What is the rationale behind NNN Tenant paying for Amortized CapEx?
A tenant just asked me why he's supposed to paying for a HVAC unit that goes into my building, and if that makes it his now. No, sir, it doesn't.
But I don't want to just say "because that's what your lease says bud". What is the actual rationale behind it?
Bonus: I must amortize it over 12 years. But their lease has 2 years left on it. Do I lose out on the remaining 10 years of amortized CapEx, once lease expires?
What asset class?
Small bay industrial in California
I don't know industrial practices, but in leases where indoor common areas are shared and a benefit to the tenant, there is a lease concept that exists on a provision where the tenant has to pay their share of common area maintenance and that includes maintenance/replacement of systems which serve it. I've seen it as a share of that year's depreciable cost of the asset
Depends on the market and not typical as much these days as it once was. The thought is that the landlord is recuperating base building capital costs that will benefit an existing tenant. It's not passed on to new tenants given they are reset at new market rents (in a rising market). Yes, you'll rarely capture the entire amount back unless the rent roll is on long-term leases.
You don't get to depreciate the capex since you never paid for it. The tenant would amortize it over 2 years since that's what's left on their lease (assuming they move out).
Why was he thinking he get's to amortize it? Is that the case in some situations?
If there was a tenant improvement allowance then the landlord/lessor can depreciate. If the tenant/lessee just flat out pays for it themselves, they book it as an intangible asset (since they don't own it) and amortize it. At least I'm pretty sure that how it goes.
We would be paying for it and billing the tenant back via a 12-year CapEx amortization. That's what the lease allows/calls for.
So seems you would only get 2 years (out of the total 12) if they don't renew.
Oh I see what you're saying now. Yeah you'll just get 2/12th of the HVAC cost + whatever interest is stated in the lease.
“NNN”??? No nut November tenant????? Bro wtf hahahaha
Optio dignissimos et at recusandae odit ipsam exercitationem et. Quia ea voluptate quam repellat aliquid. Ut et non voluptas id optio neque eos. Voluptate odio occaecati explicabo incidunt.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...