Leases have their own regime in pt II sched 13 to the Finance Act 1999, para 10 of which confirms that 'stamp duty is chargeable on a lease'.

Stamp duty on the transfer of a lease will attract conveyance or transfer on sale duty under pt I of sched 13.

A lease may be granted for a rent payable annually or for some other period, or for a lump sum premium, or for both and premium.

Whether rent or premium or both, the consideration attracts ad valorem stamp duty.Where there is a premium paid in cash or stock, security or other property, stamp duty is charged as if the lease were a conveyance on sale.

Therefore the thresholds for the nil-rate and lower rates of duty will apply if a certificate of value is endorsed.

However, the £60,000 threshold is not available if part of the consideration is rent which exceeds £600 per annum (para 12(2) sched 13 to the Finance Act 1999).

Failing the £60,000 threshold in a case where the rent exceeds £600 per annum, though the premium is no more than £60,000, it will be important to endorse a £250,000 certificate of value if the 1% rate of duty is to be obtained on the premium.Where the consideration for a lease is both premium and rent, the duty on each of these elements is calculated, adding together the resulting figures, with the total rounded up to the nearest £5, that is to say, there is just one rounding up.A lease of seven years or less (or for an indefinite term) attracts no ad valorem stamp duty if the rent is £5,000 or less.

This threshold was increased from £500 with effect from 28 March 2000 by FA 2000 ?????.

If the rent is more than £5,000, stamp duty is charged at 1%.

The rate for leases of more than seven years but not more than 35 years is 2%, where more than 35 years but not more than 100 years, 12% and more than 100 years 24%.Critical therefore to the amount of stamp duty chargeable is the term of the lease.

A lease for a fixed term and thereafter until determined is treated by para 15, sched 13 to the Finance Act 1999 as a lease for a definite term equal to the fixed term, together with such further period as will elapse before the early estate on which the lease could be determined.

This means that a lease for 10 years with an option for the tenant to extend for a further five years is treated for stamp duty purposes as a lease for 10 years.

On the other hand, where a lease for a fixed term is subject to a right of one or both of the parties to terminate at an earlier date, the term of the lease for stamp duty purposes is the fixed term.

So, if the 10-year lease gives the tenant an option to terminate the lease after eight years, it too is treated as a lease for 10 years.The effect of the rules in para 12 is to make a longer lease proportionately more expensive in stamp duty terms than a shorter lease.

This incidentally is the opposite of the income tax principle where part of the premium paid on a lease of less than 50 years is charged to income tax (s 38 of the Income and Corporation Taxes Act 1988).

There does not seem to be a problem in a case where someone wants to grant a lease for say 50 years by having an initial lease for 20 years followed by a lease for the reversion for 30 years.

The lease for 20 years will be charged at 2% of the rent and the reversionary lease again at just 2%: this compares with a stamp duty charge of 12% of the rent for a 50 year lease.

Note in this connection that the reversionary lease (granted in consideration of a rent or fine) should not take effect more than 21 years from the date of the initial lease, since otherwise s 149(3) of the Law of Property Act 1925 would make it void.Calculating the duty on a lease where the rent is fixed is straightforward.

If it is variable the contingency principle may have to be operated.

If the lease itself mentions a basic or prima facie sum where there is a maximum or as a minimum rent that will be the dutiable amount.

However, this will not apply if the sum payable on a contingency is expressed to be small which 'does not genuinely represent the consideration agreed by the parties but was inserted to avoid the market value rules to minimise the Duty' (Stamp Office Manual para 5.86).If the rent cannot be ascertained when the lease is made, the market value rule is applied by s 242 of the Finance Act 1994 as it does to the transfer of an interest in land.

Consider a lease with a fixed premium but an unascertainable rent.

In these circumstances it does not seem clear from the legislation whether the premium is disregarded for stamp duty purposes, the market value rule is applied to determine the arm's length rent (on the basis that it is the only consideration paid under the lease) or whether, as the Stamp Office maintains, the market rent is determined on the assumption that the actual premium is paid.The market rent of a lease is expressly defined by s 242(3)(b) to be the rent which the lease might reasonably be expected to fetch at that time in the open market (with no reference to any premium).

If, with a lease, the s 242 market value rule is applied, contingent VAT is not added to the market value premium or market rent (see Stamp Office Manual para 5.81) which seems to be something of a concession.

Under the contingency principle the VAT which may be charged in the future (for example, under the option to tax) does form part of the stampable consideration.

The market value rule is disapplied by s 242(3)(a) if the rent could be ascertained on the assumption that any future event mentioned in the lease were or were not to occur.For example, the rent for the first 10 years of a lease is not quantified and is expressed by reference to the net accounting profits of the tenant for the year ending on an accounting date one month after the date of the lease.

The rent for the remaining 40 years is a peppercorn.

Market rent for the first 10 years has to be established under s 242(3)(b) Finance Act 1994 and then averaged with the peppercorn to produce the amount to which the 12% stamp duty charge is applied.However, suppose the lease had qualified the rent for the first 10 years by stating that it should not be less than £5,000 (which is accepted to represent the consideration genuinely agreed by the parties).

The contingency principle would then apply, displacing the market value rule under s 242(3)(b).

Total stampable rent payab le over the 50 years would be £50,000, that is to say, an average of £1,000 per annum, and the stamp duty charge would be £120.The thinking behind that example is explained in the Stamp Office Manual at para 5.172 to 175.

The possibility of increases in the rent by reference to the RPI retail price index????? or some other index makes part at least of the rent unascertainable, which brings in the market value provisions of s 242.

However, if, as is usual, the rent review is provided by the lease to be upwards only, this is a contingency in the instrument which overrides the unascertainable nature of part of the rent.

S.242 therefore does not apply and the latest ascertainable rent, usually that for the first year, is taken to be the rent for the whole term on which stamp duty is based.In LM Tenancies Plc v IRC [1998] STC 326, the Court of Appeal significantly extended the scope of the situations in which the contingency principle could operate.

In that case the issue was the duty on lease premiums, one part of the formula governing which was the closing price of a particular government stock on a date falling after execution of the leases.

While the taxpayer argued that the consideration was unascertainable, because at the date of execution the future market value of the stock could not be known, the Court of Appeal (and the High Court before it) ruled otherwise.

It was held that, to compute the duty, the final closing price of the stock before execution of the leases should be taken (and that any change in price between the date of execution and the date specified in the leases was a contingency to be ignored).It is not easy to follow the logic of this decision, which extends the ability of the Stamp Office to apply the contingency principles.However, their current approach to leases with a rent review formula based on the increase in an index of prices is or may be favourable to the taxpayer.

This decision led to a press release issued by the Stamp Office on 14 May 1999.Now, where a lease contains a formula based on the RPI only any change in the RPI up to the date of execution will be taken into account for stamp duty purposes.

This means that with a lease which contains a formula for rent reviews based on retail price index changes, it would be sensible to have the lease commence with the date of execution.