SMSF Commercial Lease Agreement

SMSF Commercial Lease Agreement Book Cover
  • SMSF Commercial Lease Agreement

  • $330 includes GST

SMSF Commercial Lease Agreement – including ‘related parties’

Your Self-Managed Super Fund (SMSF) can own commercial property. The SMSF can even lease the commercial property to a member. However, the commercial lease agreement must comply with the law. Special rules in the drafting of the SMSF Commercial Lease Agreement are required.

Our SMSF Commercial Lease Agreement satisfies the Superannuation rules.

An SMSF must only benefit you when you have retired. You are not allowed to get any benefit from your SMSF. Sure, your superannuation belongs to you. But you can’t have it until you retire.

The rules are so strict that you can’t lease from your SMSF a residential property, car or artwork. Even if the rent was a fair market price. The one exception is ‘commercial real property’. Your SMSF can lease commercial property to you, your family and other related parties.

Seven rules when leasing commercial property to ‘related parties’

When a member leases commercial property from their SMSF, seven additional rules apply. Special rules apply when an SMSF leases to a ‘related party’. Our SMSF Commercial Lease complies with the strict Superannuation law’s seven rules:

1. lease agreement – prepared by a lawyer
2. an arm’s length transaction – the SMSF can’t give ‘special treatment’ to a related party
3. market rent – the lease agreement allows you to reset the rent to market, as required
4. due payment – appropriate rent payment dates
5. recovery – the SMSF is required to takes appropriate action to remedy any breaches
6. evidence – sufficient evidence and paper trail for the SMSF auditor and ATO. This confirm that no advantage is given to the member leasing the commercial property
7. legal – complies with both the Retail Shop and Commercial Tenancy legislation throughout Australia and the Superannuation Laws

Special SMSF rules for disputes

Our SMSF Commercial Lease Agreement:

* accommodates low-cost dispute resolution alternatives. This complies with both leasing and Superannuation Laws
* reduces unconscionable conduct claims against the SMSF
* is audit friendly for both your auditor and the ATO

Subletting in breach of the Superannuation Laws

The Tenant has no authority to sublet or assign, under this Lease. This is unless the Landlord and Tenant mutually agree, subject to the Superannuation laws. The ‘waive and variation’ clause permits subletting and assignment — but subject to the Landlord’s consent.

Fair Damages that don’t breach Superannuation contribution rules

If the Tenant (member) defaults in payment, the landlord (SMSF) recovers liquidated damages, from the Tenant. It is important that this is not a ‘contribution’ to the fund. Our unique formula calculates damages which avoid ‘contribution breaches’ by the SMSF.

Without these pre-liquidated damages calculations, a commercial lease breaches the Superannuation law. Most Commercial Leases breach the Superannuation laws.

Waivers ensure ongoing compliance with the SMSF Commercial Lease AgreementSMSF Commercial Lease Agreement Self Managed superannuation fund lease

Many lease agreements can’t be updated. However, if the Superannuation laws change, then this may render your SMSF non-complying. You suffer penalties of up to half the value of your SMSF.

With our lease, the Landlord may alter the Commercial Lease, together with the Tenant, to suit changing needs. If a term is waived, the Landlord is no longer bound by that requirement and the SMSF fund continues to be compliant.

SMSF Lease vs Sublease vs Assignment of Lease

Consider a ‘sub-lease’ and an ‘assignment of lease’:

  • Sub-lease: The Tenant signs a Lease. But the Tenant does not need all the space, at the moment. So the Tenant tries to ‘sub-lease’ to a third person. 
  • Assignment of lease: Or, your tenant wants to vacate early. The tenant finds a replacement tenant. The SMSF, as the landlord, signs an Assignment of Lease.

Sub-leases and Assignment of Leases are common. And they are legal. However, when it comes to an SMSF leasing commercial real property it is better to build a brand new Commercial Lease.

Sub-leases and Assignment of Leases may be considered too complex or confusing. The SMSF auditor may want to dig dipper into what is going on. The SMSF auditor may want the SMSF to provide more information and get external consultants to sign off on the chain of events.

If you can, then a new SMSF Commercial Lease is simpler and safer.

Auditor and SMSF Lease

If the ‘business real property’ is leased, your auditor looks for an up-to-date:

  1. SMSF lease; and
  2. property valuation.

This is especially if the SMSF is leasing to related parties. Ensure the lease is on an arm’s length basis. You need fair market rent. Otherwise, the SMSF is taxed at 45% on its non-arm’s length income.

The SMSF auditor for Commercial Lease reviews:
  1. Does the related-party tenant satisfy the terms of the lease?
  2. Has the related party tenant paid all the required rent and outgoings?
  3. Is the Lease Agreement prepared by an Australian lawyer? If not, is it an enforceable and genuine legal document? Who is going to check it?
  4. Any rent adjustments? Are they consistent with market rents?
  5. If the rent is indexed for inflation or some other formulae is the tenant paying this higher rent?

SMSF Property in a Custodian (Bare) Trust?

An SMSF can not borrow money. Borrowing is considered too risky. There are exceptions to this rule. One exemption is borrowing money through a ‘Bare Trust’ (Custodian Agreement).

Who is the Landlord while the property is in an SMSF Bare Trust?

Consider:

  • Keller Nominees Pty Ltd is trustee of the Keller Super Fund.
  • The Keller Super Fund owns a commercial property in a bare trust:
    • Melbourne Southbank Pty Ltd
    • as trustee for the Southbank Bare Trust

Who is the Landlord? The Landlord is “Melbourne Southbank Pty Ltd”. (The Landlord is not Keller Nominees Pty Ltd.)

While the commercial property is in a Bare Trust then the trustee of the Bare Trust (only) is the Landlord. (The Trustee of the SMSF is not the Landlord.)

An example of an SMSF Bare Trustee being the Landlord

  • The trustee of the George and Jenny Superfund is a company Black Nominees Pty Ltd.
  • The George and Jenny Superfund borrow money to purchase a commercial property.
  • The Super Fund does this through a Bare Trust (Custodian Trust).
  • The Trustee of that Bare Trust is White Nominees Pty Ltd.
  • White Nominees is the Landlord (not Black Nominees Pty Ltd).

When the happy day comes that the property is paid off then the property is transferred to Black Nominees Pty Ltd atf the George and Jenny Superfund. The Legal Consolidated SMSF Lease caters and allows for this future event.


Need help building your SMSF Commercial Lease? Just telephone us for legal advice.

Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National law firm
Mobile: 0477 796 959SMSF Commercial Lease Agreement Self Managed superannuation fund lease
National: 1800 141 612
Email: [email protected]

09/11/2016

SMSF Commercial Lease Agreement

SMSF Commercial Lease Agreement – including ‘related parties’ Your Self-Managed Super Fund (SMSF) can own commercial property. The SMSF can even lease the commercial property to a member. However, the commercial lease agreement must comply with the law. Special rules in the drafting of the SMSF Commercial Lease Agreement are […]