Lease Term Example: 25-Year Fixed Term with Renewal Clause Explained

SDLT on a Fixed-Term Lease with a Tenant’s Renewal Option

When working out SDLT on the grant of a lease, you ignore any tenant’s option to renew and look only at the original lease term. To find the term for the initial SDLT charge, compare the contractual term stated in the lease with the period from the grant date to the contractual expiry date, and use the shorter period. Any later renewal must be considered separately for its own SDLT effect.

• The effective date is usually the date the lease is granted, not the later date from which the term starts to run.
• For SDLT, the lease term is the shorter of the stated contractual term and the period from grant to contractual expiry.
• In HMRC’s example, a lease granted on 25 February 2005 for 25 years from 25 March 2005 still counts as a 25-year lease for the initial SDLT calculation.
• The extra month between grant and contractual start does not increase the SDLT lease term where the stated 25-year term is shorter.
• A tenant’s right to renew for a further period, such as 5 years, is ignored for the initial SDLT charge on the grant.
• If the tenant later exercises the renewal option, that renewal has to be reviewed separately under the SDLT rules.

Scroll down for the full analysis.

SDLT lease term: a fixed-term lease with a tenant’s option to renew

This page explains how SDLT works where a lease is granted for a fixed term but also gives the tenant a right to renew it later. The key point is that, for the initial SDLT charge, the renewal option is ignored. You work out the lease term by applying the normal lease-term rules to the original grant only.

What this rule is about

SDLT on leases depends in part on the term of the lease. That matters when calculating the tax due on the grant. In some leases, the drafting can make the stated term look slightly different from the period running from the grant date to the contractual end date. HMRC’s manual applies the Bradshaw v Pawley principle to decide which period counts.

This example also deals with a separate issue: a tenant’s contractual right to renew the lease for a further period. That renewal right may be commercially important, but it is not part of the term used for the initial SDLT calculation.

What the official source says

The source example describes a lease that says it is granted for 25 years from and including 25 March 2005. The lease was actually granted on 25 February 2005. It also gives the tenant a right to renew for a further 5 years by serving notice during a later notice window.

HMRC says the lease term is determined by taking whichever is shorter of:

• the contractual term stated in the lease, and
• the period from the date of grant to the end of that contractual term.

On those facts:

• the stated contractual term is 25 years, and
• the period from grant on 25 February 2005 to the contractual end date on 24 March 2030 is 25 years and 1 month.

Because the second period is not shorter, the lease term for SDLT is taken to be 25 years.

The source then states that the tenant’s right to renew for a further 5 years is ignored when calculating the initial SDLT charge, under paragraph 2(b) of Schedule 17A to Finance Act 2003. Any later renewal has to be considered separately for its own SDLT consequences.

The source also says the effective date of the lease is 25 February 2005, because that is the date the lease was granted.

What this means in practice

If a lease starts on one date but is granted on an earlier date, you do not automatically measure the term by counting from grant to expiry. You compare the stated contractual term with the period from grant to contractual expiry, and take the shorter figure.

In this example, the tenant gets the benefit of the lease being granted one month before the contractual term starts. Even so, that extra month does not increase the SDLT lease term, because the stated contractual term of 25 years is shorter.

The renewal option does not increase the term for the initial SDLT calculation. So when the lease is first granted, you do not treat it as a 30-year lease simply because the tenant may later choose to extend it by 5 years.

This distinction matters because lease term can affect the SDLT calculation. A renewal option may still matter later, but it does not form part of the initial charge merely because it appears in the lease.

How to analyse it

When looking at a fixed-term lease with a renewal clause, it helps to separate three different questions.

• What is the date of grant? That will usually be critical for the effective date and for measuring the alternative period from grant to contractual expiry.
• What is the contractual term stated in the lease? Here, it is 25 years from and including 25 March 2005.
• What is the period from the grant date to the end of that contractual term? Here, it runs from 25 February 2005 to 24 March 2030.

After identifying those dates, compare the two periods and use the shorter one as the lease term for SDLT purposes.

Then ask a separate question: does the lease contain an option to renew or extend? If it does, the source says that right is ignored for the initial SDLT charge. You should not fold the possible renewal period into the original lease term at that stage.

Finally, keep the initial grant and any later renewal analytically separate. The source expressly points readers to the separate SDLT implications of a subsequent renewal.

Example

Suppose a lease is granted on 25 February 2005. It says the term is 25 years from and including 25 March 2005, and it gives the tenant an option to renew for another 5 years later on.

For the initial SDLT calculation:

• the stated term is 25 years,
• the period from grant to contractual expiry is 25 years and 1 month, so
• the lease term taken into account is 25 years.

The 5-year renewal option is ignored at that stage. If the tenant later exercises the option, the SDLT position of that renewal must then be considered under the rules applying to renewals.

Why this can be difficult in practice

Leases often use different dates for grant, commencement of term, rent commencement, and expiry. That can make the term look longer or shorter depending on which date a reader starts from. The source example shows why it is important not to assume that the period from grant to expiry always controls.

A second difficulty is that readers may assume a renewal option is part of the lease term because it appears in the same document. For initial SDLT purposes, that is not how the source treats it. The possibility of a future renewal and the original lease term are separate matters.

A third practical issue is timing. The source states that the effective date is the date of grant in this example. That date can matter for filing and payment obligations, so it should not be confused with the date from which the contractual term is expressed to run.

Key takeaways

• For the initial SDLT charge on a fixed-term lease, compare the stated contractual term with the period from grant to contractual expiry and use the shorter one.
• A tenant’s option to renew is ignored when calculating the initial SDLT charge on the grant.
• The date of grant may be earlier than the contractual start date, and that difference must be analysed carefully.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Lease Term Example: 25-Year Fixed Term with Renewal Clause Explained

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