Lease Agreements

It is generally understood that a lease agreement should be in place when leasing property owned by an SMSF.

Although there is no regulation by the ATO requiring that lease agreements for a property owned by an SMSF be provided in written form, it is still recommended for clarity and record-keeping purposes.

Written agreement helps to clarify the rights, obligations, terms, conditions and penalties of all parties involved. It also facilitates compliance with in-house asset rules and clearly states the intended use of the property, thus demonstrating that the property is rented exclusively for its intended purpose.

An auditor is most likely to ask for the lease agreement to ensure compliance. Especially for commercial properties, a written agreement is important to prove the agreement is made at arm’s length if it is rented to the related parties.

Section 109 of SISA: Arms-Length Transactions, ensures all transactions, including leases, are conducted at arm’s length and on commercial terms.

Making decisions that prioritize personal connections over the interest of the SMSF is a breach of the arm’s length principle which is the core principle of SMSF transactions, which may cause a potential contravention and penalty. 

The Consumer Affairs Victoria & the General tenancy agreement by RTA Queensland provides the template to suit the requirement. See below for the sample for the documents:

The article below briefly explains the reason why a written lease agreement should be made:

SMSF Adviser – Lease agreement

Click here for other documents required for property investment when lodging an annual return.