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Mark Baghdassarian

Nov 17, 2022

in SMSF Technical Forum

I have a situation where a lease is 2 years (1.7.18 to 1.7.20) with an option of offer for a renewal for a further term of another 1 year. Is the option to renew clause enough evidence to suggest that the lease was in fact renewed and an agreement in place between related parties or am i really needing to be insisting on evidence of a lease executed from 2.7.20 between these related parties.

Essentially what im asking is: is an option to renew enough of a contract/agreement between parties or does it merely allow a further term to the tenant should they exercise it.

Being related parties i should have enough arms length information on these lease arrangements to begin with i believe.

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Nov 20, 2022

Hi Mark

My view is that if there is a lease with an option for a renewal you do not need a new lease agreement.

Normally the lease agreement will advise how the tenant can exercise the option. An example will be a lease agreement may say that it has to be exercised in writing between 3 and 6 months before the end of the current lease term.

That is there should be written communication from the SMSF trustee to the related party landlord if they want to exercise the option.

Thanks

SMSF AAA

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Lease option to extend between related parties