Office occupier market dynamics have changed dramatically over the past few years, since COVID and the working from home revolution.

Employers – small and large – have to provide high quality workspaces, in order to attract and retain staff.  And also to entice staff to come into the office more frequently, rather than work from home.  This has a crucial impact on city and town centre businesses.

Office investors and landlords, in turn, have to upgrade their office spaces in order to attract the tenants/employers in the first place.  As part of this, in many cases for the larger prime offices, landlords are now directly undertaking and paying for tenants’ fit-outs.  The so-called ‘plug and play’ or ‘Cat A+’ fit-out.  Our opinion is that this phenomenon is here to stay.

Therefore, it is now common practice for landlords to incur expenditure on supplying loose furniture and equipment, as part of those fit-outs.  This was rarely, if ever, incurred previously by landlords. 

Consequently, many have never really had to deal with this issue, until now.  Loose furniture is typically a significant portion of the total fit-out cost.  

The problem

Owing to the long funding lease rules, landlords in many cases are denied plant and machinery allowances on their loose furniture and equipment expenditure in tenant demised areas, where the lease term is in excess of seven years.

Denied because loose furniture and equipment is not classed as Background Plant or Machinery.  What is and is not Background Plant or Machinery is listed in Statutory Instrument 2007, No. 303.  In truth, loose furniture or loose equipment is not explicitly mentioned, but it is implied by elimination and the concise descriptions listed.

The landlord could, of course, make a contribution to the tenant for the loose furniture.  However, it is sometimes impractical for the tenant to procure the furniture or may not want to do so.

It appears to us to be both unfair and unnecessary, to deny landlords and investors the entitlement to claim plant and machinery allowances on loose furniture or equipment in these instances.  

Our solution

Landlords would be entitled to claim plant and machinery on loose furniture and equipment if it were classed as background plant or machinery, by updating the statutory instrument, subject of course to meeting the general conditions.  

We believe therefore that ‘loose furniture and equipment’ should be classed as background plant or machinery.  This could be achieved by simply updating Statutory Instrument 2007, No. 303.  By inserting ‘loose furniture and equipment’ as item 10, in the list of plant or machinery deemed to be background plant or machinery. 

© Smith Kelland Limited

This is for general information purposes only. It is not advice and is not intended to be advice.