Option to tax anti-avoidance - funding and financing: other payments or transfers from tenant to owner - funding or not?: use of lease agreement to acquire finance
A developer may use an agreement to lease or a fully signed up lease as the basis for securing a loan to finance the development of a building. The lease will indicate the levels of rent to be paid and serves as a guarantee of the levels of income to be generated from the completed building. The tenant, although he has committed himself to the levels of rental payments, is not considered to be providing a guarantee in relation to the developer’s loan.
Therefore, a tenant who simply signs up to a lease before or during the course of a development is not responsible for financing the owner’s development of the land.