Amendments to the Land Tax Act from 1 July 2009 now entitle landlords of commercial and industrial premises to pass on hefty land tax charges to lessees. This reverses a prohibition that was introduced in 1991.
The change applies only to new leases that are entered into from 1 July. Land tax is still not recoverable if the lease was entered into before 1 July 2009 even if the lease is assigned, renewed or extended under an option after that date.
Landlords should now amend the definitions of “outgoings” in their lease precedents and offer letters, to provide for the tenant’s liability to reimburse land tax payments.
Henceforth it is likely that payment of land tax will become a significant negotiation point in all commercial and industrial leases including leases of office space. There is likely to be some resistance from tenants.
Residential and Retail Leases
Recoupment of land tax from tenants remains prohibited under “residential” and “retail shop” leases.
The Retail Shop Leases Act 1994 defines “retail shop” as meaning premises that are either:-
(a) situated in a “retail shopping centre” (which is, generally speaking, a block or cluster of premises five or more of which are used predominantly or wholly for retail purposes); or
(b) are used wholly or predominantly for the carrying on of one of the more than 200 retail business descriptions that are listed out in the Retail Shop Leases Regulation.
Note that a business that is not retail in nature eg a real estate office, will be deemed “retail” for these purposes if it is situated in a “retail shopping centre” as referred to in (a) above.
This protection against land tax recovery is valuable and may lead to a preference from business tenants to occupy space in retail centres.
Other land tax changes
There have been a number of other changes to 2009 – 2010 Land Tax and we summarise a few of these as follows:
- If an owner is required to vacate their home to seek residential care, they may still be eligible to receive the principal place of residence land tax exemption;
- Landholders with taxable property in excess of $5 Million will pay a surcharge of 0.5% on the value of the property over that threshold;
- Payments for initial land tax assessments have been extended from 28 to 90 days;
- Unpaid tax interest (UTI) has replaced late payment interest and will accrue weekly at 11.14% per annum;
- A penalty tax of up to 75% or more may be charged in certain circumstances e.g. if the Office of State Revenue issues a default assessment due to not being advised of land which is owned and not listed on an assessment notice.