This is one of a series of occasional research notes produced by Business Centre Capital Co Ltd. (B3C) the specialist fund management advisory company for the business centre industry.

Introduction

This note was inspired by a discussion the writer had with Giles Denney, owner of The Malthouse Business Centre, a well-established serviced office in Egham, Surrey. Giles took exception to a statement in our previous note entitled “The Importance of Flexible Managed Offices as a Catalyst For Regeneration”, published in April 2007, that accounting standards required companies to put the cost of leases on their balance sheets to the detriment of their financial ratios.

Having considered Giles’ comments, I concluded that I needed to set out more clearly the point I was trying to make and I therefore wish to acknowledge Giles’ role in inspiring this latest note.

Executive Summary

• All companies quoted on a recognised investment exchange must now report to shareholders using International Financial Reporting Standards and as a result a substantial minority UK property leases should be considered as finance leases of the building, which means that there will be a negative impact on the financial ratios of the lessee.
• Additional professional fees are likely to be incurred in making the assessment whether a lease is a finance lease or not, so there will be a cost even if it isn’t a finance lease.
• Companies using serviced office space do not have to address these issues so serviced office companies should market their product to finance directors.

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