Technical Improvement Carried Out by a Future Tenant


The Supreme Administrative Court decided that in a case of a technical improvement carried out by a future tenant (i.e. when there is only a future lease agreement and the future tenant carries out adjustments of the premises before the lease starts), the taxable supply of providing the technical improvement to the landlord is deemed to take place right at the time when the technical improvement is completed, regardless the agreed date of payment.

This is a rather surprising stance on the part of the court, for in practice the date of a taxable supply for VAT purposes was usually considered to be the end of the lease term and any VAT was therefore considered to be payable at that time. The argumentation of the court is based on the legal perspective that, in the case described above, the technical improvement enters into the landlord's disposition immediately due to the absence of the lease relationship at the particular time; in the court’s opinion, the future lease agreement does not have the same binding effect as the lease agreement.

We would therefore recommend keeping the above issue in mind during negotiations with future tenants about fit-outs etc. so as to avoid this problematic situation. Should the intended tenant carry out any fit-outs, it would be advisable to do so once the lease relationship has started.