The term of a lease which is not a long funding lease may be
extended. This will be particularly relevant where the initial term
was for 5 years or less.
A succession of short leases is treated as just that, but
where the extension would be a long funding lease in its own right
then the lease is treated as terminating and commencing at the
effective date.
The effective date and events which extend the term of the
lease are the same as in CAA01/SS70YB, see
BLM22020.
In order to test whether the extension would be a long
funding lease you should assume that
If, on those assumptions, the new lease would be a long funding
lease, the lease is to be treated as if those assumptions were
true, ie the existing lease is treated as terminated and a new
lease is entered into on the effective date etc.
The same principles apply to subsequent leases.
Where a short lease is extended or replaced by another short
lease with the same lessee it may indicate that that was always the
intention of the parties – that is, that a series of short
leases was planned with the intention of entering into what amounts
to a long lease. Where this is the case, you should consider
whether the anti-avoidance rule in CAA01/S70I should have applied
such that the original lease was not a short lease, see
BLM20530. It will also be worth
considering whether the second lease is really a short lease.
Please advise CT & VAT (Technical) if you come across a
case where a short lease is extended or replaced by another short
lease with the same lessee. CT & VAT (Technical) would also
like to hear about short leases being replaced with another short
lease with a person connected to the original lessee.
