BLM22045 - Defining long funding leases: amendments, transfers and assignments: transfers and rents receivable under the new lease

A lease may be transferred part of the way through a rental period. Where this is the case, and rentals are paid in advance, the contractual arrangements may require the original lessor to reimburse the lessee that part of the rental referring to the period after the transfer. The lessee will then pay that amount to the new lessor as rent for the period immediately after the transfer.

CAA01/S70W applies where (inter alia) ‘the amounts receivable under the new lease are the same as would have been receivable under the old lease, assuming it to have continued in effect’ (see S70W (5)(b)). You should accept that this includes the case where the rentals receivable under the new lease are apportioned on a time basis.

Example

Assume that

• a 15-year lease was entered into on 1 September 2004
• rentals of £1m are payable on 1 September in each year
• the lease is transferred (novated) from Lessor A to Lessor B on 1 December 2010
• no other changes are made to the lease agreement.

On transfer, Lessor A rebates £750,000 to the lessee on 1 December 2010 and the lessee pays that amount to Lessor B on the same day.

You should accept that the condition in CAA01/S70W (5)(b) is met as the amounts receivable under the new lease for the period from 1 December 2010 are the same as the amounts that would have been receivable for that period under the old lease had it continued in effect.