Delapidation provisions are the liabilities to put back a property at the end of the lease into the same condition it was when you commenced the lease. Therefore, any change in the condition of a property during the lease my creates a liability. This is one area that companies often fail to account for correctly.
If it is probable that you will need to pay delapidations and you can reliably estimate the cost – you should provide.
If it is probable that you will need to pay delapidations but you cannot reliably estimate the cost – you should not provide, but you should disclose.
If it is possible that you would need to pay delapidations and the likelihood of this is not remote - you should not provide, but you should disclose.
If it is possible that you would need to pay delapidations and the likelihood of this is remote - you should do nothing.
Getting the above wrong; or
Calculating the delapidations on a straight line basis; or
Not considering a break clause.
Future Value | 75000 |
Annual Interest Rate | 0.05 |
Number of Years | 10 |
Present Value | =+C2/(1+C3)^C4 |
Future Value | £75000 |
Annual Interest Rate | 5% |
Number of Years | 10 |
Present Value | £46,043 |
WACC | 0.05 | ||||||||||
Total Intrest | 28957 | ||||||||||
Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | Total |
Discount Factor | =+(1+$C1)^C3 | =+(1+$C1)^D3 | =+(1+$C1)^E3 | =+(1+$C1)^F3 | =+(1+$C1)^G3 | =+(1+$C1)^H3 | =+(1+$C1)^I3 | =+(1+$C1)^J3 | =+(1+$C1)^K3 | =+(1+$C1)^L3 | =SUM(C4:L4) |
Present Value | =+C4/M4*C2 | =+$C$2/D4 | =+$C$2/E4 | =+$C$2/F4 | =+$C$2/G4 | =+$C$2/H4 | =+$C$2/I4 | =+$C$2/J4 | =+$C$2/K4 | =+$C$2/L4 | =SUM(C5:L5) |
WACC | 0.05 | ||||||||||
Total Intrest | 28957 | ||||||||||
Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | Total |
Discount Factor | 1.05 | 1.10 | 1.16 | 1.22 | 1.28 | 1.34 | 1.41 | 1.48 | 1.55 | 1.63 | 13.21 |
Present Value | £2,302 | £26,265 | £25,014 | £23,823 | £22,689 | £21,608 | £20,579 | £19,599 | £18,666 | £17,777 | £198,322 |
Lease that has a break clause
Agreement to pay the landlord a fixed sum
Agreement to waive the delapidations costs since the tenant extends the lease
Auditors would require the necessary evidence and workings to be able to become comfortable that the treatment has been performed correctly.