'Abnormal' Rent Review: Double Trouble For Tenants In Turmoil?


Stamp duty land tax ('SDLT') came into force on 1

December 2003. Many leases granted on or after that date working on

a five-year cycle will shortly have their first rent review. If,

after 1 December 2008, the tenant under such a lease suffers a

substantial increase in the rent on review, it will now be subject

to an SDLT charge as a result of the introduction of new relating

to "abnormal rent increases".

In the current climate, where many tenants are actively seeking

concessions in rent, this burdensome liability coupled with an

increase in the rent itself, may be one financial outlay too far.

To further add to tenants' woes, despite a five year lead-in

period which HM Revenue & Customs ('HMRC') had to

finalise the legislation in this area, HMRC have only recently

acknowledged that the rules currently on the statute book which

come into force on 1 December 2008 are unworkable and require

amendment. Any such amendment will not take place prior to Budget

2009. In the meantime, tenants are left in the unenviable position

of being required to file SDLT returns and pay SDLT on the basis of

rules which do not work; thus further increasing tenants' tax

risk and administrative burden in these difficult economic



Where a lease is granted after 1 December 2003, the SDLT charge

on the rent payable under the lease is calculated by looking at the

actual rent payable for the first five years and deeming the rent

payable for each year thereafter to be the highest rent payable in

any 12 month period of the first five years.

If during the first five years of the term the rent has been

reviewed or subject to a 'relevant' variation, the tenant

should review their SDLT position and if necessary, submit a

further SDLT return. Variations or increases after this initial 5

year period are not usually assessed for SDLT purposes. The

abnormal rent increase rule is an exception to this position.

If the amount of rent payable under a lease granted after 1

December 2003 increases 'abnormally' after the fifth year

of the term, whether or not pursuant to a rent review provision,

the rules currently in force provide that there is the deemed grant

of a new lease in consideration of the excess rent, upon which SDLT

will be payable and an SDLT return must be filed.

Legislation currently provides that the "deemed" lease

is assessed on the following basis:

It is made on the date the increased rent first becomes


For the unexpired residue of the...

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