Transcript Remedies for breach of covenant
Procedure on grant of a commercial lease Value Added Tax Stamp Duty Land Tax on leases
Preliminary matters for landlord’s solicitor Heads of terms Consents Check title Commercial Lease Code 2007 http://www.leasingbusinesspremises.co.uk/ Model HOT’s, Occupier Guide and Landlord Code
Consider agreements for lease Advantages for landlord ▪ Certainty?
Note Standard Conditions Conditionality Distinguish: ▪ Conditional contracts ▪ Options ▪ Pre-emption rights
Conditional agreement for lease, examples: Premises to be built (by landlord/developer) Licences to be obtained Planning permission (e.g. tenant to obtain for works)
Example: agreement for lease conditional on tenant obtaining planning permission: “4.1 This agreement is conditional upon the grant of a planning permission; and 4.2 If a planning permission is granted the Landlord shall grant the Lease (in the form annexed hereto) to the Tenant”
Amendments: Define Planning Permission – for what?
Define Acceptable Planning Permission – to tenant (e.g. list unacceptable conditions) Oblige tenant to use all reasonable endeavours, notify landlord, etc Long stop date – terminate agreement if not obtained
Preliminary enquiries The Commercial Property Standard Enquiries (CPSE’s) Superior title Easements Defects Drafting points Landlord ▪ control; ▪ rent review; ▪ marketability, investment
Drafting points Tenant – ▪ flexibility ▪ marketability FRI leases/Institutionally acceptable leases Completion Post-completion
Supplies
Standard rated CURRENTLY 15% Zero rated Exempt (Note “Customs & Excise” is now “Revenue and Customs” or “HMRC”) Examples (see text)
The option to tax/election to waive the exemption
Converts exempt supply to standard rated Option lasts 20 years (3 month cooling off period) Commercial leases = exempt subject to option to tax Why would landlord opt to tax?
▪ Developer can recover VAT he paid developing, so lease rents carry VAT
Effect of s89 VATA 1994
Transactional tax
Grants of lease notifiable if
For 7+ years and consideration payable; or For less than 7 years and there is SDLT payable
Assignments
SDLT on premium (unless original grant less than 7 years and no SDLT payable)
Grants of (commercial) lease: premium and rent SDLT on premium element
Premium threshold
£0-£150,000 where the annual rent is less than £1000 £0 - £150,000 where the annual rent is £1000 or more +£150,000 - £250,000 +£250,000 - £500,000 Over £500,000
Rate of SDLT
Zero 1% 1% 3% 4% No set off – rate applies to the whole premium
SDLT on rental element Net Present Value calculation used ▪ See example in handout
Net Present Value
£0 - £150,000 +£150,000
Rate of SDLT
Zero 1% Set off does apply – deduct £150k
Example: Lease for 5 years £250,000 premium SDLT on premium is 1% of whole = £2500 Annual rent £100,000 NPV £451,505 SDLT on NPV = £3015 ▪ £451,505-£150,000 = £301,505 @ 1% Tax on transaction = £2500 + £3015 =£5515
Here's one I made earlier!
SDLT to be paid <30 days from ‘Effective Date’ Meaning of Effective Date Earlier of the grant or date of ‘substantial performance’ Substantial performance e.g. Tenant fit out works Submission of Land Transaction Return Subsequent LTR’s may be required if, e.g.: Variation - leading to surrender and regrant Uncertain rents – estimate and revised calculations
Rent review
Additional SDLT payable if rent review takes place in the first 5 years (i.e. rent review after 5 years is ignored) Additional SDLT payable if an “abnormal increase” after 5 years
Breaks, options and surrenders
Short leases with option to renew now preferred to long leases with break Note which way the surrender premium moves ▪ If L pays T to surrender, then SDLT payable ▪ If T pays to L to surrender, the SDLT NOT payable
SDLT and LTA 1954
Leases protected by part II of LTA 1954 continue past their contractual expiry date till terminated in accordance with the Act – i.e. tenants can “hold over” or enjoy a “continuation tenancy” For leases granted from 01.12.2003, the tenant has a “growing tenancy” – if tenant holds over, NPV recalculated on original term + 1 year (each year)
SDLT and VAT