rent

Leasing business premises from a SMSF

Many business owners own the commercial or industrial premises that they use to operate their business from.  Often that property is owned by a Self-Managed Superannuation Fund (SMSF).

Leasing business premises from a SMSF is becoming commonplace. SMSFs can be a tax-effective way to create wealth and provide for your retirement, in addition to providing some asset protection benefits however, they come with a requirement to comply with the Superannuation Investments (Supervision) Act 1993 (Cth) (SIS Act) and its Regulations.

Additional obligations apply when the SMSF is using a limited recourse borrowing arrangement and bare trust when borrowing to acquire the premises and consideration ought to be given to who the members of the fund are and what happens if they were to pass away.

One of the leasing obligations on SMSF trustees in the SIS Act is that there be a written Lease in place. Not only does there need to be a Lease in place, but it must be at ‘arms length‘ and on commercial terms.  This effectively means that it must have all of the usual or typical terms that would be expected to be in place if the property was being rented to a third party, for example with market rent being required to be paid in full and on time, with no discounts.

Practically, there are other benefits of having a proper Lease in place and one of them is that on the sale of the business, the Lease can be assigned to the purchaser so that the SMSF continues to get the benefit of the Lease and its protections after you cease to run the business. It also can assist your SMSF to maintain the value of the premises as any purchaser of the land is bound by it, so having a good yield is important.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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in Business / Commercial Law / Dispute Resolution / Estate Planning / General / Property / Risk management / Superannuation  by 01 Oct 2023 0 comments

Coronavirus: Commercial Tenancies Code

Further to our COVID-19 blogs on the Federal Government led arrangements on employee standdowns, negotiating changes to commercial leases and the JobKeeper subsidy, the National Cabinet on 07 April 2020 agreed on a mandatory Commercial Tenancy Code previously foreshadowed as part of the “hibernation” strategy for Australia’s economy.

“preserve the lease, to preserve the relationship, keeps the tenant in their property and keeps the tenant on the lease, which is also good the the landlord… which underpins the value of those assets“

The Code applies to tenancies where either the Lessee/Tenant or the Lessor/Landlord is eligible for the JobKeeper program.

The Code is based on a set of leasing principals intended as the Prime Minister says to operate such that it “preserves the lease, preserves the relationship, keeps the tenant in their property and keeps the tenant on the lease, which is also good the the landlord… that underpins the value of those assets“.

The overarching obligations are for landlords and tenants to work together in an honest, open and transparent manner and to negotiate in good faith on a lease by lease basis so as to mitigate the impact of the Coronavirus on the lease arrangements.

The Leasing Principles themselves include:

  • Landlords must not terminate the lease due to non-payment of rent during the pandemic period*
  • Landlords must not draw on a Tenant’s security (bank guarantee, personal guarantee or cash bond etc) during the pandemic period
  • Tenants must honour the Lease
  • Landlords must reduce rent proportionate to the trading reduction in the Tenant’s business over the course of the pandemic period through a combination of:
    • waivers of rent (accounting for at least 50% of the rental reduction); and
    • deferrals of rent (spread over the remaining time on a Lease and for no less than 24 months)
  • No interest, fees or charged are to be imposed  on the rent waived or deferred
  • Rent increases (other than Retail Leases based on turnover) are frozen during the pandemic period
  • Any statutory or insurance charges passed on to the tenant are to reduced in the appropriate proportion
  • Tenants should have an opportunity to extend the Lease period  of the rent waiver/deferment period
  • A binding mediation process will regulate these co-operative arrangements.

*The pandemic period is from 03 April 2020 and for the period during which the for the period during which the Commonwealth Government’s JobKeeper program remains operational.

To view the Prime Minster’s statement following the National Cabinet meeting here.

The States and Territories will legislate these arrangements as soon as is possible.

Banks are urged to support landlords in a similar manner.

Residential tenancies remain a State and Territory issue, not being determined by the National Cabinet. To register your business’s interest in the JobKeeper system, visit the Australian Taxation Office’s dedicated page.

FURTHER INFORMATION

For further information in relation to legal issues arising from Coronavirus or if you need to discuss how to best deal with commercial tenancy issues, please contact us on (02) 9521 2455 or email help@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice.

Please contact McKillop Legal to discuss your legal concerns or objectives.

Stay up to date - LinkedIn | Facebook | Twitter

in Business / Commercial Law / Debt Recovery / Dispute Resolution / General / Insolvency & Bankruptcy / Property  by 07 Apr 2020 0 comments