A lease is entered into and commences on 1 June 2007 for a
period of 78 months ending on 30 November 2013. Payments are made
under the lease as follows.
| 1 June 2007 | 1,000 |
| 1 June 2008 | 5,000 |
| 1 June 2009 | 5,400 |
| 1 June 2010 | 5,800 |
| 1 June 2011 | 5,400 |
| 1 June 2012 | 4,000 |
This is analysed as follows:
|
| Period | Rentals payable |
| First reference year | 2/6/07 – 1/6/08 | 5,000 |
| Second reference year | 2/6/08 – 1/6/09 | 5,400 |
| Third reference year | 2/6/09 – 1/6/10 | 5,800 |
| Fourth reference year | 2/6/10 – 1/6/11 | 5,400 |
| Fifth reference year | 2/6/11 – 1/6/12 | 4,000 |
| Sixth reference year | 2/6/12 – 1/6/13 | 2,000 |
| Final year | 1/12/12 – 30/11/13 | 2,000 |
Note that the payment on the first day of the lease is
ignored and that the payment due on 1 June 2013 features twice.
The lease is a short lease because
Assuming the rental in the first reference year remained at
£5,000, then if the rental in the second reference year had
exceeded £5,555.55 the lease would have been a long funding
lease.
Assuming the rental in the first reference year remained at
£5,000 and the rental in the second reference year was
£5,400, the lease would have been a long funding lease if the
rentals in any of the other reference years or the final year were
more than £5,940
The effect of the rules is to allow a low initial rental on
day 1 but otherwise only to allow small increases in rentals over
the term of the lease.
