Requirements of leasing from my SMSF to a Related Party

When an SMSF holds business real property in an SMSF, it can lease this to an associate of a member or a related party (it cannot lease residential property to an associated or related party of a member). When leasing a commercial premises through a Self-Managed Super Fund (SMSF) to a related party, it is crucial to adhere to strict guidelines that uphold both the integrity of the fund and regulatory compliance:

1. Market Rate Rent: Rent must reflect the current market rate for similar properties in the same area. This ensures that the transaction is fair and prevents the fund from providing undue benefits to the related party. Independent valuations are advisable to support these rates.

2. Formal Lease Agreement: A detailed, legally binding lease agreement should outline all terms including duration, rent amount, payment terms, and responsibilities for maintenance and repairs. This agreement serves as a critical document in legal and financial audits.

3. Regular Payments: Rent payments should be timely and in accordance with the agreed-upon schedule in the lease. Consistent late payments or irregularities can signal non-compliance and jeopardise the SMSF’s compliant status.

4. Enforcement of Terms: Just like any commercial landlord, an SMSF must enforce lease terms rigorously. This may include charging late fees, issuing notices, or taking legal action if payments are delinquent, ensuring that the fund is not financially disadvantaged.

5. Documentation and Auditing: Keeping comprehensive records of all lease transactions, communications, and formal documents is vital. These records must be readily available for regular audits to verify that the fund complies with all relevant superannuation laws and regulations.

Following these detailed steps will help maintain the integrity of the SMSF while ensuring that all leasing arrangements with related parties are handled professionally and legally.