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Again, the cost of a Capital Improvement cannot be deducted from income. Now, just to get all of us on the same page, if accounting rules or tax rules don’t allow a property owner to treat the cost of a Capital Improvement as a deduction from income (think – as an expense), but make the property owner add it to such costs as the one to acquire the property in the first place, why should a tenant reimburse its landlord for landlord’s the cost of acquiring an asset?We’re going to leave that unexplored when it comes to the costs of maintenance and the cost of most repairs.We’re going to explore what are commonly called “Capital Repairs” and its “mother category”: “Capital Improvements.” And, we’re only going to talk about those items that would be in CAM.Do you use the “warranty” period – e.g., use 20 years for a roof with a “20 year” warranty? Isn’t a roof warranty merely a promise that the roofer will come back for 20 years and fix defects in the roof?If you think that’s a tough one, let me share a secret with you.Clearly, that includes the parking areas, sidewalks that run from premises to premises, driveways, and even landscaping.
It is also generally accepted that liability and property insurance costs, though not strictly for “Common Areas,” are “common costs,” and are reasonably included within CAM.No deductions are available for a capital repair; it will instead be added to the cost of the property.A Capital Repair is really a subset of “Capital Improvements,” which are part of the larger category of “Capital Expenses.” What is a “Capital Improvement”?Bushes and trees are closely associated with a building, so they have a determinable useful life. So, should a tenant pay for the entire cost of a new or replacement tree in the year it is planted?If the tree has a 20 year useful life and the tenant only has 5 years to go in the lease term, should it pay for the whole “20 year” cost? Suppose a tenant and its landlord agree which Capital Improvements will be “in CAM” and how those costs are to be spread out over the useful life of the item. There is no “law” as to whether Common Area Maintenance Costs (CAM) should include capital costs.