The Civil Code of the Russian Federation within the framework of lease relations allows the tenant to make any property inseparable improvements in relation to the leased property. The implementation of such actions involves the formation of various legal consequences. In connection with the inseparable improvements of the leased property, certain rights and obligations may arise both with the owner and the tenant of the respective property. Their specificity may be determined by the type of property, as well as the terms of the contract between the owner and tenant. What are the main norms of the law governing legal relations, the subject of which is the work of inseparable improvements of property being on lease? What are the nuances of taxing the results of such a modernization of facilities?
The essence of inseparable improvements to the leased property
A person or organization that rented property from someone - most often in this context we are talking about real estate - can in some way modernize, reconstruct, improve its functionality.
Carrying out these works may involve the formation of fundamentally new properties for the corresponding object. The reverse actions in relation to him are difficult and may lead to the inability to use the structure. Therefore, a corresponding improvement in property is recognized as inseparable. A significant criterion for the inseparability of property is a change in the quality characteristics of the original object, as a result of which its value may increase, due to a possible increase in its useful life or consumer properties.
How can inseparable improvements look like? A sample of such modernization can be presented in a variety of options. So, it can reflect the fact that the building has acquired significantly different characteristics in comparison with the initial state.
Inseparable contract improvements
It is worth noting that the lease relationship allows the entity that rented the property to make its corresponding modernization only with the agreement of the owner. Preferably written, fixed in the contract. Inseparable improvements are legally significant actions, and their implementation should be formalized.
The contract between the owner of the property and his landlord may specify a clause on the possible compensation by the owner of the relevant modernization of the object. At the same time, the main parameters of improvements and their preliminary cost can be fixed. If the tenant has made inseparable improvements to the property structure without agreement with the owner, then he will not have any rights to the result of the corresponding modernization. All possible preferences from object optimization can only be used by its owner.
The essence of separable improvements
How are separable and inseparable improvements fundamentally different? Everything is very simple here. We noted above that the main criterion of inseparability is the loss of functionality of an object in the event of an attempt to return it to its original state. Inseparable improvements are, one might say, an irreversible process.
In turn, a separable modernization of an object may imply a relatively affordable return to its original state. Another nuance of the corresponding improvements is that they can be initiated by the tenant without consent from the owner. In the general case, all rights to use separable resources remain with the tenant - unless otherwise provided by the contract. If the tenant has made inseparable improvements to the property, then it is necessary to analyze them for similarity with the results of actions aimed at maintaining the property in a functional state through repair and maintenance.
Of course, in most cases the difference in this case may be obvious. But if the tenant has overhauled the property, as a result of which the property has substantially changed its appearance, then, nevertheless, the result of its work will most likely not be recognized as an improvement of the property. Theoretically, repair costs may be higher than the corresponding modernization of property. But this does not matter.
Thus, inseparable improvements to leased property are characterized by the fact that:
- they need to be agreed with the owner of the property;
- in general, they become the property of the owner of the object and are not subject to compensation.
In turn, separable modernization can be made by the tenant without the consent of the property owner. It forms resources owned by the tenant. At the same time, a person or an organization renting a house can, under their own responsibility, nevertheless carry out inseparable improvements to the leased property. We will study what legal consequences this may lead to.
Inconsistent inseparable improvements: legal implications
If the tenant made inseparable improvements to the rented property without coordinating this action with the owner, then, as we noted above, he will not be entitled to demand compensation from the owner. Moreover, if the corresponding modernization has led to a deterioration in the condition of real estate, even if the owner has a subjective opinion, the tenant is obliged to bring the property in its original condition.
Consistent inseparable improvements
The second scenario is when the modernization of real estate is agreed between its tenant and the owner. In this case, the conditions for the implementation of the corresponding improvements, as we noted above, should be prescribed in the contract. One of the conditions of the contract may be compensation for the cost of modernization by the lessor. Depending on the specific moment of the improvement, the owner can pay the costs of the tenant upon expiration of the contract or during its validity. The contract may also determine a reduction in rents - in compensation for inseparable modernization.
