Guide on Substantial Performance in Lease Agreements with Examples

Substantial Performance of an Agreement for Lease for SDLT

An agreement for lease can trigger Stamp Duty Land Tax before the lease is formally granted if it has been substantially performed. This is a timing issue, so parties must look at both the contract terms and what has actually happened in practice, such as early access, occupation or other acts that may bring the SDLT rules into effect sooner than expected.

• An agreement for lease is a binding contract for a lease to be granted later, but SDLT may arise before formal completion.
• The main question is whether the agreement has been substantially performed under the SDLT rules.
• Early possession, occupation, fit-out works or similar conduct may affect whether there is an earlier chargeable event.
• If substantial performance has occurred, SDLT filing and payment deadlines may run from that earlier date.
• The later grant of the lease may still need separate SDLT analysis, so the transaction may have to be reviewed in stages.
• HMRC guidance helps explain the issue, but the legal answer depends on the legislation, the facts and, where relevant, case law.

Scroll down for the full analysis.

Substantial performance of an agreement for lease for SDLT

This page explains what HMRC’s material on substantial performance of an agreement for lease is dealing with. The point matters because, for Stamp Duty Land Tax, tax can sometimes be triggered before the lease is formally granted. In the context of an agreement for lease, the key question is whether the agreement has been substantially performed.

What this rule is about

An agreement for lease is a contract under which the parties agree that a lease will be granted in the future. In SDLT, the timing of a land transaction matters. Tax is often linked to when a transaction is completed, but the legislation also treats certain contracts as chargeable earlier if they are substantially performed.

HMRC’s manual section here is concerned with that timing issue. It sits within the wider SDLT rules on substantial performance. In broad terms, the question is whether what has happened under the agreement is enough for SDLT to treat the transaction as having effectively taken place already, even though the formal lease has not yet been completed.

What the official source says

The source material provided is a contents page for HMRC manual SDLTM17005. It shows that HMRC deals with this topic through a main page on substantial performance of an agreement and two example pages. The material therefore indicates that HMRC treats substantial performance of an agreement for lease as a distinct issue within the miscellaneous SDLT provisions.

Although this contents page does not itself set out the legal test, it makes clear that HMRC’s approach is to explain the principle and then illustrate it with examples. The underlying legal point is that an agreement for lease may have SDLT consequences before the lease is actually granted if the agreement has been substantially performed.

What this means in practice

In practice, parties cannot assume that SDLT only becomes relevant on the formal grant of the lease. If the facts amount to substantial performance, there may be an earlier chargeable event.

That matters for several reasons:

• the filing and payment timetable may run from the earlier event rather than the eventual lease completion;
• the transaction may need to be analysed in stages, first at the agreement stage and then again when the lease is granted;
• conveyancers and advisers need to identify whether possession, occupation, payment, or other acts under the agreement change the SDLT position.

The practical effect depends on the detailed facts and on the legislation governing when a contract is substantially performed. The contents page alone does not state those details, so the precise application must be taken from the substantive manual pages and the legislation itself.

How to analyse it

When looking at an agreement for lease, a sensible framework is:

• Identify exactly what the agreement requires. Is it a binding contract for the future grant of a lease?
• Work out what has happened so far. Has the intended tenant gone into possession or started occupying under the agreement?
• Check whether anything has occurred that could amount to substantial performance under the SDLT rules.
• Consider timing carefully. If substantial performance has occurred, the SDLT position may arise before formal completion.
• Then consider what happens when the lease is actually granted, because the later grant may also need to be analysed within the SDLT framework.

The key is not to look only at the paperwork. You also need to look at what the parties have actually done on the ground.

Example

Illustration: a landlord and tenant sign an agreement for lease. The formal lease is due to be granted once certain works are finished. Before that happens, the tenant is allowed into the premises and begins fitting out and using the space in a way that goes beyond a mere licence to inspect. That raises the question whether the agreement has been substantially performed for SDLT purposes, so that the SDLT analysis may begin before the lease is formally completed.

This example is only illustrative. Whether substantial performance has actually occurred depends on the detailed statutory test and the facts.

Why this can be difficult in practice

This area is often fact-sensitive because agreements for lease commonly involve early access, fit-out periods, conditional obligations, and phased occupation. It is not always obvious whether what the tenant has been given is merely preparatory access or possession under the contract.

Another difficulty is that HMRC manual guidance is not the legislation. The manual shows HMRC’s view and examples, but the legal answer must still be grounded in the statutory SDLT rules and, where relevant, case law.

The source material supplied here is only a contents page, so it identifies the topic but does not itself provide the full legal reasoning or examples. That means any firm conclusion requires the substantive pages and the legislation to be reviewed together.

Key takeaways

• An agreement for lease can have SDLT consequences before the lease is formally granted.
• The critical issue is whether the agreement has been substantially performed.
• You need to examine both the contract terms and what has actually happened in practice.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Guide on Substantial Performance in Lease Agreements with Examples

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