SMSF w/LRBA - Directive to Lease?

[65fbk]

I recently established a SMSF and used it, and borrowings to purchase a commercial property.
Among the masses of reading and learning I came across this page that states:

Do - ensure a formal direction is given to lease the property

A formal direction should be made by the fund directing the bare trustee to take any specific action over the property. This is particularly relevant where the fund trustee wants to lease the acquired property to a tenant.

A separate direction should be given for each new lease the bare trustee must sign, rather than the fund providing a general direction for it to generally lease the property during the lifespan of the LRBA.

Use of a general direction would be likely to be seen as the creation of a duty and it would be highly likely that such a duty would erode the bare trust by providing the bare trustee with the discretion to act on its own accordance. This is fatal to the very existence of a bare trust.

Yet I can find no mention of this requirement/advice anywhere else.

Can anyone comment on this?

THANKS.

 

[65fbk]

hmm, so I'm guessing nobody actually does this..

 

[Redwood]

Hi there,

Are you leasing to a third party or a related party? are you borrowing from a related or third party? Bare Trust been executed and who prepared the bare trust?

Assuming you are in VIC do you have a commercial lease agreement in place with the correct name on the lease, payment terms including frequency of repayments?

All of these are important and will most likely answer your question. If you have settled have you used the correct name on the contract of sale?

Cheers Ivan

 

[CosmicTrevor]

Article is missing

I followed the link, but it doesn't go to a page containing the information you posted. Did a Lawyer with SMSF experience write the article?

I have asked my Lawyer for some guidance on this and am waiting for a response. However my question is in relation to a residential lease via a property manager.

Perhaps the question to ask the Lawyers on this forum is what actions can a Bare Trustee (Custodian) take without direction from the SMSF Trustee (Beneficiary)? For example, can a Bare Trustee make a decision in relation to legislated obligations on it as a property owner or does the SMSF Trustee have to provide direction for these as well?

If the Bare Trustee can make such decisions why wouldn't they also be able to sign a lease without direction from the SMSF Trustee?

Trev

 

[Terry_w]

A custodian trustee is no quite a bare trust because the beneficiary doesn't have the right to demand transfer of title while a loan is in place.

because the custodian trustee is the legal owner of the property it would have to enter into contracts to lease property. The beneficiary, which is the trustee of the SMSF, could direct the trustee to enter into these lease agreements.

Many custodian deeds would have provision for the SMSF to act under a power of attorney on behalf of the custodian, so the SMSF could enter contracts such as leases.

 

[Terry_w]

Here is the definition of "bare trust" from Butterworths Concise Australian Legal Dictionary.

1. A trust where the trustee holds the property without any beneficial interest in the property and without any further duty to perform in relation to the trust except to convey the trust property on demand to the beneficiaries of the trust or to deal with the property as directed by the beneficiaries, Hendegern v FCT (1988)