Renting a Commercial Property to a Related Party

There are several compliance issues that need to be considered and dealt with correctly.

Firstly, GST may be a factor. If the fund is registered for GST, then generally the rent must include GST. If outgoings are paid by the fund but then reimbursed by the tenant, GST must be added.

Secondly, there should be a commercial lease or at least some form of written tenancy agreement.

The usual market-based conditions should be included. This will include eviction for non-payment of rent.

Thirdly, rent must be paid to the super fund in accordance with usual market conditions. This will include market-based amount of rent, with payments being made in accordance with lease agreements e.g. monthly or in advance.

Please ensure that a copy of the lease agreement is forwarded to Supercorp. You will be asked to provide evidence for an auditor’s review which usually occurs every 3 years. A real estate kerbside valuation and rent appraisal in writing is sufficient.

1.9.1 Leases to Related Parties

As a guide, if a fund leases business real property to a related party (eg. employer sponsor), the following would be appropriate:

  • Obtain third party written advice as to the market rental to be paid.
  • Enter into a written lease agreement on commercial terms.
  • Ensure all transactions are in accordance with the lease document. For example: if the lease requires rent to be paid on a monthly basis, ensure the fund receives the rent on a monthly basis.
  • If the lease requires rates, insurance etc to be met by the lessee, the fund should not ultimately bear these expenses.
  • Any insurance policies over the property should be registered in the name of the fund.
  • Renew the lease agreement if appropriate, ensuring terms are adjusted for increases in the market value or CPI.

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