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Operating Lease of Residential Property forSub Let

Record contract and corresponding entries for Operating Lease of residential property for sublet

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Hello Everyone,

I am a new joiner at this platform and a entry level accountant, I have been working for a small business, other than a main business my boss manages some properties through a private limited company with him being the only shareholder and yesterday he told me that he has stike a deal with one of his friends for a residential property. The deals go through something like this.

My boss's friend is facing some financial difficulty so he wants to let out his residential apartment which he use to live in, however the apartment is not in a reasonable condition to be letted out, my boss did a deal with him to rent the property on the property management company and agreeing to do the repair and maintenance from the company funds and then sublet it. The operating lease is done for 3 years intially with a clause of getting it extended, and during that time my boss's friend will be paid a fixed amount of rental i.e. if apartment is rented out for £1,500 / month then £750/month will be paid to him. The rest will be recorded with my boss's property company as the company is managing the apartment and conducting a repair of £25,000/- initially.

I am confused of how to record the following.

Repairs to property (Will it be classified under repair & maintenance and available for tax allowability) for the property company?

Repairs to property (OR will it be classified as direct cost, becuase of which the additional revenue is being generated apart from small management fee?)

Income - How to record the income from rental and payment to boss's friend?

My boss is planning to carry out the repair in this tax year, I roughly calculated and this repair will bring the company in losses for this year and profits will start from next year, should I put all of the expense in the current year and will the company be available to avail tax benifit (the complete repair expenses will be conducted this year)

I am sorry if I have missed out something, I would welcome every one's help. Please bear in mind not to use jargons and keep the answers simple. Please also refrain from critisicm and suggesting to employee an accountant with expertise in property management.

This is for my job and learning.

 

Replies (5)

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By David Ex
04th Sep 2021 12:18

TL;DR

I can understand you feeling under some pressure but you appear to be being asked to advise on a matter outside the job (and business) you are being paid for (by). If this is an existing property company, is there not already an adviser?

If you aren’t comfortable that you have the knowledge to advise, it would be better all round to tell your boss so now. You can bet he’ll be blaming you if it goes wrong and saying you used some anonymous forum “advice” won’t get you very far.

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paddle steamer
By DJKL
04th Sep 2021 12:32

1. There appears to be a legal obligation by the tenant to effect the works, is that correct?

2. Would all the works if done by the landlord be considered repairs or would some be improvements/capital?

3. Whilst initial term is 3 years there appears to be a tenant right to extend (presume tenant right), if so for how long, can it be repeated and does rent stay at the say £750 level during said extended period?

4. Is the option to extend solely that of the tenant, or does landlord have to agree?

Read through all of the following:

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1200

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By Paul Crowley
04th Sep 2021 15:47

"My boss's friend is facing some financial difficulty so he wants to let out his residential apartment which he use to live in, however the apartment is not in a reasonable condition to be letted out, my boss did a deal with him to rent the property on the property management company and agreeing to do the repair and maintenance from the company funds and then sublet it."
This sounds as if the property is currently not fit for renting and the company is either paying for the accumulated repairs when owner lived in it or making substantial improvements.
Either way the payments are not repairs associated with letting

Think your boss and his friend should talk to an accountant in practice.

The payments sound like improvements to leasehold property in the company.
If so Boss will not like the tax result

Appartment sounds like a flat
Cannot really be particularly expensive to repaint it

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By Tax Dragon
05th Sep 2021 03:29

Seriously?

What your boss needs: an accountant.
What Aweb is not: an accountant.

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By Leywood
05th Sep 2021 17:54

Professional ethics apply to employed as well as s/e Accountants. You should step away from this task.

I would go so far as to suggest that you look for a job where your boss can sign off your experience to your professional bodies standards. This one clearly will not be able to, which will potentially leave you with problems in a couple of years.

Asking for advice on a forum as a way of learning how to do your job, worse, how to be a proficient Accountant is totally inappropriate. The very least you should have at entry level is a supervisor or who can sort out this mess and guide you. +/or and external Accountant.

Asking folk to not use jargon will not aid your development.

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