Income Tax Act 2007 section 681AK

Commercial rent: comparison with payments other than rent

Section 681AK defines what "commercial rent" means when it needs to be compared with payments other than rent in sale and leaseback arrangements involving land.

• Commercial rent is the rent that would be expected under a hypothetical open market lease of the land, negotiated at the time the rentcharge or other transaction giving rise to the payment was set up.
• The hypothetical lease must be a tenant's repairing lease, meaning the tenant is obligated to maintain and repair the whole, or substantially the whole, of the premises.
• The hypothetical lease must be of an appropriate duration: if the payment period under the rentcharge or transaction is 200 years or more (or perpetual), the duration is taken to be 200 years; if less than 200 years, the duration matches the actual payment period.
• This definition of commercial rent applies when comparing payments under section 681AD(3) (triggered by section 681AB(1)) and under section 681AE(3) (triggered by section 681AB(2)).