w7 Flashcards
What is the basis for calculating Stamp Duty Land Tax (SDLT) or Land Transaction Tax (LTT) on a lease?
SDLT and LTT on a lease are calculated based on the Net Present Value (NPV), which is derived from the rent for each of the first five years and the term of the lease.
What is the purpose of registering a new lease and what documents are received upon registration?
Registering a new lease ensures that it is officially recognized. Upon registration, the tenant’s solicitor will receive official copies for the new leasehold title and the landlord’s updated title.
How is the Net Present Value (NPV) calculated for a short lease with market rent payable?
The NPV for a short lease with market rent payable is calculated by determining a lump sum equivalent of the rent over the years it is payable. This calculation uses a complicated formula, but online calculators provided by HM Revenue & Customs and the Welsh Revenue Authority can be used.
What information is needed to calculate the Net Present Value (NPV) for SDLT or LTT?
To calculate the NPV and therefore the SDLT or LTT, you will need the start date of the lease, the lease term, and the rent payable for each of the first five years. It is important to include the rent plus VAT in the calculation.
What are the rates and thresholds for SDLT on commercial leases?
For SDLT on commercial leases, up to £150,000, there is no SDLT payable. Over £150,000 up to £5 million, SDLT of 1% is payable. Over £5 million, SDLT of 2% is payable. SDLT is rounded to the nearest pound.
What are the rates and thresholds for LTT on commercial leases?
For LTT on commercial leases, up to £225,000, there is no LTT payable. Over £225,000 up to £2 million, LTT of 1% is payable. Over £2 million, LTT of 2% is payable. LTT is not rounded to the nearest pound.
What is the procedure for registering a lease?
If a lease is registrable, an OS1 (lease of whole) or OS2 (lease of part) search should have been carried out before completion to give priority. The tenant applies to register the lease using form AP1 (if the landlord’s title is registered) or FR1 (if the landlord’s title is unregistered). A certified copy of the lease may be scanned and submitted electronically. On completion of the application, the tenant’s solicitor will receive two official copies (the new leasehold title and the updated landlord’s title).
What is the purpose of an agreement for lease?
An agreement for lease is used when the parties want to bind themselves to granting/taking the lease but are not yet ready to do so. It is commonly used in situations where a property is being developed and tenants need to secure their lease before the property is ready for occupation.
What is the purpose of a full repairing and insuring (FRI) lease?
The purpose of an FRI lease is to maximize the income stream from investment property. It places the responsibility for keeping the leased premises in full repair on the tenant, along with other obligations such as paying insurance rent and service charges.
What is tenant’s covenant strength and why is it important in a commercial lease?
Tenant’s covenant strength refers to the ability of the tenant to pay the rent and comply with their obligations under the lease. It is important because the income stream from the lease depends on the tenant’s ability to fulfill their obligations. Landlords may require additional safeguards, such as rent deposits or guarantees, if the tenant’s covenant strength is not sufficient.
What needs to be done after the completion of a lease?
After completion, the parties need to return the executed leases to their respective solicitors. The landlord’s solicitor acknowledges receipt of the completion monies and they agree to date and send each other the executed original and counterpart lease. The tenant holds the original lease executed by the landlord, and the landlord holds the counterpart lease executed by the tenant.
What happens post-completion in the leasing process?
Post-completion, the landlord’s solicitor will send the money to the landlord or their agents. The tenant’s solicitor, on the other hand, has to attend to payment of Stamp Duty Land Tax and registration of the lease. This process should not be complicated if the landlord’s title is registered.
What are some typical provisions in an FRI lease regarding alterations?
FRI leases control what alterations the tenant may carry out and may distinguish between external/internal and structural/non-structural alterations. A covenant against alterations may be absolute (not allowed), qualified (allowed with landlord’s consent), or fully qualified (allowed with landlord’s consent not to be unreasonably withheld). A qualified covenant can be converted to a fully qualified covenant regarding tenant’s improvements.
What is the significance of a licence for alterations in the leasing process?
If the landlord consents to alterations under a qualified covenant, the consent is usually documented in a licence for alterations. This document specifies the works consented to, any time limits for carrying them out, and various tenant’s covenants such as complying with the landlord’s requirements, paying the landlord’s costs, obtaining necessary consents, and reinstating the premises at the end of the lease term.
What are some typical provisions in an FRI lease regarding the use of the premises?
FRI leases control the use of the premises and changes may be subject to an absolute, qualified, or fully qualified covenant. The lease usually requires the tenant to comply with relevant laws, such as planning. The user clause may be specific or general, and the degree of control will depend on the type of alteration. Changes of use may be prohibited, allowed with consent, or allowed with consent not to be unreasonably withheld.
