Pay in lieu of rent

Pay in lieu of rent

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A limited company rents its premises from its parent company (at an open market rental value).  During the last year the company has paid for some much needed repairs on the property and has been given a couple of months rent-free.  How would you show this in the company's accounts?  The company applies the FRSSE

Options I have considered.

1) rent = rent for the year after rent free period (ie 10 x monthly rent)  and  cost of repairs stays in repairs and renewals.

2) rent = normal 12 month rent with a transfer from repairs and renewals to rent for the equivalent of two months rent.

3) rent = the rent paid + the cost of the repair work carried out on the building in lieu of the rent.

My personal opinion is, that if the transaction is to reflect the nature of the transaction, then option 3 would be most applicable

I would also consider that a related party note would need to be modified to explain the nature of the transaction.

Comments please.

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Euan's picture
By Euan MacLennan
03rd Oct 2011 16:57

Option 1A?

Rent for the year = the total rent payable over the remainder of the lease from the start of the year less the 2 months rent-free, divided by the remaining term, i.e: the average rent payable over the duration of the lease having been given 2 months free.  And it will be the same each year for the remainder of the term.

Repairs - if they really are repairs - go under property repairs.  However, if there is an element of capital improvement, it would be a fixed asset to be depreciated over the remainder of the lease as it will then revert to the landlord.

 

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