An ordinary lease is not a land transfer tax event. A very long one, on paper, is treated as though it were.
Short answer
Yes, once the lease is long enough. Section 1(6) of the Land Transfer Tax Act exempts registering “a conveyance that is a lease of land… if the lease, at the time the lease… is tendered or submitted for registration, is for an unexpired term that cannot exceed 50 years, including any renewals or extensions of the term provided for in the lease or in a separate option to lease or other document entered into as part of the arrangement relating to the lease.” A conventional five- or ten-year commercial lease is nowhere near this line and is not a land-transfer-tax event at all. See Land Transfer Tax Act, R.S.O. 1990, c. L.6, s.1(6).
Once a lease’s term, added together with every renewal and extension option written into it, can exceed 50 years, the exemption does not apply and the lease is taxed like any other conveyance — but not on the rent. The base shifts to the fair market value of the land the lease covers, assessed as at the date the lease is registered. A 25-year term with two ten-year renewal options adds to 45 years and stays inside the exemption; the same lease with a further 10-year option crosses it, on the strength of an option nobody may ever exercise.
This provision matters most on exactly the kind of deal where the seller keeps the real estate and leases it back to the buyer’s operating business, rather than selling the building outright. A short-term leaseback is not a land-transfer-tax question at all. A long-term leaseback, structured to give the buyer real security of tenure over a large capital investment, can cross the 50-year line on its combined term and options without either side treating it as a real estate purchase — and the tax is calculated on the property’s value, not on the deal’s rent roll.
Case Files: a lease that pushed the deal past three million shows how differently a lease’s value can be measured depending on the statute asking — there, the ambiguity was how many years of rent count toward a franchise-disclosure investment threshold; here, the question is not the rent at all but whether the term itself, added to its options, crosses a fixed year count.
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