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The superfund leased the commercial property to realted party tenant. Below is the summary:
Lease Agreement: In March 2023, a lease agreement was signed for a 20-year term. This agreement outlines the terms and conditions of the lease, including rent and review mechanisms.
Rental Appraisal: A rental appraisal was obtained at the time of drawing up the lease agreement. This appraisal likely determined the initial rent amount for the commercial property.
CPI Rent Review: The lease agreement includes an annual rent review based on the Consumer Price Index (CPI). This means that each year, the rent amount will be adjusted in accordance with the CPI's inflation rate. This is a common mechanism to ensure that the rent keeps pace with inflation.
Market Rent Review: After the initial 10 years of the lease term, there is a provision for a market rent review. This means that, at the end of the 10-year period, the rent will be reviewed and adjusted to reflect the current market conditions. This adjustment ensures that the rent remains competitive with what similar properties are leasing for in the market.
Subsequent CPI Increases: After the market rent review at the 10-year mark, the lease agreement reverts to an annual CPI increase for the remainder of the 20-year term. This means that, each year, the rent will be adjusted based on the CPI, as mentioned in the lease agreement.
Considering the market rental review will be only after 10 years of the lease, can this be considered as non-arm's lenght as I came across the market rental review after 2 or 5 years of the lease but not after 10 years.
Hi Umesh
The rent terms you have raised above are similar to related party leases I have seen.
It appears to me that it has been done on an arm's length / commercial basis.
As long as the terms are complied with I would not have any issues with this lease agreement.
If other members have a view please let the forum know.
Thanks
The Auditors Institute