I ahvent found a consensus of this issue and would like to hear back from anyone else that can back their perspective up.
Scenario:
A developer builds a commercial premises.
Company A buys an office in the building, Company B leases an office in the building.
Both Companies have their offices fitted out at the expense on the developer, with repayment plans over a number of years.
My question is this:
Company A – has purchased the premises, however, the fitout has been paid for by the developer, and is technically the developers asset until paid in full, however, Company A has full control and can deny access to the fitout and premises as it sees fit.
Who claims the depreciation of the fit out for company A? Is it the company or the developer, and if it is the developer, (which is my line of thinking) – how does the loan repayments affect the depreciation (I would think it doesnt) claimed since the fitout will not be 'owned' by Company A until the loan is fully paid out?
Company B is a little less technical as the premises are being leased, however, if Company B are also paying back the fitout, is it their asset or the developers, and who claims the depreciation….?
Appreciate any feedback.
Cheers
Interesting question.
The answer revolves around ‘ownership’.
Company A has purchased from the developer. I need more info – is it a vendor finance or mortgage? Either way, it is owned by the purchaser, as they have purchased the premises including the fitout, the vendor or mortgagor have only financed the deal & come back into ‘possession’ but generally not ‘ownership’ upon default of the purchaser.
Company B is the Lessee. Without having read B’s lease, there are several possible answers: a) the ownership of the fitout remains with the developer & then transfers to the tenant at expiry – this allows the developer to depreciate the fitout but not have the make good obligation , b) the developer provided a fitout contribution but retain ownership, same as a, c) the lease includes cost recovery for the fitout but there is no transfer of ownership; d) the fitout is a documented loan from the developer so it is owned by the tenant. See my blog below.
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