Grant of an option to lease / grant of lease NSW

Grant of an option to lease / grant of lease NSW


The New South Wales (NSW) Chief Commissioner’s guidelines on stamp duty and property leasing provide essential guidance for calculating the dutiable value of complex lease agreements.  

Understanding these rules is vital for developers, landholders, and businesses involved in leasing property, especially with conditions that require the lessee to undertake construction or improvements. This article aims to explain the guidelines, discuss their impact, and offer actionable insights for clients. 


Stamp duty is a tax levied on particular transactions, such as sales and leases of real estate. While it’s a straightforward affair in most circumstances, complex leases involving non-monetary considerations, like property improvements or long-term conditions, can be complicated.  The NSW Chief Commissioner’s guidelines offer examples and conditions under which dutiable value is calculated differently than one might expect. 

The Impact 

Understanding the guidelines has immediate implications for businesses and developers. Depending on the length and conditions of the lease, dutiable values can differ significantly: 

Long-Term Leases: 

Leases exceeding 50 years may have a dutiable value of nil, thereby avoiding stamp duty. 

Conditional Leases:  

Conditional leases often involve stipulations where the lessee (tenant) must undertake certain actions like construction or significant property improvements either as a condition to the grant of the lease or as a condition of the lease itself.  

If a lease is granted for non-monetary consideration comprising improvements to the property, the full cost of the construction (including builder margins) undertaken or to be undertaken by the developer is taken to be the value of the improvements. This value is determined on entry into the agreement for lease or a lease. 

In the absence of evidence of the valuation of the undertaking, the Chief Commissioner has stated in Circular Practice Note (CPN027) that he is prepared to use the following methodology to calculate the proportion of the value attributable to the improvements:  

Term of Lease % of cost of improvements 
10 years or less 100 
Greater than 10 but not more than 20 years 75 
Greater than 20 but not more than 30 years 50 
Greater than 30 but not more than 50 years 25 
Greater than 50 years nil 
Periodic lease or lease for a term that cannot be ascertained when the lease is made 100 

For instance, in a 15-year lease where the lessee is obligated to make improvements worth $20 million, the dutiable value for calculating stamp duty would be 75% of the improvement costs, which amounts to $15 million. 

Here are some other key points to note for a conditional lease: 

  • Valuation Reports: In certain cases, you can provide a professional valuation report to show that the future value of the improvements you have made will be less than the original cost of those improvements. This can help in lowering the stamp duty payable
  • Compliance and Documentation: It’s essential to maintain complete documentation of the improvements carried out, including permits, invoices, and reports, to substantiate the dutiable value calculated based on improvement costs
  • Implications for Tenants and Landlords: Tenants must be aware that the costs of improvements could impact the dutiable value, while landlords need to consider how these conditions might affect the lessee’s ability to carry out the lease terms. 

Premium and Prepaid Rent 

Leases may involve upfront payments, which are often categorised as premiums or prepaid rent. These payments can significantly influence the dutiable value of the lease, and consequently, the amount of stamp duty that may be payable. 

In many instances, upfront payments serve as the total consideration for the lease. As a result, these payments could either inflate the dutiable value or, in some situations, completely negate the requirement for stamp duty, depending on the lease terms and other conditions. 

For example, consider a scenario where XYZ Pty Ltd enters into a 15-year lease for an industrial building with a prepaid rent of $15 million. The lessee has the option to satisfy this prepaid rent either through a cash payment or by undertaking construction improvements with an agreed value of $20 million. In the event of an early termination of the lease for reasons other than the lessee’s default, the lessee would be entitled to a proportionate refund of the prepaid rent. No stamp duty is payable on this lease arrangement, regardless of whether the lessee opts for a cash payment or construction improvements, as both options are considered to be forms of prepaid rent 

Failure to grasp these nuances could result in incorrect stamp duty payments, leading to financial and legal repercussions. 

Other Transactions Triggering Duty 

In addition to standard leases, there are various other transactions that could also attract stamp duty, according to guidelines set out in CPN027. These include: 

  • Early Termination by Lessor: When a lessor terminates a lease early for specific reasons, such as granting a new lease to another lessee or selling the premises, duty may be payable on any consideration for these arrangements
  • Legal Fees over $1,000: If a lessee pays or agrees to pay the lessor’s legal fees, which are non-refundable and greater than $1,000, then duty may be applicable. However, this does not apply to the extension or renewal of a lease where legal fees are paid as rent
  • Option to Lease for a Premium: An option to lease land in NSW for a premium may be dutiable
  • Assignment of Lease: The transfer or assignment of an existing lease can also attract stamp duty
  • Novation of Agreement: Modifying the parties in an agreement for a lease could trigger stamp duty
  • Attornment of Leases: In cases of attornment on the sale of a property, stamp duty may also be applicable. 

Actions Clients Need to Take 

Property leasing can be complicated.  We recommend the following steps: 

  • Consult a Tax Advisor: Given the complexities, consulting a tax advisor is paramount for ensuring compliance and financial optimisation
  • Conduct Valuation: If property improvements are involved, get a valuation to establish a dutiable value
  • Document Thoroughly: Keep thorough records of lease terms, conditions, and any upfront payments or improvements made
  • Stay Updated: The Chief Commissioner’s guidelines may evolve. Regularly review any updates to remain in compliance
  • Liaise with Legal Teams: Ensure that all legal aspects are squared away, especially in leases involving intricate conditions or non-monetary considerations. 
How SW can help

Understanding the NSW Chief Commissioner’s guidelines is essential for any party involved in complex property leasing situations. SW experts can provide professional advice to help you keep abreast of these rules, helping to avoid surprises in the future.


Rahul Sanghani

Robert Parker

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