Lease inducement & lease surrender payments – tax issues

November 12, 2013

in Property

Property: HousingChanges have been made to the tax treatment of lump sum payments under leases such as lease inducement payments and payments made for surrender of a lease.

The IRD has looked to rationalise the tax treatment of these various payments to avoid the situations where in some instances the payments were either non-deductible or non-taxable depending on who was the payer and recipient.

Under the new provisions essentially the changes see lease inducement payments being treated as taxable income in the hands of Tenants and deductible payments for the Landlord.

Historically lease surrender payments have been regarded as income to Landlords but non-deductible to Tenants.  The changes will now see lease surrender payments being deductible payments for Tenants and income for the Landlord.

The changes are to apply to inducement arrangements and surrender payments in respect to commercial leases which are entered into on or after 1 April 2013.

In the current economic climate, these types of payments are very common and it is important that Landlords and Tenants have a full understanding of the implications of such payments to them.  This is particularly important when negotiating the terms of a lease and we strongly recommend that any person in the process of negotiating a lease where such payments are being considered takes legal advice to ensure that the true impact or benefit is understood.

Farry and Co. has extensive experience in all aspects of commercial leasing including negotiation and can assist you in this regard.

f you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:

Paul Farry

09 379 0055 or 03 477 8870


The information contained in this publication is intended as a guide only.  It does not constitute legal advice and should not be relied upon as such.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain. 

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