Business premises fee explained

Replaces stamp duty on leases

The new proposed business premises fee announced in the 2009/10 budget will replace the existing stamp duty on leases.

Making a statement in the Legislative Assembly Wednesday, Leader of Government Business McKeeva Bush gave more details about the proposed fee.

‘The business premises fee of 10 per cent will be assessed on market value of occupied commercial rental income,’ he said. ‘This new fee will replace the existing stamp duty fee on leases.’

The existing stamp duty on leases ranges from five per cent to 20 per cent of the average annual rent of a property. For leases of five years or less, the amount due is five per cent; for leases between five and 10 years, the amount due is 10 per cent; for leases of 10 to 30 years, the amount due is 20 per cent of the average annual rent.

On leases longer than 30 years, stamp duty is assessed as if it is a transfer of land.

Currently, stamp duty is technically payable on both residential and commercial leases; however, it is rarely ever collected on residential leases.

There have also been difficulties in collecting the stamp duty payable on commercial leases as well, something Mr. Bush acknowledged in his speech.

‘The existing stamp duty fee regime is ineffective and has an extremely low rate of compliance because it relies on the tenant to register the lease with the Land Registry and pay the stamp duty,’ he said. ‘This was difficult to enforce because the Land Registry had no effective way of knowing the tenants and their individual lease terms.’

The proposed business premises fee, which would apply to only commercial leases and not to residential leases, would require landlords to register their leases on an annual basis. The new fee would also be due annually, rather than just on the signing or renewal of lease as is currently the case.

Mr. Bush said that companies that had already paid stamp duty on registered leases would not immediately have to pay the business premises fee.

‘The Land Registry has a record of all the property owners,’ he said ‘Existing leases that are registered and stamp duty duly paid would not be required to pay a new fee until the related lease period expires and a new lease is contracted.’

Responding to critics who believe the new business premises fee would lead to collusion between landlords and tenants in trying to reduce the amount of stamp duty payable, Mr. Bush acknowledged that the new fee did present some challenges.

‘I hope people will be more honest than that,’ he said, adding that in any case, the government believed the new measure would lead to greater compliance by tenants of commercial property.

Mr. Bush pointed out that the Valuation Office of the Lands & Survey Department already has a system in place to determine if the amount cited on a lease is fair market rent. The law reads that stamp duty is payable on the lease amount or the fair market rent, whichever is greater.

Although not all of the details have been worked out, Mr. Bush said the Lands & Survey Department would still play a role in the assessment of the business premise fee.

Landlords who did conspire with tenants to put lower rental amounts that are actually being charged on registered leases would find themselves in a difficult position if a dispute ever arose over rental payments.