Reverse premium
A reverse premium is a capital sum paid by a landlord or outgoing tenant to induce a new tenant to enter into a leasehold agreement. This differs from an ordinary premium whereby the capital sum is paid by the purchaser of a leasehold interest to the landlord or outgoing tenant.
The reasons for a reverse premium being paid could be to do with the rent on a building being above market rates, there being something undesirable about the building, or some other reason which makes the leasehold onerous in some way for the landlord or current tenant. The reverse premium acts as an incentive for the purchaser to take on the leasehold liability.
The letting of commercial properties can often involve reverse premiums. Common situations can include a developer wanting a newly-built office block to be fully let at the time they come to sell it to an investment company, or the developer of a shopping centre or entertainment complex wanting to secure an ‘anchor tenant’ (a particularly well-known brand, for example) so that other tenants will be interested in taking up leases.
The VAT and stamp duty land tax applicable to reverse premiums is complex and it is wise to obtain professional advice as each case is usually considered on its individual facts. What must be considered is whether the receipt of the reverse premium is chargeable as a trade receipt by a tenant who is granted the lease for trade, professional or vocational purposes.
If the reverse premium has been paid to enhance the value of the landlord’s interest in the property, then it will normally be deductible as being incurred expenditure. The landlord’s interest is enhanced because the rental income payable under the lease is secured.
[edit] Find out more
[edit] Related articles on Designing Buildings Wiki
- Assignment.
- Difference between assignment and novation.
- Insurance for building design and construction.
- Landlord.
- Leasehold.
- Legal and equitable assignment.
- Practical considerations of collateral warranties.
- Property development finance.
- Recovery of third party losses.
- Rental method of rating valuation.
- Tenant.
Featured articles and news
The UK's Modern Industrial Strategy: A 10 year plan
Previous consultation criticism, current key elements and general support with some persisting reservations.
Building Safety Regulator reforms
New roles, new staff and a new fast track service pave the way for a single construction regulator.
Architectural Technologist CPDs and Communications
CIAT CPD… and how you can do it!
Cooling centres and cool spaces
Managing extreme heat in cities by directing the public to places for heat stress relief and water sources.
Winter gardens: A brief history and warm variations
Extending the season with glass in different forms and terms.
Restoring Great Yarmouth's Winter Gardens
Transforming one of the least sustainable constructions imaginable.
Construction Skills Mission Board launch sector drive
Newly formed government and industry collaboration set strategy for recruiting an additional 100,000 construction workers a year.
New Architects Code comes into effect in September 2025
ARB Architects Code of Conduct and Practice available with ongoing consultation regarding guidance.
Welsh Skills Body (Medr) launches ambitious plan
The new skills body brings together funding and regulation of tertiary education and research for the devolved nation.
Paul Gandy FCIOB announced as next CIOB President
Former Tilbury Douglas CEO takes helm.
UK Infrastructure: A 10 Year Strategy. In brief with reactions
With the National Infrastructure and Service Transformation Authority (NISTA).
Ebenezer Howard: inventor of the garden city. Book review.
The Grenfell Tower fire, eight years on
A time to pause and reflect as Dubai tower block fire reported just before anniversary.
Airtightness Topic Guide BSRIA TG 27/2025
Explaining the basics of airtightness, what it is, why it's important, when it's required and how it's carried out.
Construction contract awards hit lowest point of 2025
Plummeting for second consecutive month, intensifying concerns for housing and infrastructure goals.
Understanding Mental Health in the Built Environment 2025
Examining the state of mental health in construction, shedding light on levels of stress, anxiety and depression.