Chief Commissioner’s examples include:

• In respect of the grant of options , the Chief Commissioner will generally assess duty on the consideration paid for the option assuming the parties are unrelated and acting at arm’s length. A valuation may be required in circumstances where the parties may not be acting at arm’s length, or there is a question as to whether the transaction is part of a scheme to avoid duty.
• Where an option arrangement involves a security deposit , if that security deposit is not refundable, it will be consideration for the grant of an option.
• An obligation on a tenant to undertake construction or fit out works or improvements on land, will be non-monetary consideration for the grant of a lease on which duty is chargeable.

Change in equitable interest in dutiable property & becoming or ceasing to be the subject of a trust

CPN 025 specifically provides that trust cloning  and a  change of capacity in which a trustee holds dutiable property as examples of where duty becomes chargeable under the new rules. Varying a trust in such a way that the interests become fixed after being discretionary, or where a fixed trust becomes a discretionary trust, will also be dutiable to the extent of the change in interest in the dutiable property.

CPN 027: Leases and changes in beneficial ownership

Prior to the introduction of the new legislation, the grant of a lease in NSW has only been subject to duty where a premium by way of monetary consideration has been provided by the lessee for that grant.  Under the new rules, the duty base is broadened to include circumstances where non-monetary consideration is provided.

CPN 027 provides a number of significant changes to the way leases are assessed, particularly where the lessee has an obligation or undertakes improvements.

The practice note provides that a lease may be dutiable on its grant where under the terms of the lease, the lessee has an obligation to undertake improvements and where the improvements become the property of the lessor at the end of the lease. Similarly, a lease may be dutiable on its surrender where valuable improvements are surrendered to the lessor.

Importantly, the Chief Commissioner has released a methodology that the Commissioner is prepared to accept to calculate the proportion of the value attributable to the improvements as the dutiable value for the dutiable transaction that is the grant of the lease.

The methodology is based on the principle that the longer the term of the lease, the lower the value of any improvements passing to the lessee. In accordance with the table released by the Chief Commissioner, where the term of a lease is more than 50 years, where a lessee has an obligation to undertake improvements under the terms of the lease, the Commissioner will accept the dutiable value of the lease to be nil and no duty will be payable in respect of the grant of the lease.

In contrast, where the term of the lease is 10 years or less, subject to any other valuation evidence, the dutiable value is 100% of the cost of improvements undertaken.  

CPN 027 also addresses the duty treatment of a number of common leasing arrangements, the outcome of which can vary depending on the specific circumstance including:

• Upfront lessee payments and pre-paid rent
• Lessee’s obligation to undertake works in lieu of rent
• Lessee’s obligation to pay lessor’s legal fees

As the new legislation is complex and untested, care should be given in drafting transaction documents, particularly where there are changes to the nature of rights and interests in New South Wales property.

If you require assistance with understanding the new provisions and the Chief Commissioner’s practice notes, please get in contact with a member of our State Taxes team.

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Grant of an option to lease / grant of lease NSW

The new south wales (nsw) chief commissioner’s guidelines on stamp duty and property leasing provide essential guidance for calculating the dutiable value of complex lease agreements.  .

Understanding these rules is vital for developers, landholders, and businesses involved in leasing property, especially with conditions that require the lessee to undertake construction or improvements. This article aims to explain the guidelines, discuss their impact, and offer actionable insights for clients. 

Introduction 

Stamp duty is a tax levied on particular transactions, such as sales and leases of real estate. While it’s a straightforward affair in most circumstances, complex leases involving non-monetary considerations, like property improvements or long-term conditions, can be complicated.  The NSW Chief Commissioner’s guidelines offer examples and conditions under which dutiable value is calculated differently than one might expect. 

The Impact 

Understanding the guidelines has immediate implications for businesses and developers. Depending on the length and conditions of the lease, dutiable values can differ significantly: 

Long-Term Leases :  

Leases exceeding 50 years may have a dutiable value of nil, thereby avoiding stamp duty. 

Conditional Leases :    

Conditional leases often involve stipulations where the lessee (tenant) must undertake certain actions like construction or significant property improvements either as a condition to the grant of the lease or as a condition of the lease itself.  

If a lease is granted for non-monetary consideration comprising improvements to the property, the full cost of the construction (including builder margins) undertaken or to be undertaken by the developer is taken to be the value of the improvements. This value is determined on entry into the agreement for lease or a lease. 

In the absence of evidence of the valuation of the undertaking, the Chief Commissioner has stated in Circular Practice Note (CPN027) that he is prepared to use the following methodology to calculate the proportion of the value attributable to the improvements:  

For instance, in a 15-year lease where the lessee is obligated to make improvements worth $20 million, the dutiable value for calculating stamp duty would be 75% of the improvement costs, which amounts to $15 million. 

