Business real property rented to a related party only avoids being an in-house asset if it is subject to an enforceable lease agreement at commercial terms. The lease should include the following considerations:
- The rental figure must be commercial at commencement and consider the other items below. It may need to be verified retrospectively so supporting evidence should be held.
- The mechanism for increasing the rent is clear. Yearly rent reviews have fixed increases (simplest to apply), market reviews or CPI. Whatever the terms they must be commercial AND applied ongoing.
- Responsibility for outgoings is clear. The simplest is the tenant pays all outgoings. There should be no ambiguity regarding expenses. There should be no ad hoc capital improvements without a review of the rental agreement.
- The term should be commercial – 3 to 5 years maximum.
- An option to renew with a continuation clause should be included. Without this the lease could expire causing an inadvertent in-house asset trigger.
One last thing. Make sure the rent is paid on time and in accordance with the rental agreement. An automatic payment authority could be useful.
A little planning at inception can ensure stress free compliance.
On a completely different note. Our basic fee waiver for the 2024 accounts for existing SMSFs that transfer to our admin service expires at the end of September so why not have a chat with our Head of Growth, Sarah Pressler, on 0459 296 197. You might also be interested in discussing our transparent communication portal where you can choose the degree to which your clients deal with us and, if communications are bypassing you, how you can have complete visibility and control over that process.
