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Superannuation
Superannuation (SMSF) document

Rent Relief COVID-19

For SMSFs

To ensure compliance with ATO guidance, you must properly document any COVID-19 Relief given by an SMSF. Use Cleardocs to properly document COVID-19 rent relief given by a landlord who is the Trustee of the SMSF to its related party Tenant.

Non-SMSFs - Commercial lease agreements

Use Cleardocs to vary and properly record your commercial lease agreement where the Landlord allows the Tenant COVID-19 rent relief.

$187.00
  • Cleardocs fee incl GST $187.00
Product Information

Can your SMSF's lease to a related party grant COVID-19 relief and should it be documented?

If an SMSF has entered into a commercial lease with a related party, and the tenant is experiencing hardship with its repayments as a result of COVID-19, then the SMSF landlord may grant the tenant COVID-19 relief from repayments.

Ordinarily, agreeing rent other than on at arm's length terms to a related party tenant would breach super law - however, for the purposes of COVID-19 relief, it does not. The arrangement needs to be documented for it to be compliant with super law.

Is an SMSF generally allowed to offer rent relief to a related party tenant? No.

Ordinarily, super law prohibits an SMSF from offering rent that does not reflect arm's length terms, where the tenant is a related party. Rent will not be at arm's length if the SMSF, for example, sets the rent at below market rates or provides rent relief or a discount to such a tenant. Accordingly, an SMSF that provides rent relief to a related party tenant ordinarily risks breaching a number of compliance provisions, including the following:

  • Sole purpose test - offering rent relief to a related party tenant may be viewed as pursuing a separate purpose of assisting the tenant rather than the sole purpose of providing retirement benefits to the SMSF's members. This may result in the 'sole purpose test' being contravened.
  • Financial assistance - offering rent relief to a related party tenant may be viewed as providing a financial benefit to a member or a member's relative in a personal capacity (be it directly or indirectly) as opposed to benefiting the SMSF and its members in their capacity as members of the SMSF. This may result in the SMSF financially assisting that member or member's relative which is prohibited by super law.
  • Arm's length dealing - offering rent relief to a related party tenant may contravene the prohibition against non-arm's length dealings as it could be difficult for the SMSF to establish that it is dealing with the related party tenant in the same way that it would otherwise deal with a tenant that is unrelated to the SMSF.

Is an SMSF allowed to offer rent relief to a related party tenant in response to COVID-19? Yes.

Notwithstanding the general position described above, the ATO has recently acknowledged the hardship that tenants, including tenants that are related parties of an SMSF, may be facing as a result of the COVID-19 pandemic.

In particular, the ATO has stated on its website here that its compliance approach for the 2019-20 and 2020-21 financial years is that it will not take action if an SMSF gives a tenant - even one who is a related party - a temporary rent reduction, waiver or deferral because of the financial effects of COVID-19 during this period.

Each State / Territory has enacted legislation which governs a tenant's eligibility for COVID-19 rent relief and each State / Territory has slightly different requirements governing eligibility. The principal requirements in most States / Territories are that:

  • the lease is for retail, commercial or industrial purposes (agricultural or pastoral leases are generally not covered, and residential leases are in most cases covered by a separate regime);
  • the tenant is a participant in the JobKeeper scheme; and
  • the tenant has an annual turnover of less than $50 million.

The specific legislative provisions in each State / Territory will need to be considered if there is any doubt as to whether the statutory entitlement to claim rent relief applies to a particular tenancy.

An SMSF may seek to offer rent relief to a related party tenant if, for example, the related party tenant operates a business from the leased premises and the business has:

  • had to temporarily close as a result of the impacts of COVID-19; or
  • seen a substantial reduction in its revenue as a result of the various governmental restrictions imposed in response to COVID-19.

How should an SMSF document rent relief offered to a related party tenant in response to COVID-19?

If an SMSF seeks to offer rent relief to a related party tenant, it must ensure that the rent relief is:

  • temporary in nature;
  • directly in response to the financial impact of COVID-19 on its related party tenant; and
  • adequately documented.

The ATO has stated, on its website here that:

  • if temporary changes are made to the terms of a lease agreement in response to COVID-19, the parties to the lease agreement must document the change and the reasons for the change; and
  • this may be done by way of minutes or a renewed lease agreement or other contemporaneous document.

To assist with the documentation process, Cleardocs has developed a new product - Cleardocs Rent Relief (COVID-19).

Can Cleardocs assist with the required documentation? Yes.

Cleardocs Rent Relief (COVID-19) has been developed in response to COVID-19 and the ATO's statements in relation to the ability of an SMSF to grant temporary rent relief to related party tenants impacted by COVID-19.

Cleardocs Rent Relief (COVID-19) provides an SMSF with the required documentation which the SMSF will need in order to continue to comply with super law, if the SMSF intends to provide COVID-19 rent relief to a related party commercial tenant.

The 'rent relief' offered by the product includes:

  • deferral or a partial waiver of outgoings;
  • deferral, partial waiver or full waiver of rental payments; and/or
  • an extension of the lease term if a deferral of rent is being provided.

