Finance (No 2) Act 1997 – Stamp duty increase – Transitional provisions – Dutiable lease executed following tenant’s exercise of option after operative date – Option created by lease made before operative date – Whether dutiable lease executed pursuant to contract made before operative date
A 30-year lease of hotel premises granted in 1992 (the 1992 lease) gave to the lessee an option to acquire a 999-year lease, in reversion to the 30-year term, at a premium to be calculated in accordance with a formula contained in a schedule to the lease. By the same lease, the landlord acquired an option to require the tenant, in certain circumstances, to take such a reversionary lease. By para 3(1) of the sixth schedule it was declared that on the exercise of either option “there [should] come into force a binding contract” to execute the necessary lease and counterpart. The appellant, which had acquired the 1992 lease by assignment, duly exercised the option in its favour on 26 September 1997, and, following execution on 30 September 1997, presented the new lease (the option lease) for stamping, declaring that it had been granted for a consideration of £14.134m. The Revenue assessed the duty payable at £282,700, having applied the 2% rate imposed by the Finance (No 2) Act 1997 on instruments executed after 8 July 1997. Contending that the earlier rate of 1% was applicable, the appellant relied on an exception made in section 49(6) of the 1997 Act “where the instrument in question [was] executed in pursuance of a contract made on or before 2nd July 1997”. On that basis, it was argued that the option lease had been executed pursuant to the provisions of the 1992 lease. The Revenue, pointing in particular to para 3(1) of the sixth schedule to the lease, maintained that the only relevant contract was the one that arose on the exercise of the option. The issue fell to be determined on appeal by way of a case stated by the Inland Revenue Commissioners.
Held: The appeal was allowed.
The 1992 lease had been aptly described as one giving a call option to the tenant and a put option to the landlord. Since the Act had not addressed the question of options, the short point was whether the option lease could be said to have been executed “in pursuance of” the 1992 lease. Applying the reasoning of the House of Lords in Inland Revenue Commissioners v Mobil North Sea Ltd [1987] 1 WLR 1065, there was nothing unnatural in saying that the instrument had been exercised in pursuance both of the 1992 lease and the exercise of the call option. The Revenue’s argument, which stressed the tenant’s freedom to enter into the later contract, led not only to an artificial separation of the two contracts but also to an anomalous distinction being drawn for stamp duty purposes between a lease arising out of a call option and one arising out of a put option.
Andrew Onslow (instructed by Walker Morris, of Leeds) appeared for the appellant; Christopher Tidmarsh (instructed by the Treasury Solicitor) appeared for the respondent.
Alan Cooklin, barrister
