[F170YBLong funding operating lease: extension of term of leaseU.K.
(1)This section applies in any case where—
(a)a person is lessor or lessee under a long funding operating lease (the “existing lease”),
(b)an event occurs which has the effect of extending the term of the lease (whether by variation of the provisions of the lease, the grant or exercise of an option or in any other way), and
(c)the event is not one by reason of which, within the meaning of section 70YA, the accountancy classification of the lease as an operating lease changes in the relevant accounts.
(2)For this purpose an event has the effect of extending the term of the lease if it meets any of the following conditions—
(a)it has the effect of making a further period a non-cancellable period;
(b)it is the grant of an option to the lessee to continue to lease the plant or machinery for a further period, where it is reasonably certain at the time the option is granted that the lessee will exercise it;
(c)it is the exercise by the lessee of an option to continue to lease the plant or machinery for a further period;
(d)it does not fall within the preceding paragraphs, but it has the effect that the lessee will continue, or is reasonably certain to continue, to lease the plant or machinery for a further period.
For this purpose “further period” means a period falling wholly or partly after the end of the pre-existing term.
(3)The person is to be treated as if—
(a)the existing lease terminated at the end of the day before the effective date,
(b)another lease (the “new lease”) were entered into on the effective date, and
(c)the term of the new lease were the unexpired portion of the term of the existing lease, as extended.
(4)The person is also to be treated as if the effective date were the date of both—
(a)the inception of the new lease, and
(b)the commencement of the term of the new lease.
(5)The new lease is to be taken to be a long funding operating lease.
(6)For the purposes of this section the “effective date” is the earlier of—
(a)the day after the end of the pre-existing term of the existing lease;
(b)if the rentals payable are varied as a result of or otherwise in connection with the event, the date on which the variation takes effect.
(7)In this section—
“non-cancellable period” has the same meaning as in section 70YF (the “term” of a lease);
“pre-existing term”, in relation to a lease, means the term of the lease apart from the extension in question.]
Textual Amendments
F1Pt. 2 Ch. 6A inserted (with effect in accordance with Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), Sch. 8 para. 7