DarkLight mode
News – 19.12.24
Buzzacott advises Rose Street Partners on its investment in Kenwood Damp Proofing PLC
Discover how Buzzacott supported Rose Street Partners on its investment in Kenwood Damp Proofing PLC … Read more
Insight – 18.12.24
Start-up guide: Everything you need to know about Tronc schemes to set your new hospitality business up for success
One challenge for new hospitality businesses is the management of tips and service charges. … Read more
Upcoming event – 16.01.25
VAT on Private School fees training
This in-depth, interactive training seminar is designed to provide school administrators, bursars, finance officers, accountants, and trustees with tailored support and expert insights on the practical implementation of VAT. … Read more
Find us quickly
130 Wood Street, London, EC2V 6DL
enquiries@buzzacott.co.uk T +44 (0)20 7556 1200
As businesses review their existing lease agreements, we have seen multiple instances where they’ve identified dilapidation clauses that haven't previously been reflected properly in financial statements. This is leading to revised accounting estimates, and in many cases prior year adjustments to previously reported results. As well as impacting financial reporting, there are also potential tax and cash flow consequences of additional dilapidations exposure that businesses need to consider. By nature, the calculation of dilapidations requires careful judgement, and often specialist involvement is needed to ensure that the provision can be explained and supported.
With the shifting demand for office space, lease terms are being negotiated differently, with more negotiating “power” residing with tenants as landlords seek to keep occupancy levels at a sustainable rate. This has given rise to a shortening in average lease terms, preferable rent levels for tenants, improved lease incentives, and changes to break clauses. There are some financial reporting concessions available where these renegotiations are directly attributable to COVID-19, but where they are not, they need to be considered under the existing accounting frameworks. The nature and terms of lease agreements can materially affect how these are accounted for, in terms of reported financial results, the ability of a company to meet investor expectations and compliance with existing lender covenants.
The decision taken by businesses to either rent or buy property is changing, due in part to the matters outlined above. This has tax, cash flow and gearing implications, for example stamp duty land tax and structuring considerations; and how the property purchase and any refurbishment costs will be funded, be that through existing reserves or new borrowings.
It is perhaps easy to forget the corresponding impact on landlords who have seen significant rent roll reductions, increased exposure to tenant default and voids, and a knock-on impact on property valuations. Certain sectors such as retail and hospitality have inevitably been hit harder than others. The combination of these factors have implications for future cash flows and the ability of landlords to comply with their own financial covenants, to meet their shareholder and investor expectations, and will also influence decision making over when to dispose of or acquire assets. How landlords address these challenges has inevitable consequences for tenants, particularly those looking to revise or exit their lease agreements as they reconsider their office space requirements.
We hold a series of events and publish regular insights to keep you up to date with the latest developments in the real estate sector. Sign up to our mailing list below to receive event invites and sector updates straight to your inbox.
Real estate and construction
1
1 March 2021
Audit and assurance
3
.jpeg)
Tax planning and advice for businesses
4
Phil Westerman
Contact us
6
