There is a fundamental difference for determining the effective date of a lease for LBTT purposes between:
- 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.
The effective date in relation to a formal lease which has been preceded by an initial contract such as missives of let (or an agreement for lease) further depends upon whether the initial contract has been substantially performed before the signing of a formal lease.
Formal lease with no initial contract
If there are no missives for let or agreement for lease, the effective date of a formal lease is the date when it is granted or constituted in any other way.
The date of grant of a formal lease in Scotland (i.e. the effective date of the lease) is the date of last execution 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. See LBTT6025 for more information on missives of let.
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:
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;
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.
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’.