Real Estate Update: Abolition of lease duty NSW

From 1 January 2008, lease duty is no longer chargeable in NSW for property leases first executed on or after 1 January 2008.

In introducing this amendment to the Duties Act 1997 (NSW)(Act), the State Government also amended the Act to minimise the planning opportunities that may arise from the abolition of lease duty.

Under the terms of the Act prior to 1 January 2008, duty was payable on a lease for the total cost and term of the lease. So for lessees with current leases that are for a term that extends beyond 1 January 2008, an issue to consider is whether or not a refund of lease duty previously paid on the lease can be obtained for the balance of the lease term following 1 January 2008.

Prior to the amendments to the Act, if a lease was varied to allow the lessee to terminate the lease early, the lessee may have been able to seek a refund of duty paid for the balance of the original term under section 177.  Under the amended Act, the Chief Commissioner will continue to provide refunds under section 177 but only if it is satisfied that neither the lessee, nor an associated person, occupied the premises at any time after termination of the lease. A refund will not be available where the lessee wishes to obtain a refund of the duty paid for the balance of the term of the original lease after 1 January 2008 but  continues to occupy the premises under a new 'duty free' lease.

Schedule 1 of the Act has also been amended by the inclusion of Part 24, which provides that despite the abolition of lease duty, the obligation to pay duty under Chapter 5 (dealing with lease duty) for lease instruments executed before 1 January 2008, continues to apply.  Accordingly, if an estimate of total lease costs was previously provided to the Commissioner for a lease executed before 1 January 2008, it will still be necessary for that estimate to be revisited and for the Commissioner to reassess the lease to determine whether or not further duty is payable.

The amendments to the Act also include changes to the transfer duty provisions to impose conveyance duty  on leases where a premium is paid or agreed to be paid. The term 'premium' is not defined except in relation to a lease entered into pursuant to an option where the term is said to include an amount paid or payable for the grant of the option.

It is important to note that for leases involving terms of at least 300 years, under the Conveyancing Act 1919 (NSW) the lessee may declare, by way of deed, that on or after the execution and registration of the deed, the interest of the lessee in the lease will be enlarged to a freehold interest. In these circumstances, conveyance duty is payable if the deed is executed (and as a result the  interest held by the lessee enlarged to a freehold interest).

For further information, please contact:

Carrie Follas, Partner
+612 9286 8175
carrie.follas@dlaphillipsfox.com

Laresa Koscharsky, Partner
+61 2 9286 8064
laresa.koscharsky@dlaphillipsfox.com