German Federal Fiscal Court: No obligation to capitalise maintenance reserves

If a lease is entered into, not only does the lessor fundamentally have to allow the lessee to use the leased property, it must also maintain it for the lessee during the lease period, ensuring that it is in a condition which is suitable for its intended contractual use (statutory rule). In this case, the lessee pays rent which not only constitutes a fee for the permission to use the leased property, but also for the maintenance of the leased property. The lessor in this case receives higher rent to cover the maintenance costs and at the same time also bears these costs.

If, on the other hand, the lessee under the lease assumes the maintenance of the leased property, the rent to be paid is normally lower because the lessee also incurs maintenance costs. If the lessee is in arrears with maintenance, it may therefore establish a reserve for this in its balance sheet. In a recent case before the German Federal Fiscal Court it was disputed whether the lessor also has to capitalise a corresponding maintenance claim in its balance sheet. The German Federal Fiscal Court ruled that this was not the case in its judgement of 12.02.2015 (IV R 29/12).

The German Federal Fiscal Court justified its decision with the fact that acquisition costs, which must exist if a business asset is to be capitalised, are lacking. According to the court, this is because the lessor does not incur any expenditure for the acquisition of the disputed maintenance claims. Although the lessor reduces its own expenses by transferring the maintenance obligation to the lessee, it normally receives lower rent for this. The court concluded, however, that this was not to be deemed expenditure for the acquisition of the maintenance claim.

According to the opinion of the German Federal Fiscal Court, the non-capitalisation of maintenance claims applies both to cases in which a controlling company leases property to a controlled company and to cases in which a partner leases property to “his” partnership. The judgement states that only the claims of the partner rendered as consideration for permission to use a business asset could be capitalised in the special-purpose balance sheet. In the case in question, these specifically did not exist due to the reduced consideration as a result of the maintenance obligations which had been contractually transferred to the lessee.