According to David Warmback, partner of law firm Shepstone & Wylie, stamp duty on leases will be abolished with effect from 1 April 2009 through the repeal of the Stamp Duties Act , not arising from the recent budget, but through the Revenue Laws Amendment Act which was gazetted on 8 January 2009.

After welcoming the recent announcement of a 100 base points cut in the repo rate (with further proposed cuts  expected soon), role players in the property industry, still operating in very tough economic conditions exacerbated by the international global financial crisis, have, according to Warmback, received little further direct tax relief following the Budget delivered yesterday.

For the third year in a row, no changes to the rate of transfer duty were proposed by Finance Minister Trevor Manuel, the last substantial relief being granted in the 2006 fiscal year.

Warmback notes that it was proposed in previous budgets that there be an outright repeal of the remaining aspects of stamp duty on leases “in order to simplify administration and compliance”.  This has been on the agenda for the last few years and stamp duty on leases effectively only currently remains in respect of leases that are longer than 5 years. This clearly reduced the compliance burden for parties concluding short leases, and the administrative burden on SARS. If dutiable, leases have to be stamped within 30 days from last date of signature of the lease, failing which various penalties accrue.

The 1 January 2005 provisions governing stamp duty charged at a flat rate of 0.5% or 50 cents per R100 or part thereof of gross rental for leases for periods longer than 5 years, subject to certain provisos, will apply up to 1 April 2009. Existing leases will continue to be subject to the duty as if the legislation had not been repealed.

While the Stamp Duties Act places the obligation to stamp a lease on the landlord, Warmback notes that invariably the landlord provides contractually in his lease that the liability for paying the stamp duty is passed on to the tenant. Both landlords and tenants involved with leases for periods longer than 5 years, particularly large institutional landlords who deal with leases on a daily basis, will be delighted with the imminent scrapping of the duty.

While the move is likely to be widely welcomed, Warmback warns that with the relatively long lead time up to 1 April, certain tenants in the process of concluding long term leases, particularly those with large stamp duty liabilities, are likely to resist finalizing their new leases until 1 April, an aspect which is likely to frustrate certain landlords.