What if the SMSF is already giving COVID-19 relief?

In order to comply with super law, your SMSF must document the arrangement no matter when the arrangement began. The Cleardocs Rent Relief (COVID-19) product allows an effective date to be entered and the document to be signed at a later date thereby assisting you to document the arrangement even after it has been entered into between the SMSF and tenant.

Frequently Asked Legal Questions

Cleardocs is not a law firm. So as with all the legal material on this site, the answers to these "frequently asked legal questions" are provided by the law firm Maddocks. Cleardocs does not endorse those answers.

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Can this product be used if a landlord and tenant agree to offer rent relief by consent and the relief is not a legislative entitlement (e.g. COVID-19 relief)?

Yes the product is drafted on the basis that it can be used for all commercial leases, whether or not the tenant / lease is entitled to rent relief under the various regimes in each State/Territory. This allows the deed to be used where relief is granted in circumstances where the rent relief is not a legislative entitlement but a commercial agreement between landlord and tenant.

If the Landlord is the Trustee of an SMSF, and the Tenant is a related party, then in order to use this product, the Tenant must be entitled to COVID-19 rent relief - otherwise entry into this deed would contravene super law.

What kind of relief does this product allow the Landlord to give the Tenant?

This product:

  • Allows deferral or a partial waiver of outgoings;
  • Allows deferral, partial waiver or full waiver of rent payments; and/or
  • Provides that where a deferral of rent is being provided, an extension of the lease term can also be agreed. The extension of the term must be at least equal to the duration of the period that the rent is deferred or such longer period as selected.

The product does not impact on any other lease payments that must be made by the tenant.

I am using this product to reflect a change in lease terms as part of COVID-19 rent relief agreed between the parties. How do I know if the Tenant can qualify for COVID-19 rent relief in my State/Territory?

Each State / Territory has slightly different requirements governing the eligibility of a tenant to seek COVID-19 rent relief. The principal requirements in most States / Territories is that the lease is for retail, commercial or industrial purposes (agricultural or pastoral leases are generally not covered, and residential leases are in most cases covered by a separate regime), the Tenant is a participant in the JobKeeper scheme, and has an annual turnover of less than $50 million.

The specific legislative provisions in each State / Territory will need to be consulted if there is any doubt as to whether the statutory entitlement to claim rent relief applies to a particular tenancy.

Will this deed of variation to the lease bind future landlords?

Yes the deed of variation provides that if there is a change in landlords, the departing landlord must notify the incoming landlord and obtain the incoming landlord's agreement to the terms of the deed of variation.

Do I need my bank's (mortgagee) consent before varying the terms of the lease?

If the property is mortgaged then you should obtain the consent of the Mortgagee to the deed of variation before signing the documents. You would typically need to order the product first and then provide the Mortgagee with a copy of the deed. You should speak to the Mortgagee for their exact requirements.

Do I need to register this Deed of Variation in my State/Territory on the relevant register?

If the property is located in Victoria: there is no requirement to register a lease and it is not usual to do so.

If the property is not located in Victoria: When ordering this product you can select whether the parties agree to an extension of the lease term. If there is no extension of the lease term, the deed does not need to be registered in any State/Territory. Even if a short extension of the lease is granted, given the short term nature of any extension, it would be simpler and cost effective not to register the variation in those States where leases are commonly registered. Not registering an extension will not affect the enforceability of the deed as between the landlord and tenant. The only risk is that the extension may not be binding on a mortgagee or subsequent purchaser of the land. If you wish to register this deed, then you will separately have to prepare the appropriate forms to register the deed and comply with the applicable registration requirements in the relevant State / Territory.

How do I calculate the rent relief to be provided?

The amount of the rent being waived should be determined primarily by reference to the decrease in turnover of the Tenant from the premises and can be an amount up to 100% of the total Rent otherwise payable (which is a full waiver) or can be a partial reduction of the total Rent otherwise payable (which is a partial waiver). You should note that at least half of the value of the total rent relief being provided must be provided by waiving the rent. The remainder of the value of the rent relief can be by deferral of rent. For example if the Landlord is reducing the monthly rent by $10,000: the full $10,000 can be waived or if the full $10,000 is not being waived then at least half (i.e. $5,000) must be waived and the remainder can take the form of a deferral of rent.

What date does the agreement need to be entered into by?

There is no specified date by which any agreement must be entered into. Because the relief relates to a tenant who is impacted by COVID-19, the date of the agreement should be within the period during which the tenant is suffering from those impacts, so as to provide the intended relief. However, there is no restriction on the agreement being entered into at a later date with any relief agreed being granted from an earlier effective date, and adjustments being made with the tenant for any rent or other payments made by the tenant prior to entry into the agreement.

Can the deed have an effective date?

Yes, the parties can agree the effective date from which the rent repayment relief applies. This allows the parties to properly document the terms of an agreement they have already reached, regarding rent repayment relief.


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