- Project plans
- Project activities
- Legislation and standards
- Industry context
Last edited 16 May 2018
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.
 Find out more
 Related articles on Designing Buildings Wiki
- Difference between assignment and novation.
- Insurance for building design and construction.
- Legal and equitable assignment.
- Practical considerations of collateral warranties.
- Property development finance.
- Recovery of third party losses.
- Rental method of rating valuation.
Featured articles and news
Rebuilding could take 20 to 40 years.
RSHP’s high-rise residential towers win a tall buildings award for excellence.
BSRIA study reveals strong growth in 2018.
Dame Judith Hackitt confirmed as keynote speaker – one year on from the Hackitt Report.
Save £100 on tickets.
Modern slavery in the construction sector.
What to bear in mind when claiming damages in construction.
How do we achieve sustainable clean-water infrastructure for all?
What you should know when appointing an architect.
A brief history plus some new developments.
How computational fluid dynamics (CFD) helps building design.
The Hong Kong Harbour Area Treatment Scheme (HATS).
'Expressions of interest' for construction contracts.