Part D2: Appendix – Common transactions and areas of operation – School leasing arrangements and land use
D2.1 Leasing by a school
Many proprietors/schools lease property for the purpose of operating a school. To remain eligible for NSW funding, the leased property must be for the operation of the school, payments made in relation to the leasing of the property must be at no more than reasonable market value (see B2) and not be unreasonable having regard to the fact that funding is provided to or for the benefit of the school.
Most commercial leases will include clauses that specify the type of business activities that can be undertaken on the site (the permitted use). Proprietors/schools should ensure that the lease allows the land to be used for the purpose of operating a school.
To ensure a school lease is at reasonable market value, it is important to look at more than just the rent amount. Other terms of the lease also matter, such as how long the lease runs, whether there are renewal options, how and when rent increases are applied (like fixed rates, CPI, or market reviews), and who pays for things like utilities, rates, insurance, and repairs. It is also important to check who is responsible for maintaining the property, and what happens if either party wants to make changes or improvements. All of these factors can affect the overall value of the lease and should be considered to ensure the school is not paying more than what is reasonable.
- The signed lease agreement, including all terms and conditions (including renewal options).
- Documentation showing the permitted use of the property includes school operations.
- Details of rent increases or reviews, including the method (e.g. CPI, fixed rate, market review) and timing.
- Records of any lease registration (where applicable).
- Clauses or documents outlining maintenance and repair responsibilities (which demonstrate the school is only liable to pay for utilities related to the facilities it uses for the operation of the school).
- Provisions or approvals relating to property improvements or modifications, including who pays for them.
- Evidence of any requirements for the tenant to return the property to its original condition at the end of the lease.
- Independent market valuation or rent assessment, where available, to support the reasonableness of the rent.
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
D2.2 Ground rent/leases for unimproved land
A ‘ground lease’ is a lease of vacant land only, without any buildings or improvements on the land. Under such a lease, the tenant is responsible for improving the land through the construction of buildings or similar. Rent for a ground lease is generally calculated by reference to the unimproved value of the land. Proprietors may enter such a lease for the purpose of operating a school.
In order to remain eligible for NSW funding, the property must be required for the operation of the school, payments must be at no more than reasonable market value and not be unreasonable having regard to the fact that financial assistance is provided to or for the benefit of the school by the Minister.
Schools should ensure that the terms and payments under a lease arrangement are based only on the value of the unimproved land (ground rent), not on any buildings or improvements on the property.
- A written lease agreement
- Documents evidencing registration of the lease (where applicable)
- Business records that document prior approval to enter the lease by the schools governing body
- Business records demonstrating that the lease is for the purposes of the operation of the school
- Records (including decisions and rationale) that clearly explain how the school has determined that the relevant lease is at no more than reasonable market value
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
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