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Lease in Director Name But Capitalised in Company

Leasehold property capitalised in the company accounts but lease was granted in the director's name

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Any thoughts on the following problem:

A leasehold property agreement has been entered into by a director operating a letting business via a limited company.

The leasehold agreement was made between the landlord and the director, in the director's name, not the limited company name.

A payment was also made to the previous tenant by the director personally of £50,000 (not paid by the limited company).

The company is operating a letting business and in preparing the year end accounts has:

Capitalised the £50,000 payment to leasehold property under fixed assets.

Amortised the lease over the lease term of 20 years and provided £2500 in the p&l.

As the lease agreement is in the director's name and not the company name is this treatment correct?

If not how do you correctly account for this transaction?

Thanks for your answers.

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By Wanderer
22nd Sep 2020 23:51

John888 wrote:
Lease in Director Name But Capitalised in Company
Leasehold property capitalised in the company accounts but lease was granted in the director's name

Any thoughts on the following problem:

A leasehold property agreement has been entered into by a director operating a letting business via a limited company.

The leasehold agreement was made between the landlord and the director, in the director's name, not the limited company name.

A payment was also made to the previous tenant by the director personally of £50,000 (not paid by the limited company).

The company is operating a letting business and in preparing the year end accounts has:

Capitalised the £50,000 payment to leasehold property under fixed assets.

Amortised the lease over the lease term of 20 years and provided £2500 in the p&l.

As the lease agreement is in the director's name and not the company name is this treatment correct?

If not how do you correctly account for this transaction?

Thanks for your answers.

So the director has entered into a lease and the director has paid £50,000 to a previous tenant.

What's this got to do with the company?

Thanks (0)
Replying to Wanderer:
Psycho
By Wilson Philips
23rd Sep 2020 00:12

Someone will be along in a moment to mention trusts.

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Replying to Wilson Philips:
Red Leader
By Red Leader
29th Sep 2020 13:11

Wilson Philips wrote:

Someone will be along in a moment to mention trusts.


Who on earth could that be? Oh wait a minute - yes, I know.
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Replying to Red Leader:
Hallerud at Easter
By DJKL
29th Sep 2020 17:41

Kaa, perhaps

"Trust in me, just in me
Shut your eyes and trust in me
You can sleep safe and sound
Knowing I am around"

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By frankfx
23rd Sep 2020 00:15

Intentions?
Who has the landlord contracted with?

Lawyers , both all sides sides, at the inception would have taken instructions.

Previous tenant, did he engage lawyers.....if only to ensure that he has no ongoing liabilities after surrendering lease.

Who made the entries in the books and records?
The facts need to be reflected .

If the facts are not the intentions.
Then a remedy should be sought.

Landlord holds the aces. If contract points to director.unpaid rentals and dilapidations will be a director personal liability, distinct from a guarantee.

Thanks (1)
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By John888
23rd Sep 2020 09:46

Thanks for your replies.

The lease was signed by the director in a personal capacity and the payment to the previous tenant was paid personally by the director - this a one director/shareholder company.

The property is being used by the company and is generating its main income which is tourist rental income. The quartlery rents to the landord are also being paid to the landlord by the company.

If the company had entered into the lease and made payment the accounting entries would have been as stated in the question. However, as the landord has granted the lease to the director in a personal capacity, how does the company now account for the letting business income and expenses in its accounts?

Thanks (0)
Replying to John888:
Psycho
By Wilson Philips
23rd Sep 2020 09:52

I think that the basic point made above is that if the lease is in the individual's name, and he has paid the previous tenant, then on the face of it the company has nothing to do with it. However, depending on the conditions of the leasehold interest, he may himself be able to lease the property to the company.

Then again, as I noted above someone may come along to suggest a trust solution.

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Replying to Wilson Philips:
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By John888
29th Sep 2020 09:48

.

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By John888
29th Sep 2020 09:50

Thanks for your answers.

To resolve this I contacted two tax consultants FCA & CTA qualified and both advised if conditions can be met then a Deed of Trust would be the best solution.

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Replying to John888:
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By Tax Dragon
29th Sep 2020 10:10

Be aware that "best" has a specific meaning in that context. They are not considering possible legal consequences. But, as you'll need an authorised person (per LSA 2007) to draw up any trust document, hopefully that person will be able to fill in any gaps.

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
29th Sep 2020 10:23

Agreed, as a landlord I get somewhat shirty with an entity occupying one of my properties when it is not my tenant, in fact I tend to have clauses in my leases that should this happen without my consent the tenant is in breach of their lease and I as landlord have some fairly drastic legal remedies.

If the company is paying the landlord the rent direct the big question is do they "know" this or is it just money transferred in to the landlord's bank account and he /she is none the wiser?

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By Bobbo
29th Sep 2020 10:24

Whilst VAT treatment is not exactly the same as accounting treatment, it is interesting that according to this HMRC aren't that concerned about the lease being in the correct name:

https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit13440

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