Here are some other key points to note for a conditional lease: 

• Valuation Reports: In certain cases, you can provide a professional valuation report to show that the future value of the improvements you have made will be less than the original cost of those improvements. This can help in lowering the stamp duty payable
• Compliance and Documentation: It’s essential to maintain complete documentation of the improvements carried out, including permits, invoices, and reports, to substantiate the dutiable value calculated based on improvement costs
• Implications for Tenants and Landlords: Tenants must be aware that the costs of improvements could impact the dutiable value, while landlords need to consider how these conditions might affect the lessee’s ability to carry out the lease terms. 

Premium and Prepaid Rent :   

Leases may involve upfront payments, which are often categorised as premiums or prepaid rent. These payments can significantly influence the dutiable value of the lease, and consequently, the amount of stamp duty that may be payable. 

In many instances, upfront payments serve as the total consideration for the lease. As a result, these payments could either inflate the dutiable value or, in some situations, completely negate the requirement for stamp duty, depending on the lease terms and other conditions. 

For example, consider a scenario where XYZ Pty Ltd enters into a 15-year lease for an industrial building with a prepaid rent of $15 million. The lessee has the option to satisfy this prepaid rent either through a cash payment or by undertaking construction improvements with an agreed value of $20 million. In the event of an early termination of the lease for reasons other than the lessee’s default, the lessee would be entitled to a proportionate refund of the prepaid rent. No stamp duty is payable on this lease arrangement, regardless of whether the lessee opts for a cash payment or construction improvements, as both options are considered to be forms of prepaid rent 

Failure to grasp these nuances could result in incorrect stamp duty payments, leading to financial and legal repercussions. 

Other Transactions Triggering Duty  

In addition to standard leases, there are various other transactions that could also attract stamp duty, according to guidelines set out in CPN027. These include: 

• Early Termination by Lessor: When a lessor terminates a lease early for specific reasons, such as granting a new lease to another lessee or selling the premises, duty may be payable on any consideration for these arrangements
• Legal Fees over $1,000: If a lessee pays or agrees to pay the lessor’s legal fees, which are non-refundable and greater than $1,000, then duty may be applicable. However, this does not apply to the extension or renewal of a lease where legal fees are paid as rent
• Option to Lease for a Premium: An option to lease land in NSW for a premium may be dutiable
• Assignment of Lease: The transfer or assignment of an existing lease can also attract stamp duty
• Novation of Agreement: Modifying the parties in an agreement for a lease could trigger stamp duty
• Attornment of Leases: In cases of attornment on the sale of a property, stamp duty may also be applicable. 

Actions Clients Need to Take 

Property leasing can be complicated.  We recommend the following steps: 

• Consult a Tax Advisor: Given the complexities, consulting a tax advisor is paramount for ensuring compliance and financial optimisation
• Conduct Valuation: If property improvements are involved, get a valuation to establish a dutiable value
• Document Thoroughly: Keep thorough records of lease terms, conditions, and any upfront payments or improvements made
• Stay Updated: The Chief Commissioner’s guidelines may evolve. Regularly review any updates to remain in compliance
• Liaise with Legal Teams: Ensure that all legal aspects are squared away, especially in leases involving intricate conditions or non-monetary considerations. 

How SW can help

Understanding the NSW Chief Commissioner’s guidelines is essential for any party involved in complex property leasing situations. SW experts can provide professional advice to help you keep abreast of these rules, helping to avoid surprises in the future.

Contributor

Rahul Sanghani

Robert Parker

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Main services: Tax for Corporates , Tax & advisory Industries: Property & infrastructure Tags: NSW , NSW State Budget - Stamp Duty Proposal , Rent , Stamp duties , Stamp duty

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Duty uncertainty for NSW lease transactions

NSW has introduced new duty laws that will apply to lease transactions, but there are many unresolved questions about how the new rules will work.

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The most important aspect of tax policy is certainty.

For any given transaction, businesses need to know if tax applies (and if so, how much and when). Presently, parties engaging in lease transactions in NSW that may involve non-monetary consideration will need to wait longer for that certainty.

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Transfer of Lease

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This page aims to help you complete an electronic Transfer of Lease dealing form. This form is used for the transfer of a registered lease by the lessee. NOTE: This form is to be used to transfer a registered lease instead of a Transfer of Interest dealing form. A Transfer of Interest can only be used to transfer a mortgage or charge. A transfer of lease affecting an expired lease will only be registered where:

• the expired lease is still recorded on the Register;
• the lease expired less than 12 months ago or
• the lease contains a current first option to renew or
• is within 12 months of expiry period or within a current first option to renew term, and is accompanied by a Variation of Lease extending the term.  NOTE : In this scenario, the dealings must be lodged as a  Dealing with Exception .

