Commercial property repairs and maintenance is typically shared between the landlord and the tenant. However, the specific obligations and responsibilities can vary depending on the terms of the lease and the applicable state or territory legislation.
In this article, we outline:
Definitions of repairs, maintenance and capital improvements
According to the Australian Taxation Office (ATO), repairs are completed to fix damage or deterioration of a property, such as replacing part of a damaged fence.
Maintenance, on the other hand, is completed to prevent damage or deterioration of an asset. For example, re-painting a wall the same colour as it was previously, is classified as maintenance.
Any works that improve a property beyond its original state are classed as capital improvements. According to TR 97/23, an ‘improvement ‘provides a greater efficiency of function in the property – usually in some existing function. For instance, extending a building is considered a capital improvement.
Landlords are typically responsible for structural repairs, pre-existing issues and common areas while tenants are typically responsible for routine maintenance and tenant-caused damage. The following outlines which party is commonly responsible for specific repairs and maintenance.
Landlord’s responsibilities
The following is typically the responsibility of the landlord:
• Structural repairs:
– Ensuring the structural integrity of the property, including the foundation, walls, roof and major systems like plumbing and electrical.
• Pre-existing issues:
– Addressing pre-existing problems or defects which existed before the tenant occupied the property.
• Essential services:
– Ensuring essential services such as water, gas, electricity and heating/cooling systems are in working order.
• Common areas:
– Repairing and maintaining areas that are part of a larger complex or have shared areas.
Tenant’s responsibilities
The following is typically the responsibility of the tenant.
• Routine maintenance:
– Day-to-day tasks including changing light bulbs, replacing batteries in smoke alarms and general cleaning.
• Tenant-caused damage:
– Damages caused beyond natural wear and tear such as holes in walls or broken windows, are the responsibility of the tenant.
• Reporting repairs:
– Tenants should promptly report any necessary repairs or maintenance issues to the landlord or property manager, depending on their agreement.
It’s important to note that these responsibilities can be modified by the terms of the lease agreement, so it’s essential for both parties to review the agreement and understand their respective obligations.
Additionally, state or territory-specific tenancy legislation may impose additional requirements or guidelines for repairs and maintenance, so it’s advisable to consult the relevant local authority or seek legal advice for precise information based on your location.
Professional property management to avoid disputes
Commercial property owners often don’t have the time, expertise, or inclination to handle repairs and maintenance directly, in most scenarios they opt to hire professional property management companies. Property managers play a crucial role in overseeing and coordinating repairs, maintenance, and vendor services on behalf of the property owner. They ensure that routine inspections are conducted, maintenance issues are promptly addressed, and the property remains compliant with relevant regulations.
Claiming deductions for repairs and maintenance
Fortunately, for commercial property owners and tenants, deductions are available for commercial property repairs and maintenance.
Repairs and maintenance are immediately deductible in the year the cost incurred while capital improvements are depreciated over time depending on the effective life of the asset or the construction commencement date and the industry in which the building is used.
Claiming deductions for commercial repairs and maintenance allows property owners and tenants to recoup often unavoidable expenses throughout the year. Claiming deductions lowers the taxable income of the landlord and tenant, which in turn, improves cash flow and reduces taxation liabilities.
By effectively managing repairs, maintenance, and depreciation, property owners can optimise their investments and achieve long-term success in the commercial real estate market.
Commercial property owners and tenants should consult with a quantity surveyor that specialises in depreciation, such as BMT Tax Depreciation, to fully understand the specific regulations and requirements related to claiming depreciation and repairs and maintenance to ensure compliance and maximised deductions.
To learn more about the deductions available in commercial property repairs and maintenance, get in touch with BMT on 1300 728 726 or Request a Quote.