An SMSF bought a an off-the-plan property and simultaneously extended a loan of $214,550 to the builder, secured by a Term Promissory Note. The note states that repayment of the principal amount will only be due if construction is not completed within a tree years of signing the purchase contract, along with interest at a specified rate. If construction is completed, no repayment is required.

To determine if this transaction is on commercial terms or constitutes a non-arm's length transaction, your guidance is needed.

It is also important to ascertain if a Caveat should be lodged on the property for security purposes, if monthly repayments and interest are necessary, and if a loan agreement is preferable over the current promissory note.

Alos wondering if a Secured Promissory note is enough documentary evidence for this loan

In terms of the security, the promissory note stats

"1. AGREEMENT:(a) As security for the performance of the Note, Promisor hereby agrees to hold the Land for the purposes of the Construction (hereafter referred to as the “Collateral”); and(b) Promisee hereby agrees to make payment of the Loan 14 days after Promisee’s satisfaction of Special Condition 13 (Establishment of Self-Managed Super Fund) under the executed Agreement for Sale and Purchase of Land between the Promisee and Promisor or its related entity (the “Land Contract”)."