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Hi,
What do people think witht the scenario where:
1. We have an SMSF owning a commcercial property.
2. A related tenant is in place.
3. We have a sworn valuation with sales and rental apprisals included which is dated say 01/07/2019 - Say for $50,000
4. We have a lease agreement dated 01/07/2019 and it is for 5 years with CPI and an option for 5 years more with a rental review at 01/07/2024.
The client then does a new sworn valuation on 01/07/2022 as they need to revalue the property but the rent comes in at $75,000 this time on the report. Are we within our rights to keep the rent as it was at $50,000 plus the CPI's ( so maybe $55,000 by now) because this was the commercial agreement and contract made on arm's length originally, or would the ATO expect a new lease to be done, variation to the old lease or something else?
There would need to be a rental appraisal done on 01/07/2024 of course if the option was exercised.
Also what if the lease was made and was 10 years - I may consider this a little non arm's length but surely there are example of real life 10 year leases also in place out there?
Thanks
CV
Hi CV
In relation to your first question if the lease agreement requires a rental review at 1/7/2024 there would me no reason to amend the lease agreement on 1/7/2022 if an appraisal at that date shoes a current increase in the rental value. If an arm's length / commercial lease agreement was signed at the commencement of the lease there would normally be no ability to increase the rent other than in accordance with the agreement (such as CPI increases and rent reviews at certain dates).
Legislation in each state would normally prohibit a landlord from increasing rent during a fixed term agreement other than in accordance with the agreement.
Yes a commercial lease could be for a 10 year period. The lease agreement must again be done on a commercial / arm's length arrangement.
Thanks
SMSF AAA