Evidence of a shorter useful life for commercially let buildings

The Munich Finance Court (FG) had to rule on whether, in the context of the long-term commercial letting of two buildings as refugee accommodation for a period of 10 years, a reduced useful life with an annual depreciation rate of 10 per cent was applicable, or whether the standard useful life of 50 years with an annual depreciation rate of 2 per cent should be assumed. The tax office assumed a useful life of 50 years.

The claimant argued that the economic useful life of the refugee accommodation was, in fact, limited to the term of the tenancy agreements – 10 years. The investment calculation had been based on this; any subsequent use was uncertain, in particular the conversion back into a hotel business. In this regard, the claimant submitted an expert report by a publicly appointed valuer, which estimated the remaining useful life at 10 years.

The tax office, however, took the view that a shorter useful life had not been substantiated, as the expert reports submitted had not considered any alternative uses. In the absence of evidence of an exceptionally shorter useful life, the statutory depreciation rate of 2 per cent per annum would apply. Where the forecast was uncertain, the burden of proof lay with the claimant.

A court-appointed expert report was subsequently obtained during the court proceedings. This concluded that a useful life of at least 10 years was possible for both buildings. For one of the buildings, subsequent use was in principle possible, as demand from the public sector could not be ruled out. The expert report did not state definitively that use would cease after 10 years.

With regard to the second building, the valuer considered it highly likely that it would subsequently be converted into a bed-and-breakfast hotel, as there was demand for such accommodation in the market. Continued commercial use beyond the 10-year period was deemed possible.

On the basis of the court-appointed valuer’s report, the Finance Court did not recognise a reduced useful life for either building. The statutory depreciation rate of 2 per cent per annum therefore remained in force. As the burden of proof for a different valuation lay with the claimant and she was unable to provide evidence with sufficient probability, a depreciation period of only 10 years was not recognised.

Source: Munich Finance Court, judgment of 10 April 2025 – Ref. 10 K 1531/21