Inseparable Improvements: Taxation
Consider the aspect of tax accounting for inseparable improvements. We agree that the tenant and the owner of the property agreed on this procedure. First of all, it is worth paying attention to the fact that the improvements that are agreed between the tenant and the owner of the property do not always relate to depreciable property, but only if they are paid by the owner of the property.
In turn, the reimbursement of the costs of the tenant for the relevant modernization can be taken into account by the owner of the object in order to tax income. The tenant himself can also use the expenses incurred in order to optimize the amount of taxes - in a certain reporting period.
A variant is possible in which the compensation of inseparable improvements by the property owner is not prescribed in the contract, despite the fact that the owner has agreed to the appropriate modernization. In this case, depreciation is also not charged, and the initial value of the property does not increase. There are also no reasons for optimizing the tax base.
It may be noted that in cases where inseparable upgrades were not compensated by the lessor, the lessee has the right to charge depreciation on property. We can consider the specifics of taxation of the results of the modernization of facilities by the example of fulfillment by the parties of legal relations of obligations to pay property tax.
If the contract is concluded by a legal entity, that is, the lease of non-residential premises is executed, then they must pay the corresponding amounts to the budget. In this case, property tax must be paid by the party that fixes the costs of improving facilities on the accounts of accounting. As a rule, this correlates with the ownership of the improvements. If they are owned by the tenant, then he must pay taxes.
If the owner of the improvements is the lessor, then he fulfills the relevant obligations upon the termination of the lease. But while this contract is in effect, the tenant makes calculations with the budget. Another criterion by which the subject of property tax is determined is the accounting of the corresponding resource on the balance sheet. What does it mean? If the improvements are on the balance sheet of the tenant, he pays the appropriate tax. If the landlord keeps them, he must make payments to the budget.
Improvements to property and VAT
There are a number of nuances that characterize the calculation of VAT in the framework of legal relations, the subject of which is the rental of property, accompanied by the production of inseparable improvements in it. We will study them. If inseparable improvements were transferred to the lessor, while they were carried out by the contractor, this transfer should be recognized as implementation. VAT must be paid for it. It is presented by the contractor to the lessee and a deduction can be applied to it. It can be noted that when calculating income tax, improvements to the object donated to the owner are not taken into account.
The involvement of a third-party organization in order to modernize the facility is a key criterion for a firm's obligation to calculate VAT on inseparable improvements. The fact is that if the tenant reconstructed the property on his own, then in this case other legal norms come into effect. In accordance with them, VAT on improvements cannot be accrued.
This is due to the fact that in order to qualify improvements as part of rental property for the purpose of taxing them with VAT, transfer of ownership is required. In accordance with the norms of the Civil Code of the Russian Federation regulating legal relations, within the framework of which inseparable improvements are made, by default the corresponding legal mechanisms are not applied. The Civil Code of the Russian Federation does not actually include provisions suggesting that a tenant has a right of ownership to the results of the modernization of facilities. They cannot be considered as an independent asset separately from the main property. Thus, when the leased premises are returned to the owner, transfer of ownership is not carried out. It turns out that the inseparable improvements made by the tenant are not subject to VAT.
Accounting for separable improvements
It will be useful to consider the main nuances of tax accounting, in turn, separable improvements in real estate. In order to correctly calculate the tax on them, it is necessary first of all to determine the cost and term of operation of the corresponding improvements. If the costs of modernization of real estate do not exceed the amount established by the Tax Code of the Russian Federation, and the period of their use is less than 12 months, then the improvements should be attributed to inventories. If the relevant expenses are higher than the criteria established in the Tax Code of the Russian Federation, and the term of use is more than 12 months, then the value of the property should be written off through depreciation.
