Rent paid during an ‘overlap period’ between the end of one lease and the grant of another is treated as paid under the old lease and not the new lease. The overlap period is the period between the date of the grant of the new lease and what would have been the end of the term of the old lease had it not been terminated.
The rent payable under the new lease is treated as reduced by the amount of rent that would have been payable during the overlap period under the old lease (but cannot be a negative amount). The rent that would have been payable under the old lease is the amount of rent used in determining the tax chargeable in respect of the acquisition of the old lease.
There are three circumstances where this applies:
- where party A renounces an existing lease to party B, and in consideration for the renunciation, party B grants a lease (the new lease) to party A of the same (or substantially the same) premises;
- where on termination of a lease (the head lease) a sub-tenant is granted lease (the new lease) of the same (or substantially the same) premises as the tenant’s ‘old lease’ in pursuance of a contractual entitlement arising in the event of the head lease being terminated; and
- where a person who has guaranteed the obligations of a tenant under a lease that has been terminated (the old lease) is granted a lease of the same (or substantially the same) premises (the new lease) in pursuance of the guarantee.