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Jason G

Mar 12, 2024

No Lease Agreement - Commercial Property

in SMSF Technical Forum

I am auditing a fund that apparently leases a property to an unrelated business.

However, no written lease agreement exists apparently.

What is the correct way to proceed from an audit perspective? Will a lack of lease agreement render it impossible to conclude compliance with arm's length rules? What areas should be considered regarding qualifying the audit report?

1 comment

Comments (1)

THE AUDITORS INSTITUTE

Mar 12, 2024

Hi Jason

Yes section 109 of SIS requires that a Fund must not invest unless:

"the trustee or investment manager, as the case may be, and the other party to the relevant transaction are dealing with each other at arm's length in respect of the transaction".

If there is no lease agreement in place it would appear to be a situation where the trustee of the Fund and the tenant are not dealing with each other on an arm's length basis.

From an audit perspective you should write to the trustee and request an explanation as to why there is no lease agreement in place. If you are not satisfied with the response, you should consider qualifying your audit report in relation to section 109 of SIS and lodging an auditor contravention report re this section.

My view is that it will be difficult for the trustees of the Fund to argue they are dealing with the tenant on an arm's length basis if there is no lease agreement in place.

Thanks

The Auditors Institute