NOTE: A transfer of a Crown land tenure Term lease or a Crown land Real Property Act lease must be lodged as a  Dealing with Exception . NOTE: A transfer of lease affecting a lease carried forward as a subsisting interest, i.e. 'Bk ... No. ... Lease To ...' must be lodged in as a  Dealing with Exception . NOTE: Where a writ is recorded against the lease, this dealing form must be lodged in as a  Dealing with Exception , unless the Court consents to the dealing or the writ is removed. NOTE : Both the transferor (lessee) and transferee (new lessee) must be represented in the workspace for this dealing form.

Subscriber requirements

Before lodging this document electronically via an Electronic Lodgment Network, a Subscriber must:

• verify their Client’s identity
• establish their Client’s right to deal with the land
• have a properly completed and executed Client Authorisation form and
• retain evidence that supports the dealing ( see Supporting Evidence below ).

The Subscriber must also certify that they have taken reasonable steps to ensure that the instrument is correct and compliant with relevant law and any Prescribed Requirement. For more information on these requirements see: Residual Documents

Guide to complete

Stamp Duty – required. Notice of Sale – not required. Standard Form of Caveat – a caveat noted on the Register will prevent the recording of a Transfer of Lease where the caveat is drawn against the lease. Priority Notice Noted on the Register - see Priority Notice page for more information. The following headings refer to the data fields which must be completed in order to lodge an electronic Transfer of Lease dealing form. Land Title Enter the land title reference(s). Participant Details Party Details – Party Name Select the transferor being the lessee of the subject lease. Enter the transferor being the incoming lessee. Document Create Document – Select Other Documents. Select Transfer of Lease. Dealing on Title Select lease. Lease Dealing Number Select the dealing number of the lease being transferred. Transferor Select the transferor being the lessee of the subject lease. Transferee Select the transferee being the incoming lessee. Tenancy/Shares of the Transferee Enter the tenancy/shares of the transferee. Consideration (optional) Enter the consideration. Attachment Attachment Type – Conditions and Provisions (optional) Attach any conditions and provisions if required. Attachment Type – Caveator’s Consent Attach a caveator’s consent if required. Attachment Type – Approved Forms Where the transferor or transferee is the owners corporation of a strata scheme, the following certificates are required:

• strata schemes Approved Form 13 and
• strata schemes Approved Form 10 where the initial period is not shown as expired on the common property title.

Execution of the certificates must take the form as set out in strata schemes  Approved Form 23 .   Where the transferor or transferee is the association of a community, precinct or neighbourhood scheme, a certificate in the form of Approved Form 21 is required. Execution of the certificate must take the form as set out in community title schemes Approved Form 18 .   Attachment Type – Mortgagee’s Consent Attach a mortgagee’s consent if required.

Supporting evidence

In addition to evidence supporting the steps taken by the Subscriber to verify the identity of their Client and establish their Client’s right to deal, the Subscriber may be required to retain other evidence to support the dealing. It is a matter for the Subscriber to be satisfied that they have met the requirements for the dealing. Please refer to the ARNECC Guidance Note 5 for assistance on retaining evidence to support conveyancing transactions in accordance with the NSW Participation Rules. All NSW legislation can be accessed at www.legislation.nsw.gov.au

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Conveyance duty: surrenders of leases

A surrender of lease falls within the definition of conveyance (found in section 65 of the Stamp Duties Act 1920 ) and therefore will be liable to stamp duty as a conveyance.

This Ruling sets out the principles applied to the assessment of surrenders of leases.

In the assessment of conveyances generally, the Stamp Duties Division will not request evidence of value of the property conveyed where there is no transferor/transferee relationship and where there is an expressed consideration in the conveyance.

In these instances, stamp duty is assessed on the consideration paid by the transferee, unless other factors are apparent which give rise to doubts about the adequacy of consideration expressed. In those cases, appropriate enquiries are made to verify the adequacy of consideration.

These general principles apply to surrenders of leases. However, the following factors are relevant to the value of the unexpired portion of the lessee's interest in a lease:

• the unexpired term of the lease;
• the current rent payable under the lease in relation to the current market rental of the leased property; and
• provisions for rent increases because of consumer price index or assessed annual valuations of leased property.

The existence of any of these factors, suggesting inadequacy of consideration, may lead to the value being tested on enquiry by the Stamp Duties Division. Practitioners should be alert to the need to furnish information to support an assessment being based on the consideration expressed, where the terms of the lease suggest otherwise. This information should be furnished at the time of lodgment of the surrender document.

Where there is no consideration passing between unrelated parties a surrender of lease generally will be liable to duty of $10 unless factors are present to suggest that the unexpired portion of the lease has a material value. In these circumstances, evidence of value may be required.

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