SDLTM17015 - Miscellaneous Provisions: Substantial performance of an agreement: Example 1

A non-residential agreement for lease is exchanged on 1 January 2015 and is substantially performed on 1 February 2015. The term of the lease is 10 years from the date that the lease is to be granted (which is not known). There is a rent review to market rent at the end of the fifth year. The lease is subsequently granted on 1 May 2015.

At time of substantial performance, the agreement for lease is for an indefinite term so the lease is treated as being a notional lease for a term of one year. SDLT is payable to the extent the NPV exceeds the threshold. If SDLT is payable, the lease is notifiable as a notional lease for a term of one year (1 February 2015 to 31 January 2016) no later than 2 March 2015 (30 days after substantial performance).

The grant of the actual lease on 1 May 2015 will be a linked transaction to the notional lease created on substantial performance. Notification is required because the single lease created by the combination of the notional and actual lease now has a certain term, so SDLT will be due on the rent not already taken into account at notification of substantial performance.

Overlap relief is not a claimed relief and is not obtained by answering yes to Question 9 on a land transaction return. In this case it would be obtained by reporting only the rent payable in the first year of the lease for the period from 1 February 2016 to 30 April 2016. That is the part of the first year of the term of the lease that is not common to the notional lease. The rent payable in year 1 for the purpose of the NPV calculation is £51,205 (£210,000 x 89/365). The rent for the remainder of the term for the purpose of the NPV calculation is taken as £210,000.