Hello Colleagues,
I am reaching out to help get some clarity on our matter and see if there is a solution.
Amortization
Section 4.4 of the Lease excludes from Operating Expenses:
m. Contributions to any so-called "reserve" fund or the like;
t. Costs of capital expenses or improvements, as determined by generally accepted accounting.
We have installed and replaced boilers and JACE controls at a property over 10k each.
The cost of capital expenditures is specifically excluded from Operating Expenses, as are contributions to reserve funds that are for the expenditures. The said replacements/improvements were properly capitalized by the landlord; however there is no provision to include a portion of such capital expenses over time (amortization). Accordingly, Operating Expenses should be reduced by the $20,000 of amortized costs related to these capital improvements - Says tenant
"According to the lease it is determined that we cannot include Capital Expenditures that are described in GAAP into the CAM reconciliation for this tenant. This is a gray area for me (Josh) as far as the Boilers and JACE system go, as I (Josh) believe those would naturally be capitalized items per GAAP. I can reach out to fellow Tax accountants for follow up.
We charge the tenant an amount of the depreciation costs that is aligned with there lease so they pay for their portion of the use of the item. My colleague thinks we can charge the cost into CAMs back to the tenant, but the way this lease was signed it doesn't seem like we can unless we deem an item like that to be a regular operating expense i.e the Jace controls and boiler.
Looking for additional thoughts on this.
Thank you kindly in advance.
Cordially,
Josh
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Josh Axelson
Director/Manager
Duluth MN
United States
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