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What Is a Leasehold Cost?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 12 April 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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A leasehold cost is a term used to describe any type of expense that is incurred as the result of arranging and continuing a lease on some type of property. Costs of this type may include any taxes that are due on the property, expenses that occur due to late payments by the tenant, and even expenses like paying bonuses to third parties that may hold some sort of claim on natural resources that are found on the property. Depending on the total amount of leasehold cost associated with a property, the expense of maintaining the lease may become prohibitive, making it better to find a buyer and sell off the asset.

The concept of a leasehold itself has to do with extending rights and privileges to a tenant that would often be maintained by the owner. This approach is not uncommon in a number of nations around the world, and allows businesses to form long-term lease relationships with property owners. In return for the lease arrangements that include an equitable monthly rental payment, the tenants also are able to make use of the property in ways that are usually more the province of an owner. At the same time, the tenant may assume responsibility for a leasehold cost that the owner would normally manage, such as paying property taxes.

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Both the tenant and the owner may incur some sort of leasehold cost, depending on the exact terms of the contract that governs the relationship. As part of the deal, the tenant may agree to be responsible for paying the property taxes associated with the real estate involved, or to absorb any costs associated with repairs to the plumbing or electrical systems found on the property. In turn, the owner may also agree to cover certain costs like landscaping expenses or general cleanup of the property after some sort of natural disaster. The owner will also usually cover any type of expenses that may arise when the tenant fails to deliver the lease payment on time, including any overdraft charges assessed on the owner’s bank account, or any late charges that are incurred on debts that come due while the owner is awaiting the receipt of the late payment.

The scope of leasehold cost involved will depend greatly on the terms and conditions found in the lease agreement. Those terms must be in compliance with any governmental regulations that impact the content of leases, as well as any special arrangements that the owner and tenant decide to include within the provisions of the contract. By taking some time to identify the more likely type of leasehold expenses that could arise at some point and addressing them within the body of the contract, there is less opportunity for disputes over which party covers what expense to arise at any point during the life of the leasehold.

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