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A client wishes to purchase a commercial property, a shop front.
The shop has two windows but internally it's one big open floor.
The shop has two land titles (Lot 1 & Lot 2 of SP) but it's up for auctioning as a "One Lot"
It has one lease agreement and cannot be sold as a separate lots, giving it's physical status.
The client has lender's approval for LRB.
My question is, does the client need to create two bare trusts for each title or only one given the fact that the asset, as a structure, is inseparable and also cannot be sold separately?
In other words, would it be treated as a single acquirable asset even though it has two separate land titles?
Hi WL
My view is the lawyer preparing the bare trusts should give this advice.
My initial view would be as there are 2 titles you may require 2 bare trusts. You note that they cannot be sold as separate lots however this would support only 1 bare trust being required if this is correct.
For guidance refer SMSF 2012/1 - SMSFs: LRBA's - application of key concepts.
Examples that may give you guidance from the ruling are below:
"Example 1 – two adjacent blocks of land
47. As part of the investment strategy of an SMSF, the trustees of the SMSF want to acquire two adjacent blocks of land under a single LRBA. While the vendor will only sell the two blocks together, there are no physical or legal impediments to the two blocks of land being sold separately.
48. The two blocks of land are not a single acquirable asset. As a result, the two blocks of land cannot be acquired under a single LRBA. However, the blocks of land could be acquired under separate LRBAs.
Example 2 – a factory complex on more than one title
49. A trustee of an SMSF wants to enter into an LRBA to acquire a factory which is constructed across three titles. The existence of the factory adds considerably to the value of the land and thus is a significant part of the value of the asset. The factory is therefore relevant as a unifying physical object.
50. The factory and the land comprised of the three titles, is a single acquirable asset and can be acquired under a single LRBA.
51. However, if the factory was derelict and thus not of significant value relative to the land this asset could not be acquired under a LRBA as the factory is not relevant as a unifying physical object and thus the assets are the three titles."
Thanks
SMSF AAA