Hi All. My limited company owns a building and in order to access my rear garden, one needs to walk on the neighbour's land. My neighbour agreed to give my building a right of way, and this was formalised legally through a Deed of Easement Grant. The Deed is for 5 years. I paid a one-off sum (premium) of £5,000 on completion and I pay £500 annually. Other parties have a right of way over the same land, and have respective agreements with the neighbour.
I am unsure as to the accounting treatment of the one-off sum of £5,000. I am aware with Leases, the tenant should capitalise the one-off premium paid on completion and amortise it over the term of the lease. But, this isn't a lease - I am not the only party using the land and my right of way can be terminated by the neighbour, with 6 months' notice.
Any thoughts? Thanks.
Replies (7)
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Although it may not meet the legal tests to be a lease, it sounds like a lease to me for accounting purposes. FRS102 talks of granting rights to use assets - it doesn't say anything about exclusivity.
"my right of way can be terminated by the neighbour, with 6 months' notice."
In such a circumstance what happens to the £5,000 you paid, is a proportionate amount then returned or is it all forfeit?
In that case to me there is effectively a rolling six month agreement to a max of five years and accordingly all the front end costs hit the P & L year one, others might differ in their view re this, but given the only guarantee is six months it appears to me that year one the cost is £5,500 and years 2-5 £500 each if paid for that year, as presumably the £500 is not due to be paid past when any exercised six month notice expires. (You do not need to pay the £500 after the agreement is terminated by the other party?)
Sweet deal for the other party..
I'd interpreted the termination provisions differently, so yes, now agree that the full premium goes to P&L in year 1.