Read the original guidance here:
HMRC SDLT: SDLTM34040 – Certain leases not relevant partnership property – Para 15

Certain Leases Not Relevant Partnership Property – Para 15

When a lease is held as partnership property right after an interest in the partnership is transferred, it can be considered not relevant partnership property for either a Type A or a Type B transfer. This only holds true if all four specific conditions outlined in Paragraph 15 are met. Here’s a clearer breakdown of these conditions:

First Condition

The first condition has two parts:
– No chargeable consideration other than rent is given when the lease is granted.
– At the time of the transfer, there should not be any arrangements for chargeable consideration other than rent concerning the lease.

This essentially means that if you are only paying rent for the lease and there are no additional payments or arrangements planned, this condition is satisfied.

Second Condition

The second condition states that the rent set in the lease must be a market rent at the moment the lease is granted.

In straightforward terms, a market rent is the typical amount you could reasonably expect to receive for the property in a competitive rental market.

Third Condition

The third condition has two parts, depending on the duration of the lease:
1. If the lease is for 5 years or less, this condition is automatically met.
2. If the lease is longer than 5 years, then the lease must:
– Allow for rent reviews at least every 5 years.
– Require that the new rent, set during these reviews, must also be a market rent at that time.

This means it’s important for longer leases to include terms that allow for regular assessments of the rent in line with the market value.

Fourth Condition

The fourth condition requires that there should be no changes to the lease since it was granted that would result in the rent being lower than a market rent.

If the lease terms have been altered in a way that lowers the rent significantly below what is standard in the market, this condition would not be met.

Understanding Market Rent

Market rent refers to the amount of rent that a similar property in the same area would likely command in the current open market.

It is important to ascertain what the market rent is at any given time to ensure that all four conditions can be properly evaluated.

Review Dates

A review date is a specific day when the rent is assessed for potential adjustment based on market conditions.

The terms for this review will typically be specified in the lease itself, indicating when discussions about rent adjustment should take place.

For instance, if your lease includes a clause that permits a rent review every five years, this clause dictates the schedule for re-evaluating the rent amount to ensure it aligns more closely with current market rates.