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How to calculate a dilapidations provision?

How to calculate a dilapidations provision?

I need to calculate a dilapidations provisions for an office lease expiring in 5 years.

Its a fiarly normal office, the dilapidations will be painting, carpeting, some equipment removal and partition restoration. We'll get the cost assessed formally in the last year of the lease. But in the meantime, I need to start accruing a provision.

What £ per square foot cost or range of costs is typical for a normal dilpaidations?

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23rd Sep 2011 15:38

Dilaps

The concept of a £/sq ft seems inappropriate to me - I would have thought each building needs to be considered on its own merits, as to what works will be required.  That might be difficult without some help from a builder.

A provision should not be made in the accounts unless an accurate estimate can be made.  I'm not sure that your proposed estimate will meet the requirements of a provision under UK GAAP.

Have you considered the tax treatment of the provision?  Any capital expenditure including demolition or construction works included in the dilapidation provision won't be allowable.

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23rd Sep 2011 18:39

The way we do it is......
We deal with many properties. Even a builders quote is not going to be particularly accurate 5 years out and a lot relies on the facilities manager's negotiation skills.

We simply look at recent experience and apply a rate per square foot and the auditors who are one of the big four have not had a problem with this approach.

In terms of accounting for the provision, when we capitalise lease hold improvements we also capitalise the delaps provision as well which is then relesed over the minimum lease period, so you don't get a big one off hit to the P&L.

We are currently using a rate of c.£9 per square foot.

Hope this helps

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