(1) A supply by the Commonwealth, a State or a Territory of land on which there are no improvements is GST-free if:
(a) the supply is by way of lease (other than * long-term lease); and
(b) the lease is subject to conditions the satisfaction of which will entitle the * recipient of the supply to the grant of a freehold interest in the land or a long-term lease of the land.
(2) A supply consisting of the surrender, to the Commonwealth, a State or Territory, of a lease over land is GST-free if:
(a) the supplier acquired the land under a supply that:
(i) was GST-free under subsection (1); or
(ii) if the supply was made before 1 July 2000--would have been GST-free under subsection (1) if it had been made on or after that day; and
(b) solely or partly in return for the surrender of the lease, the Commonwealth, State or Territory makes a supply of the land to the supplier that is GST-free under section 38-445.