Example of SDLT Calculation for Lease with Five-Year Rent Review

SDLT and five-year rent reviews where an agreement for lease is followed by the lease

For SDLT on leases, a substantially performed agreement for lease can be treated as a notional lease. If the formal lease is later granted under that agreement, HMRC treats this as a surrender and re-grant for the specific rule in Schedule 17A paragraph 7A Finance Act 2003. This means the timing test for certain rent reviews may run from the date of the actual lease, not the earlier agreement.

• A substantially performed agreement for lease may count as the grant of a notional lease for SDLT purposes.
• If the formal lease is later granted under that agreement, HMRC says this is treated as a surrender of the notional lease and a re-grant.
• For Schedule 17A paragraph 7A, that re-grant resets the clock for deciding whether a rent review falls within the relevant period.
• In HMRC’s example, the agreement was substantially performed on 1 January 2004, the formal lease was granted on 1 January 2006, and the rent review was on 1 January 2009.
• Because the review was three years after the 2006 re-grant, rather than five years after the 2004 agreement, HMRC’s view was that paragraph 7A did not apply.
• In practice, you should check the exact SDLT provision and dates carefully, as the correct start date may be the later lease rather than the original agreement for lease.

Scroll down for the full analysis.

SDLT and five-year rent reviews: what happens when an agreement for lease is followed by the actual lease

This page explains a narrow but important SDLT point about leases with rent reviews. The issue is whether special SDLT rules for variable or uncertain rent apply when there is first an agreement for lease that is substantially performed, and later the formal lease is granted. The official example shows that the later grant can reset the timing test, so a rent review that might have mattered under the agreement does not necessarily fall within the relevant five-year rule once the actual lease is granted.

What this rule is about

SDLT on leases can depend partly on the rent payable. That becomes more complicated where the rent is not fixed for the whole term, or where it will be reviewed in the future.

The source material deals with a specific timing rule in Schedule 17A paragraph 7A to Finance Act 2003. In broad terms, that provision looks at certain rent changes within a set period from the grant of the lease. The example focuses on a market rent review that happens five years after an agreement for lease is substantially performed, but only three years after the formal lease is actually granted.

The key legal point is that a substantially performed agreement for lease can itself be treated as the grant of a notional lease for SDLT purposes. If the formal lease is later granted pursuant to that agreement, HMRC treats that as a surrender of the notional lease and a re-grant. For the timing rule in paragraph 7A, that re-grant starts the clock again.

What the official source says

The official example uses these facts:

• An agreement for lease is entered into on 1 January 2004.
• The rent is £100,000 a year, subject to review to market rent on 1 January 2009.
• The agreement is substantially performed on 1 January 2004, so it is treated as the grant of a notional lease.
• On 1 January 2006, the actual lease is granted under the agreement.

HMRC says that the grant of the actual lease is treated as a surrender of the notional lease and a re-grant. For the purposes of Schedule 17A paragraph 7A, that re-grant resets the relevant time limit. As a result, the rent review on 1 January 2009 is measured from 1 January 2006, not from 1 January 2004.

Because the review takes place only three years after the re-grant, HMRC concludes that paragraph 7A does not apply.

What this means in practice

The practical effect is that you cannot always measure the timing of a rent review from the date of the original agreement for lease, even if that agreement was substantially performed and treated as a notional lease for SDLT.

If the formal lease is later granted, you need to ask whether that event is treated for SDLT purposes as a surrender and re-grant. If it is, the relevant timing test may run from the date of the actual lease instead.

That can change the SDLT analysis materially. A review date that appears to fall within one period when measured from the agreement may fall outside it when measured from the later lease, or vice versa depending on the facts and the rule being applied.

In the official example, the market rent review was five years after substantial performance of the agreement, but only three years after the actual lease. HMRC’s point is that for paragraph 7A, the second date is the one that matters.

How to analyse it

When looking at a lease with a future rent review, a sensible approach is:

• Identify whether there was only a lease, or whether there was first an agreement for lease.
• Check whether the agreement for lease was substantially performed. If it was, SDLT may treat it as the grant of a notional lease.
• Establish whether the later formal lease was granted pursuant to that agreement.
• If so, consider whether SDLT treats the later event as a surrender of the notional lease and a re-grant.
• Identify the provision you are applying. The source is specifically about Schedule 17A paragraph 7A.
• Measure the relevant time limit from the correct starting point. In this example, HMRC says the re-grant starts the clock again.
• Then decide whether the rent review falls within or outside that period.

This is a timing issue, but it matters because SDLT on leases is highly sensitive to the legal character of the transaction and the exact dates on which events are treated as happening.

Example

Illustration based on the official example:

A tenant enters into an agreement for lease on 1 January 2004. The rent is £100,000 a year, with a market rent review on 1 January 2009. The tenant takes possession or otherwise substantially performs the agreement on 1 January 2004, so SDLT treats that as a notional lease. The formal lease is then completed on 1 January 2006.

For the specific rule in Schedule 17A paragraph 7A, HMRC treats the 2006 lease as a surrender and re-grant. That means the relevant period runs from 1 January 2006. The review on 1 January 2009 is therefore three years after the re-grant. On HMRC’s analysis, paragraph 7A does not apply.

Why this can be difficult in practice

The difficulty is that there are several moving parts:

• The agreement for lease may itself have SDLT consequences if it is substantially performed.
• The later formal lease is not always analysed simply as a continuation of the earlier position.
• Different SDLT provisions may use different concepts or timing rules, so a conclusion reached for paragraph 7A should not automatically be assumed to apply for every other SDLT issue.
• The source example states the result, but does not fully unpack the underlying statutory mechanics. In practice, you need to be careful about exactly which provision you are applying and why the re-grant analysis matters for that provision.

A common misunderstanding is to assume that once an agreement for lease has been substantially performed, every later question must be measured from that original date. The example shows that this is not always right. For this rule, the later grant of the actual lease can reset the timing.

Key takeaways

• A substantially performed agreement for lease can be treated as a notional lease for SDLT purposes.
• If the actual lease is later granted, HMRC treats that as a surrender and re-grant in this context.
• For Schedule 17A paragraph 7A, the re-grant resets the timing test, so the review date must be measured from the later lease.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example of SDLT Calculation for Lease with Five-Year Rent Review

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