HMRC SDLT: SDLTM18710 – Term of a lease: Leases for an indefinite term

Principles and Concepts of Leases for an Indefinite Term

This section of the HMRC internal manual provides guidance on leases with an indefinite term. It outlines the principles and concepts relevant to such leases.

• Leases for an indefinite term do not have a fixed end date.
• These leases may continue until a specific event occurs or notice is given.
• Understanding the legal implications is crucial for both landlords and tenants.
• HMRC provides detailed guidance to ensure compliance with tax regulations.

Understanding Leases for Indefinite Terms

When dealing with property transactions, leases play a significant role. One important aspect is the term of a lease, particularly for those leases that do not have a specific end date. These are often referred to as ‘leases for an indefinite term.’ Here, we break down the key elements of this type of lease and how it is treated under UK property law.

What is a Lease for an Indefinite Term?

A lease for an indefinite term is an agreement to rent property that does not specify a fixed end date. Instead, it continues until one of the parties decides to terminate it, often governed by notice periods outlined in the lease agreement. Leases like this are sometimes called ‘periodic tenancies.’

Key Features of Indefinite Term Leases

• No Fixed End Date: The lease remains active until notice is given by either the landlord or the tenant.
• Notice Periods: Both parties must adhere to the notice period stipulated in the lease. This can vary, commonly requiring one month or three months’ notice depending on the specifics of the tenancy agreement.
• Security of Tenure: Tenants usually have the right to remain in the property until a proper notice to quit is served, offering them a degree of security.

Types of Indefinite Leases

There are generally two types of indefinite leases: periodic tenancies and leasehold agreements. Each type has unique features and responsibilities.

Periodic Tenancies

A periodic tenancy automatically continues after the original fixed term ends. These can be:

• Weekly: Rent is paid weekly and usually requires a week’s notice to terminate.
• Monthly: Rent is paid monthly, and a month’s notice is typically required to end the agreement.
• Yearly: Rent is paid annually; a longer notice period (often six months) may be necessary.

Leasehold Agreements

In a leasehold agreement, someone (the lessee) rents a property from a landlord (the lessor) for an indefinite period. Unlike periodic tenancies, leaseholds might have more specific terms and conditions laid out in the lease agreement.

Rights and Responsibilities

Both landlords and tenants have distinct rights and responsibilities under indefinite leases. Understanding these can help prevent conflicts.

Landlord Responsibilities

• Maintenance: Landlords must maintain the property in a habitable condition and carry out necessary repairs.
• Notice Requirements: They must provide proper notice when terminating the lease, respecting the agreed notice period.
• Deposit Protection: Any deposit must be protected in a government-approved scheme.

Tenant Rights

• Right to Quiet Enjoyment: Tenants have the right to enjoy their home without interference from the landlord.
• Repairs Responsibility: While landlords handle major repairs, tenants may be responsible for minor maintenance and keeping the property clean.
• Protection Against Eviction: Tenants cannot be evicted without proper legal procedures being followed.

Ending a Lease for an Indefinite Term

Ending an indefinite lease requires both parties to understand the terms of termination. The process will usually involve:

Notice to Quit

To end a lease, either party must give a notice to quit. The length of notice will depend on the initial agreement. For example:

• If the lease is a monthly tenancy, the tenant must provide a month’s notice.
• For a yearly tenancy, six months’ notice might be needed.

Eviction Process

If a tenant fails to leave after a notice is served, the landlord can take action for eviction. This process must adhere to legal protocols, and landlords cannot simply force tenants out. Legal advice is often advisable for both parties to ensure the process is followed correctly.

Renting and Stamp Duty Land Tax (SDLT)

When it comes to renting, tenants should be aware that indefinite leases may not always be subject to Stamp Duty Land Tax (SDLT). Here’s how it works:

SDLT on Lease Agreements

Stamp Duty Land Tax applies when someone buys a leasehold interest in a property. For indefinite leases, this generally does not apply unless the rental payments exceed certain thresholds. If you are unsure about whether SDLT applies to your situation, it is advisable to check the relevant guidance.

Examples

• Example 1: If a tenant enters a monthly tenancy agreement at a rental price of £800, they would typically not incur SDLT because the lease does not specify a premium paid upfront.
• Example 2: If a tenant agrees to a lease where they are required to pay a significant premium or a substantial annual rent, SDLT might apply depending on the amount set out in the terms.

Adjustments to Lease Terms

Sometimes, both landlords and tenants may want to negotiate changes to the terms of the lease during its duration. Common adjustments include:

Increasing or Decreasing Rent

Both parties can agree to adjust the rent amount, usually requiring a written agreement to formalise the change.

Changing Notice Periods

If both parties agree, notice periods can be revised during the tenancy. Written documentation should outline and confirm these changes.

Disputes Regarding Indefinite Leases

Disputes concerning indefinite leases can arise. Here are the common issues and how they can be resolved:

Common Disputes

• Rental Payments: Issues can arise when a tenant is late on payments or a landlord increases the rent unexpectedly.
• Repairs and Maintenance: Disagreements may occur over what constitutes necessary repairs and maintenance responsibilities.

Resolution Options

Disputes can often be resolved through:

• Informal Discussion: Both parties should attempt to resolve issues amicably through conversation.
• Formal Mediation: Engaging a neutral third party can help facilitate resolution without needing to go to court.
• Legal Action: If all else fails, parties may need to seek legal advice and consider court action to resolve significant disputes.

Final Notes on Indefinite Term Leases

Dealing with leases can be complex, but understanding the fundamentals of indefinite leases, the rights and responsibilities involved, and how to navigate potential issues can make the process smoother for everyone involved.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM18710 – Term of a lease: Leases for an indefinite term

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