Reverse premium
A reverse premium is a capital sum paid by a landlord or outgoing tenant to induce a new tenant to enter into a leasehold agreement. This differs from an ordinary premium whereby the capital sum is paid by the purchaser of a leasehold interest to the landlord or outgoing tenant.
The reasons for a reverse premium being paid could be to do with the rent on a building being above market rates, there being something undesirable about the building, or some other reason which makes the leasehold onerous in some way for the landlord or current tenant. The reverse premium acts as an incentive for the purchaser to take on the leasehold liability.
The letting of commercial properties can often involve reverse premiums. Common situations can include a developer wanting a newly-built office block to be fully let at the time they come to sell it to an investment company, or the developer of a shopping centre or entertainment complex wanting to secure an ‘anchor tenant’ (a particularly well-known brand, for example) so that other tenants will be interested in taking up leases.
The VAT and stamp duty land tax applicable to reverse premiums is complex and it is wise to obtain professional advice as each case is usually considered on its individual facts. What must be considered is whether the receipt of the reverse premium is chargeable as a trade receipt by a tenant who is granted the lease for trade, professional or vocational purposes.
If the reverse premium has been paid to enhance the value of the landlord’s interest in the property, then it will normally be deductible as being incurred expenditure. The landlord’s interest is enhanced because the rental income payable under the lease is secured.
[edit] Find out more
[edit] Related articles on Designing Buildings Wiki
- Assignment.
- Difference between assignment and novation.
- Insurance for building design and construction.
- Landlord.
- Leasehold.
- Legal and equitable assignment.
- Practical considerations of collateral warranties.
- Property development finance.
- Recovery of third party losses.
- Rental method of rating valuation.
- Tenant.
Featured articles and news
Download your free guide.
Four new types of prior approval for solar developments
Online Planning Portal application types from 5 September.
Election fails to spark construction industry revival
Contract awards and planning; post election.
Making diversity and inclusion easy for SMEs
The CIOB tool for companies with limited resources.
Sustainable Futures: Redefining Retrofit for Net Zero Living
BSRIA Briefing 2024, initial speakers announced.
Looking back at the UK's first Passivhaus leisure centre
Reflections on St Sidwell’s Point with CIAT.
A-Level results and electrical apprenticeships
Electrical Skills Index highlights areas with skills shortages.
One of the world's more unusual drive-throughs.
A quick introduction.
Hadrian's Wall Path and the national trails
The trails are heritage assets in their own right.
Articles on timely advice and hydraulic lime.
Building Designers Association of Australia
CIAT and BDAA sign Memorandum of Understanding.
Built Environment Inclusive partners issue statement committed to inclusion.
Building regulation requirements can have unintended consequences.
CIOB announces 2024/25 vice president
Sustainability champion Professor Saul Humphrey.
Accelerating towards a net-zero built environment.