Recently I gave some advice in relation to a Client looking at a new food tenancy in a new development where the Lessee was going to undertake fit-out works including new interiors and kitchen equipment. Part of the fit-out works were funded by the Lessors' Contribution as part of their lease contract, but they can't necessarily claim the full amount on their depreciation schedule.
Why?
Because it's about ownership. The contract documents would outline who owns what component of the fit-out works, where typically (not always), the following would occur:
Why?
Because it's about ownership. The contract documents would outline who owns what component of the fit-out works, where typically (not always), the following would occur:
- Ownership of physical works (e.g. services such as electrical, hydraulics, etc) would be to the Lessor,
- Ownership of loose plant and equipment (e.g. fridges, commercial microwaves, etc) would be to the Lessee
That's why it's better to negotiate (if possible as Lessors are quite savvy) that a large part of the works are under the ownership of the Lessee to maximise their depreciation claim.
Additionally, whomever the Lessee chooses to use to fitout the premises, a cost breakdown per item (e.g. separate the individual finishes, equipment, etc) is advisable rather than a lump sum invoice as specifically breaking it down can reap a larger depreciation amount than applying a single averaged rate on a lump sum.
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