The recent removal of stamp duty on property leases of less than five years and the capping of the duty payable on longer-term leases benefits landlords and tenants.
Stamp duty is a form of tax on written documents and requires a physical stamp to be attached to or impressed on the document. Stamp duty is payable on commercial and residential leases, and leases that are not stamped cannot be used in court proceedings.
Most landlords pass on to their tenants the costs of the stamp duty they have to pay by including the cost in the rental they charge their tenants.
Welcome amendment
Until January 2005, stamp duty was levied on a sliding scale, which was dependent on the length of the lease. Stamp duty on shorter leases was levied at a lower rate, starting at 25 cents per R100 of rental charged, than on longer ones.
From 2005, the duty was levied at a flat rate of 50 cents per R100 or part thereof of total rental collected in terms of the lease, irrespective of the period of the lease. However, no stamp duty had to be paid if the duty amounted to less than R200.
As of March last year, the exemption from the duty applied if the duty was less than R500. Now, new amendments, which became effective in June, make it unnecessary for landlords to pay duty on leases that are shorter than five years.
The stamp duty payable on leases of longer than five years remains 0.5 percent but is capped at eight percent of the value of the property.
Easier cash flow
Jay Junkoon, the deputy director for property management at JHI, a property company, says the main benefit is that landlords and, ultimately, their tenants will no longer have to pay stamp duties on shorter rental agreements.
He says the South African Revenue Service has been collecting about R300 million a year in tax revenue from stamp duties.
As most leases are for a period of five years or less, the recent amendments will result in a saving of about R200 million in stamp duty for landlords and tenants, Junkoon says.
Other benefits of the most recent changes in the way in which the duty is levied are that these changes will ease the cash flow of landlords and managing agents and there will be a reduction of the administration involved in managing the stamping of lease agreements.
The recent amendments to the Stamp Duties Act will also make the duty payable simple to calculate and give landlords, who are responsible for paying the duty, certainty about what they owe.
Previously, there were complex exemptions and requirements that had to be met in cases where the amount of rent to be collected was based on unpredictable factors, such as the tenant's turnover.
The capping of the amount of duty payable on longer-term leases will also benefit landlords and tenants of large and/or prestigious properties, such as shopping malls, where the rentals are high. The stamp duties payable on lease agreements for these properties since 2005 have been known to run into hundreds of thousands of rands.
Shorter leases
The removal of stamp duty on leases up to five years has resulted in landlords and tenants increasingly agreeing to sign leases of up to five years only. Junkoon says tenants are showing a preference for upfront savings on the costs of stamp duty, rather than the security of a long-term lease. Their view, he says, is that lots of buildings are being developed and if landlords do not want to renew their leases, they will look elsewhere.
Leases can only be used in court if they are stamped, and the landlord will be liable for penalties for the duty that should have been paid at the start of the lease agreement as well as for interest on the outstanding duty.