A commonly asked question by prospective NDIS investors is, ‘what is the difference between a headlease and a sublease agreement?’ Investing in Specialist Disability Accommodation does have many differences between owning a private rental property or commercial premises.
We discuss the differences between headleasing and subleasing, and how they work in NDIS property investment.
What is a headlease? Is an SDA property under a headlease arrangement?
Head leasing refers to a lease agreement where a legal entity (such as a government agency or housing provider) holds the lease with the property owner. Social housing is a good example of a head lease arrangement. The legal entity is then responsible for managing and leases (tenants) under the head lease. With a head lease, the lessee takes on risks from the property owner; the lessee is responsible for vacancy risk, while the owner receives a regular income from the lease.
The other lease type is a sub lease. In the commercial environment, a business may sign a head lease on a workshop space, for example, a hairdressing business. They can then sub lease a room in their space to another business, such as a beautician. The hairdresser leases from the property owner, and then subleases the space to the beautician.
What is the leasing agreement on a private rental property?
If you own a residential investment property and wish to lease it out, often you’ll engage the services of a real estate agent for property management. The real estate agent will then work on your behalf to find a suitable tenant and sign the lease for you. This is considered a regular lease arrangement — you simply have a middleman working for you as part of your regular lease with the tenant.
You can also choose to lease that property directly to your tenant without engaging a property manager. Some landlords choose to do this for various reasons, depending on their circumstances.
Is leasing an SDA property different to the private rental market?
There are several differences between the private rental market and the SDA property market, however, for the purpose of leasing, the two work similarly.
To offer an SDA to the market (and receive the SDA payments), you either need to become an SDA provider, or engage the services of an SDA provider. Therefore, the regular lease agreement is between either yourself as an SDA Provider and the tenant, or the SDA provider that you engage and the tenant.
The role of SDA providers in lease agreements
An SDA provider (whether an individual, family member or organisation) takes care of sourcing specialist disability housing participants, manages vacancies, works with (or as) SDA property managers to cover scheduled maintenance or repairs, and ensures that the dwelling complies with the SDA guidelines at all times.
Under private rental tenancy, opting to lease directly to your tenant means that you take on the responsibility of managing the agreement yourself. You take care of the legal obligations, NDIS requirements, repairs and maintenance of the property, as well as needing to resolve issues and approve tenant applications. Under the SDA rules, you would also need to hold a separate, private lease agreement for each tenant of your SDA home.
SDA providers can facilitate your lease as either a head lease or regular lease, depending on the provider and your wishes.
What is the lease term on an SDA lease?
The initial lease term for SDA participants is between 12-24 months, however, most tenants find their forever home in specialist disability accommodation properties.
Why can’t tenants be on the one lease?
Every SDA participant has a separate NDIS plan. Their level of SDA funding is determined by individual circumstances, and is included in their NDIS plan, which is why each tenant must have a separate lease agreement with the SDA provider.
Which lease agreement is best for NDIS property investment
As with many investment decisions, deciding on which lease arrangement best suits you comes down to your circumstances and situation. It’s important to remember that investing in the NDIS sector does come with many additional requirements over traditional property investment — but it can also come with many additional benefits over owning traditional properties. For this reason, many investors look to engage the services of NDIS investment specialists.
At Apollo Investment, we offer a complete end-to-end solution for investing in SDA properties. We guide you through the building or buying process, connect you with SDA architects, SDA providers and SDA property managers. We work with you to provide a transparent process with the best outcomes for yourself and the NDIS participants in mind. To learn more, talk with our specialist team, today.