HMRC SDLT: SDLTM17080 – Miscellaneous Provisions: Surrender and regrant of a lease

Surrender and Regrant of a Lease

This section of the HMRC internal manual explains the principles and concepts related to the surrender and regrant of a lease. It provides guidance on the legal and tax implications for both landlords and tenants.

• Definition and explanation of lease surrender and regrant.
• Legal considerations and requirements involved in the process.
• Tax implications for landlords and tenants.
• Examples and case studies illustrating the application of these principles.

SDLTM17080 – Miscellaneous Provisions: Surrender and Regrant of a Lease

When dealing with the surrender and regrant of a lease, there are two main ways this can happen: explicitly and implicitly.

What is Surrender and Regrant?

– Surrender means that the tenant gives up their lease before its term ends. This might occur because the tenant no longer wants to occupy the property or the landlord and tenant have come to an arrangement.

– Regrant, on the other hand, is when a new lease is created for the tenant, replacing the old one.

In some cases, this process can happen without any formal agreement between the landlord and tenant. The law may consider certain actions as terminating the old lease and establishing a new one.

When Does Surrender and Regrant Happen?

There are specific situations in which the law automatically sees a surrender and regrant. Here are the main scenarios:

1. Extension of the Lease Term: If the duration of the lease is extended, this counts as a surrender and regrant. However, this does not apply if a reversionary lease is set up, which is a new lease that starts only after the current lease has ended. (Refer to SDLTM14090 for more details.)
2. Extension of the Property Area: If the size of the leased property is increased, this is also considered a surrender and regrant. However, it does not apply if a new lease is created for a separate piece of property.

When Does Surrender and Regrant Not Happen?

Not every change involving a lease will automatically result in a surrender and regrant. There are certain scenarios where this does not apply:

1. Change in Rent: If the rent is simply varied, whether it goes up or down, there won’t be a surrender and regrant. For more information, see SDLTM15010 and SDLTM15020.
2. Reduction of Property Area: If the area of the property is reduced, whether through surrendering part of the property or via a Deed of Variation, this does not create a surrender and regrant.
3. Adding a New Tenant: If someone else is included as a tenant under the existing lease, this change also does not lead to a surrender and regrant.

Understanding the Process

The process of surrendering and regranting a lease can be complex. Here are some points to keep in mind:

– The old lease is essentially ended when there is a surrender.
– The re-granted lease is what fully defines the new arrangement between the landlord and tenant, including the rights and responsibilities.

Real-World Example

Consider a tenant named Sarah who leases a retail space for five years. After three years, she decides she needs more space and negotiates with her landlord to extend her lease term for another three years, but for a larger area that now includes a storage room. In this situation:

– The extension of the lease term and the increase in size mean that there has been a surrender and regrant by operation of law.

Now imagine that Sarah’s landlord agrees to change the rent from £1,000 to £1,200 per month. This adjustment does not create a new lease; rather, it is just a modification of the existing lease, so there is no surrender and regrant.

Legal Implications

It is essential for both landlords and tenants to understand these principles, as they have significant legal implications. A surrender and regrant can affect the rights of both parties and their obligations under the new lease:

– Tenants may be granted new rights or may lose existing rights when a lease is regranted.
– Landlords may want to include specific covenants or conditions that were not part of the old lease in the new one.

Surrender and Regrant Procedures

If a surrender and regrant occurs, it is good practice for both parties to document the changes thoroughly. Here are some steps to follow:

1. Document the Surrender: The tenant should provide a written notice of surrender, clearly stating the intention to end the old lease.
2. Draft the New Lease: The landlord should prepare a new lease agreement that outlines all terms, including responsibilities, rights, and any changes from the old lease.
3. Mutual Agreement: Both parties must agree to the new terms, and both should sign the new lease to make it legally binding.
4. Notify Relevant Parties: If applicable, inform any relevant parties, such as local authorities or financial institutions, about the new arrangement.

Conclusion of Transactions

After the surrender and regrant process is completed, it’s important to keep records of both leases:

– Store copies of the surrendered lease.
– Keep a copy of the new lease for future reference.

This documentation can be beneficial for tax purposes or in case of future disputes.

Consulting Professionals

Because of the complexities involved in leases, it’s recommended for both landlords and tenants to seek legal advice when considering surrender and regrant:

– Legal professionals can explain the implications of any changes to the lease.
– They can assist in drafting agreements to ensure compliance with the law and protect the interests of both parties.

Understanding the principles behind surrender and regrant can prevent misunderstandings in the future, ensuring that both landlords and tenants navigate this legal process with confidence.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM17080 – Miscellaneous Provisions: Surrender and regrant of a lease

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