If the subject of the lease relationship is a legal entity, then, probably, the accounting policy will be approved at the level of its local acts. And if in it the limit for classifying property as depreciable is set lower than in the Tax Code of the Russian Federation, then in order to take into account separable improvements, it is necessary to use exactly the indicator that was approved in the local act. It can be noted that property tax, if the corresponding modernization is made, is not paid by the tenant. This is because separable improvements are generally classified as movable property.
How to draw up the consent of the owner to inseparable improvements in the contract?
Having studied how the accounting of inseparable and separable improvements is carried out, we consider such an aspect as the correct execution of the consent of the property owner to the corresponding modernization of the object. For this, a separate agreement must be signed between the tenant and the property owner. It can supplement the one in accordance with which the rental of non-residential premises or, conversely, those related to the housing stock is carried out. The conditions should be spelled out in this contract: about what kind of work is supposed to be done in order to improve the facility, who will pay for the modernization - in whole or in part, how it is supposed to reimburse the cost of improving the property.
Compensation of tenant's costs for modernization can be carried out, as we noted above in the article, by reducing rents. Or a contract for the sale of inseparable improvements is possible. Everything is determined by the parties to the contract. Correctly compiling it is an important aspect of legal relations. If either of the parties does not comply with it, the second will receive the right to receive their preferences in court. For example, a tenant may recover inseparable improvements in an equivalent amount if the owner does not pay the costs of the relevant modernization, although he undertakes to do so under the contract.
The absence of a written agreement between the tenant and the owner means that neither party can use the expenses for tax purposes. In addition, as we noted above in the article, the landlord has the right to demand inseparable improvements to remove from the object - but so that its functional state is not affected. Disputes between the owner of the property and his tenant may be resolved in court.
Lease of the enterprise and its inseparable improvements: nuances
At the beginning of the article, we determined that in the general case, inseparable improvements are a characteristic of real estate. But it's not always the case. It happens that inseparable improvements are a property of objects that are not necessarily real estate. For example, it may be an enterprise. In this case, the legal relations connected with his rent are regulated by other legal norms than in the case of real estate.
So, if the tenant has made improvements to the structure of the enterprise, then, in accordance with the legislation of the Russian Federation, he gets the right to reimburse his own expenses for the corresponding modernization, even if he did not agree with the lessor on the implementation of these actions. Unless, of course, otherwise established by the contract between the owner of the enterprise and its partner.
At the same time, the lessor can avoid the obligation to compensate the lessee for the costs of improvements in court. To do this, he will need to prove that the inseparable improvements of the leased property have modernized it is not so obvious that the operational capabilities of the production assets of the enterprise have not grown enough in terms of the need to compensate the tenant's costs. In addition, if the owner of the company can try to prove in court that the tenant did not have an objective need for modernization.
Improvements in the sale of residential real estate
What legal consequences can characterize inseparable improvements in the sale of an apartment from one individual to another?
In this case, it will be useful to turn to an analysis of the same legal provisions that govern legal relations, the subject of which are transactions with any real estate. That is, in principle, those that we examined in the context of the corporate interaction of various businesses in transactions with non-residential real estate. In this case, the legal nature of the relevant legal relations is the same and is regulated by the same rules of law.
Separable improvements in a rented apartment are generally the property of the tenant, unless otherwise specified in the contract between him and the homeowner. If the tenant made inseparable improvements at the leased facility with the consent of the owner of the apartment, then upon termination of the rental contract, he receives the right to receive compensation for his expenses for the corresponding modernization. Again - if the transfer of inseparable improvements is not carried out otherwise by virtue of certain provisions of the contract between the tenant and the owner.
If the modernization of the object has not been agreed between the owner and the tenant, then in the general case the expenses incurred by the second are not compensated. But during the sale, the owner of the apartment can include them at will in the price of the object.
If property improvements are made through depreciation at the expense of it, then the lessor is entitled to them. This rule is relevant for legal relations involving legal entities, the subject of which is renting an apartment.
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