Forums / Property Investing / Commercial Property / Can I rent from myself?

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  • Profile photo of MosicLandscapesMosicLandscapes
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    @mosiclandscapes
    Join Date: 2010
    Post Count: 73

    Just looking into renting some commercial space for our growing business (which is seperate from our property investing company) and I was wondering it we could buy a commercial property through the company and rent it off our company with our business? So, to break it down:

    Pritchard Co. buys warehouse.

    Mosaic Landscapes rents warehouse off Pritchard Co.

    Pritchard Co. is only part owned by us, Mosaic Landscapes is fully owned by us.

    TIA,

    Jess

    Profile photo of crjcrj
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    @crj
    Join Date: 2004
    Post Count: 618

    This is quite normal. There can be sound commercial reasons for doing this eg the potential to keep assets out of the operating business and out of the reach of creditors of the operating business.

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Absolutely and this is also quite common in the commercial SMSF space.

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
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    Residential and Commercial Brokerage

    Profile photo of Scott No MatesScott No Mates
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    @scott-no-mates
    Join Date: 2005
    Post Count: 3,840

    Provided that the lessor and the lessee are separate entities, there should be no issues.

    Conversely, if a tenant was to purchase a property in the same name as appears on the lease, the lease is extinguished.

    Profile photo of wakebrownbwakebrownb
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    @wakebrownb
    Join Date: 2011
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    Can the same rules be applied to residential, whereby the property bought by the parent company is leased by the business to house employees in?

    Profile photo of RPIRPI
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    @rpi
    Join Date: 2012
    Post Count: 308

    USE A COMPLETELY SEPARATE ENTITY

    I have 2 clients at the moment that are under external administration and them not using separate entities for business premises has cost them a fortune, one example below.  I am rather opinionated about this but that has come from having grown men crying in my office because they have lost everything they have built up because of either bad advice or, even worse, they had good advice and ignored it to save a couple of grand on the way in.  It is definitely worse for the people who were told and tried to save money as they know a big part of their loss is due directly to their own actions.

    Example

    Client's successful business owned through Pty Ltd that also owns the premises.  Client has never missed a loan payment, (this bank is divesting some of its commercial loan portfolio and is revaluing a lot of properties at present) but bank has revalued the premises and it has decreased and therefore breached the the loan covenants.  Bank sends a letter and says you are in breach you have 14 days to refinance the loan or we put you under administration.  Premises value is down and can't refinance in that time (loan on premises is $7m).  Administrators sent in.  Administrator fees are clocking up fast, Business owner who built this up from nothing is now trying to find external funding to buy just the business (his equity in the premises will be gone through fees) from his own company.  He may have to walk away completely and be left with the crumbs after everything is paid off, the bank gets their money, real estate agents fees, administrators fees etc.  Had there been separate entities only the premises entity would be under administration and his business would be fine.

    I would NEVER NEVER (unless you are looking at being a listed property trust) use anything but a stand alone entity for each commercial property.  Depending on the owner/controlling situation depends on the type of situation.  You can cover any sort of arrangement through related party loan agreements etc if structured properly.

    I go further and recommend that you utilise an overall structure, with your equity sequestered in a non trading/non-investing trust or then makes secured loans to other entities.  If not set up properly it provides little protection, if setup properly you can go personally bankrupt and still come out the other end.

    Darryl

    RPI | Certus Legal Group / PRO Town Planners
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    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
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    Darrly,

    I agree.

    I have a client now who is going to be bankrupted soon. He did his own asset protection planning and thought he was smart buying a commercial premises in a company rather than his own name, Guess who owns the shares!

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of RPIRPI
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    @rpi
    Join Date: 2012
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    Hi Terry

    Not good.  I have seen some shocking advice given to people.  

    How does buying the your house in the company that also owns the business and then renting it from them sound.  

    It is when you are dealing with liquidations, administrations and bankruptcy that you really see the benefit of asset protection advice.  

    Any chance you could offer some wisdom in my thread on innovative business structures that is on that other forum.  Would love to see what you have to say.

    regards

    D

    RPI | Certus Legal Group / PRO Town Planners
    http://www.certuslegal.com.au
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    Property Lawyer & Town Planner

    Profile photo of fragarcolinfragarcolin
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    @fragarcolin
    Join Date: 2013
    Post Count: 16

    Planning and buying commercial premise or the residential property is not bad thing but the problem is that when you don't have any idea in this field don't take such a big risk as town planning consultants are there for you, they not only help you in buying property but give you profitable advice before buying any kind of properties and ideas including the areas, its market values etc.

    Profile photo of Amy WhiteAmy White
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    @amy-white
    Join Date: 2013
    Post Count: 13

    surprisesurprisesurprise  Wow you guys are really generous with your knowledge.  I thought I knew a lot.  Seems I have much more to learn.

    Profile photo of SeanWilsonSeanWilson
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    @seanwilson
    Join Date: 2013
    Post Count: 26

    The typical rule of thumb is to segregate your assets and investments as much as possible. This way you don't have that 'domino' effect that can bring massive companies and massively wealthy people to their knees.

    It is very sad when you see these things happen.

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