Grant of lease premium

A premium on the grant of a lease is a lump-sum payment the incoming leaseholder or tenant pays you when the lease is first granted, on top of, or instead of regular rent. It is common on long leases of flats (for example, a 99- or 125-year lease where the buyer pays a premium up front and only a peppercorn or low ground rent thereafter, but can also arise on shorter commercial-style or high-value residential leases.

From a landlord’s perspective, a grant premium is usually treated as a capital receipt, not ordinary rental income, with specific rules for tax, including capital gains, corporation tax and, for the buyer, Stamp Duty Land Tax. Your solicitor and accountant should advise how to structure and report it, especially if you are granting a new long lease out of a freehold or headlease you own.

For day-to-day residential management, the grant premium sits in the background. Once the lease is granted, the leaseholder may sublet the flat on assured tenancies that fall fully within the Renters’ Rights Act including rental standards, permitted payments, possession grounds, PRS database and Ombudsman. The premium does not reduce the leaseholder’s landlord duties to their own subtenants, or your responsibilities as any superior landlord in the chain. Also see our Expenses feature.

Also see our landlord blog articles.