CISR14048 - The Scheme: construction operations: Payments made by landlord to tenant – Regulation 20A
From 6 April 2024, SI2005/2045 Regulation 20A allows most payments made for construction work by a landlord to a tenant to fall outside the scope of the CIS provided certain conditions are met. The rules are intended to remove payments for construction operations works intended primarily for the benefit and use of the tenant that occupies or will occupy the property.
Not all payments made by landlords to tenants are outside the scope of CIS. The rules are designed to reduce the risk of landlords routing payments for their own work through a tenant or where the head tenant undertakes the construction work on the parts of the property they do not occupy.
All of the of the following conditions must be met for it to apply.
Regulation 20A(1)(a)
The payment is made by or on behalf of the landlord. The definition of a landlord includes: -
the legal owner or beneficial owner
where the property is sub-let, the head landlord or any intermediate landlord
where the lease has not yet commenced the person who will grant the lease if there is an enforceable agreement to enter into the lease is in place
Regulation 20A(1)(b)
The person receiving the payment is a tenant or prospective tenant of the landlord. The definition of a tenant includes a sub-tenant.
Regulation 20A(1)(c)
The payment is for construction operations agreed in connection with a lease or an enforceable agreement to enter into a lease. The exemption can therefore apply not only where it is part of the initial agreement for a lease, but it may also apply at other times where the lease is varied or extended.
Regulation 20A(1)(d)
The tenant that occupies or will occupy the property will carry out the construction operations itself, or a third person will carry out the construction operations under a contract with the tenant. A contract means any legally binding agreement or arrangement (see CISR14020).
The tenant may enter into contracts with one or more subcontractors to carry out the work. The subcontractors may themselves enter into contracts with other subcontractors to undertake the work but these payments would be within the scope of the CIS.
The landlord will need to satisfy themselves that there will be a contract in place for the work with a third person. This could be evidenced by way of a warranty given by the tenant to the landlord or the landlord requiring copies of any invoices.
Regulation 20A(1)(e)
The payment is for construction operations relating to works intended primarily for the benefit and use of the tenant that occupies or will occupy the property under the lease. Occupation requires a physical presence with some degree of permanence, not simply a legal entitlement over the property.
| Condition met | Condition not met |
|---|---|
| The construction work is primarily for the benefit and use of the tenant but there are incidental benefits to the landlord or other tenants. This can include both Cat A 9landlord or Cat B (tenants) works | Where all occupiers of the property benefit and make use of the changes. For example, general refurbishment and upgrade of common areas used by all tenants in a building occupied by several tenants |
| Minor structural changes are required to install specific fixtures and fittings needed by the tenant | Major structural changes or repairs to the fabric of the property or essential work required for any tenant to occupy the premises. For example, replacement windows, significant roof repairs, installation of a new fire escape required under Health and Safety rules |
| All of the payment relates to construction work that is for the benefit and use of the tenant occupying or who will occupy the property | Part of the payment is for construction work that is not for the benefit and use of the tenant occupying or who will occupy the property |
| If the fit outs from a previous tenant must be removed before the new tenant specific fit outs can be made | If the removal of fit outs from a previous tenant includes significant structural changes/building repairs |