A leasehold improvement is an improvement made to a leased building by a department that has the right to use this leasehold improvement over the term of the lease. This improvement will revert to the lessor at the expiration of the lease.
The Real Estate office is responsible for the leases entered into by the university. The office can be reached at (734) 647-9852.
Accounting Treatment
The cost of leasehold improvements over the capitalization threshold of $500k should be capitalized.
Examples of costs that would be included as parts of a leasehold improvement include:
- Interior partitions made up of drywall, glass and metal
- Miscellaneous millwork, carpentry, lumber, metals, steel, and paint
- Acoustic, drywall, and plaster ceilings
- Restroom accessories
- Electric lighting fixtures
- Interior floor finishing, including carpet, vinyl and tile.
The lessor may be another university department or someone outside of the university. The lessee generally should be responsible for recording the improvement if the lessee pays for the improvement.
Excluded Expenditures
Leasehold improvements should not include maintenance and repairs done in the normal course of business. Further, moveable equipment or office furniture that is not attached to the leased property is not considered a leasehold improvement.
Depreciation
The cost of a leasehold improvement should be depreciated over the shorter of
- the remaining lease term, or
- the estimated useful life of the improvement.
Leasehold improvements do not have a residual value. Improvements made in lieu of rent should be expensed in the period incurred. If the lease contains an option to renew and the likelihood of renewal is uncertain, the leasehold improvement should be depreciated over the life of the initial lease term or estimated useful life of the improvement, whichever is shorter.
ChartField Notes
Expenditures for leasehold improvements must be recorded in the construction funds (80000 & 80500) on a project grant. Request a new project grant through the Shared Services Center website by completing the project/granteform.
