£10,000 saved from one quick review of a lease agreement

The result: Around £10,000 saved in Stamp Duty Land Tax

The issue: A proposed 15-year commercial lease created an unexpected tax liability

The solution: Restructuring the agreement to a 7-year lease with options to extend

A long lease can look reassuring. It gives a business certainty over its premises and can feel like the sensible choice when everything about a new location appears right.

But sometimes the length of the lease itself can create an unnecessary cost.

That was exactly what happened when a client came to us before committing to new commercial premises.

A 15-year lease that looked perfectly sensible

Our client had already agreed heads of terms for the premises and was preparing to enter into a 15-year lease.

The rent worked for the business. The property was suitable. The principal commercial terms had been agreed.

On the face of it, there was no obvious reason not to proceed.

However, one important issue had not been identified.

The hidden £10,000 cost

When our Commercial Property team reviewed the proposed arrangement, we identified that the length and value of the lease created a potential Stamp Duty Land Tax liability of approximately £10,000.

It was a substantial additional cost that the client had not budgeted for.

The property agent had done nothing wrong. Advising on the tax consequences of the proposed lease was not their role. Equally, there was no reason for the client to have appreciated the issue themselves.

It simply needed someone to look at the transaction from a different perspective.

We asked a different question

Rather than accepting the 15-year term and simply advising the client that the tax was payable, we went back to first principles.

Did the client actually need to commit to the property for 15 years from day one?

The answer was no.

What they really wanted was the ability to remain at the premises long term if the location worked for the business, without unnecessarily restricting their options if circumstances changed.

That opened the door to a much better structure.

A 7-year lease with room to stay longer

We helped restructure the transaction around a 7-year lease with options to extend.

On the figures involved in this particular deal, the change meant the SDLT charge the client had been facing no longer arose.

The client therefore achieved an immediate saving of around £10,000.

By reducing the initial lease term, our client avoided making a longer commitment than was necessary.

If the premises continued to work, they had the option to extend. If circumstances changed, they retained greater freedom to move on.

The revised structure therefore gave them both a financial advantage and a more commercially flexible arrangement.

The outcome

Approximately £10,000 saved in tax.

A shorter initial commitment.

The option to remain in the premises if the location proved successful.

Most importantly, the lease was structured around what the client actually needed rather than simply accepting the terms that had originally been proposed.

The lesson: Lease length is a tax decision as much as a commercial one. Worth a second pair of eyes before you sign.