There are three differences to consider when determining what the effective date is for a lease transaction. They are:
- leases where there is no initial contract at all, but the parties simply proceed straight to signing a formal lease;
- leases which are created solely by an initial contract, such as missives of let (or an agreement for lease) with no formal lease to be signed thereafter; and
- leases which are created by an initial contract, such as missives of let (or an agreement for lease), which are to be followed by the signing of a formal lease.
Substantial performance – Initial contract followed by a formal lease
In addition to the three difference details above, when determining what the effective date is on a formal lease created by an initial contract and followed by signing a formal lease, is whether substantial performance has taken place before the signing of the formal lease.
Formal lease with no initial contract
If there is no missives of let or an agreement for lease, the effective date of grant of a formal lease, or when it is, constituted in any other way.
The date of grant of a formal lease in Scotland (ie. the effective date of the lease) is the last date of execution/signing of the lease. The usual practice is for both parties to sign the same engrossed document (a legal document which is in its final form) or to send counterpart copies to each party to sign for counterpart execution.
Accordingly, unless the parties meet to sign the document (which is very unusual) or the counterparts are signed on the same day, one party inevitably signs later than the other. As a result, Scottish leases commonly bear two dates, being the actual dates of execution/signing by the parties.
Initial contract with no formal lease
The date of grant of a lease constituted by missives of let (which are not to be followed by a formal lease) is the date of conclusion of missives. The conclusion date (effective date) is the last date of execution/signing of the missives.
Initial contract followed by formal lease
Where the formal lease is preceded by missives of let, or an agreement for lease, the effective date is either:
a) Where there has been substantial performance of the missives of let or agreement for lease (which happens often in practice), the date of that substantial performance, or;
b) Where there has not been substantial performance of the missives of let or agreement for lease, the date of grant of the formal lease. (The date of grant of a formal lease is the last date of execution/signing). See LBTT6025 for more information on missives of let where it if followed by a formal lease.
Substantial performance is constituted by the tenant:
- taking possession of the subjects of the lease, or
- making the first payment of rent or the premium.
The same applies to missives for a variation or extension to the term of the lease. Although it should be noted that substantial performance of a variation to extend an existing lease does not take place until the expiry of the existing lease.
Note: Where a return is being submitted on the grant of a new lease, the ‘relevant date’ in the LBTT return should be the same as the ‘effective date’.
Existing Example - Effective and relevant date for a lease
Example 1 – Lease and Missives of let where substantial performance takes place
Example 2 – Lease only transaction – no Missives of let of Agreement for lease
Example 3 – Lease only transaction – lease signed by the landlord and tenant on different dates
Example 4 – Missives of let/Agreement for lease only – no formal lease