Technical Improvements in Leased Offices: Legal and Tax Risks in Czech Law

JUDr. Jakub Dohnal, Ph.D., LL.M.
JUDr. Jakub Dohnal, Ph.D., LL.M.
13.4.2026 | ARROWS law firm

When you lease an office, you often want to adapt it. You repaint, change the layout, or create new facilities. It may seem straightforward, but technical improvements have complex legal and tax implications under Czech law. Find out what risks you face, who owns the modifications, and how to avoid costly disputes when returning the premises.

In the image, we see a lawyer addressing the issue of technical improvements to leased premises.

Key takeaways

  • Technical improvements to leased premises (your alterations, construction works or equipment exceeding CZK 80,000) can be depreciated for tax purposes, but only if you have the landlord’s written consent to depreciation—without it, these expenses are non-deductible for tax purposes.
  • At the end of the lease, accounting and tax chaos may arise: if you do not restore the premises to their original condition and the landlord does not compensate you, you incur a tax loss (a tax-ineffective residual value) and the landlord receives non-cash income that must be taxed.
  • If you do not restore the premises to their original condition and you leave the technical improvements to the landlord (whether for consideration or free of charge), you may become obliged to account for output VAT, which comes as a surprise to many tenants.
  • The tenant is responsible for restoring the premises to their original condition—if this does not happen, the landlord will keep the technical improvements, but for tax purposes must treat them as non-cash income (unless they agree otherwise, e.g., on payment of the residual value).

When renting an office turns into a legal problem

It starts innocently. You receive the keys to the leased premises and see that repairs are needed. Old paint, cracked plaster, outdated wiring. So you decide to invest in it to create a pleasant working environment. The agreed rent is low because the landlord knowingly leases the space in a shell-and-core condition.

The tenant then typically invests tens to hundreds of thousands of Czech crowns. They repaint the walls, replace the flooring, install new lighting, modify the electrical installation, build internal partitions, fit a kitchenette, or do anything else. Legally and for tax purposes, all of these are technical improvements—i.e., an increase in the value of the leased property.

That sounds simple, but in legal terms it entails a range of obligations and risks that many business owners do not even realise until they face litigation or an additional tax assessment by the Czech tax authority. If you are dealing with how to properly address these investments contractually in the lease agreement and related amendments, our support in contracts and negotiations can help.

What “technical improvements” are and why the law addresses them

Lawyers and tax authorities use the term technical improvements (under Section 33 of the Income Taxes Act) to mean alterations a tenant makes to leased property. These must be expenses that, in total for a tax period, exceed CZK 80,000 and that increase the value or functionality of the property. 

In general, this includes:

  • extensions, additions and building alterations (changes to the layout, new partitions),
  • reconstruction (interventions in the property resulting in a change of purpose or technical parameters),
  • modernisation (expanding the equipment or usability of the property—e.g., new air conditioning, a security system).

Legal regulations focus on technical improvements because they create tax, accounting and ownership implications. A tenant investing their own money wants to know whether the costs can be claimed as tax-deductible expenses. The landlord, in turn, asks what impact this will have on their property. The state’s interest is that these transactions are taxed correctly—especially where VAT supplies are involved. The practical impacts on tax deductibility and related records are also discussed in more detail in the article Technical improvements versus repairs: Where the tax line lies and how to correctly categorise million-crown investments in real estate.

The key issue is tax depreciation—tenants want to spread their costs over several years to reduce their corporate income tax base. But this is exactly where things get complicated, because the law sets clear conditions for when this is permitted and when it is not.

Key requirement: the landlord’s written consent

This point is absolutely critical, yet many tenants overlook it. Without the landlord’s consent, you can end up in a complex tax situation. In practice, it pays to set the consent and other tax-related aspects in advance with support in tax law.

Under Section 28(3) of the Income Taxes Act, a tenant may depreciate technical improvements to leased property only if they have the landlord’s written consent to such depreciation and if the landlord has not increased the acquisition cost of their own property by these expenses. Without the landlord’s consent, you cannot depreciate the technical improvements for tax purposes—only for accounting purposes.

In practice, this means:

  • All costs of technical improvements will remain in your accounts, but you will not be able to claim them for tax purposes (they are non-deductible expenses).
  • When the lease ends, the tax residual value (the amount you have not yet depreciated) becomes a non-deductible expense unless the improvements are sold (transferred for consideration) to the landlord.

Let’s say you invested CZK 500,000 in new flooring, partitions and lighting. The landlord never gave you written approval for depreciation. After three years you decide to leave and you restore the premises to their original condition. For tax purposes, the entire investment then becomes a sunk cost that you cannot deduct from your taxes.

Ideally, the consent should be included directly in the lease agreement or in a separate written agreement. If the purpose of use of the premises is also changing (e.g., office vs. retail/operating premises), it may be useful to follow the overview in the article Change of use without construction works: When a notification is sufficient and when a permit is required. ARROWS tax advisory always verifies with clients that this consent is properly in place, so they do not face unpleasant tax surprises when the lease ends.

Related questions on the landlord’s consent and tax depreciation

1. Can I start depreciating the technical improvements even if I only received the consent after the first year?
Depreciation of technical improvements may begin once they are put into use. A prerequisite is having the landlord’s consent. If you obtain the consent later, you can include the technical improvements in your assets and start depreciating them only in the period when you have the consent; however, as a standard matter, the consent should be available at the time the improvements are put into use in order to set depreciation correctly from the outset. Depreciation cannot be claimed retroactively.

2. What if the landlord signed the consent but then claims they do not remember?
This is precisely why it is essential to have the consent in writing and signed. A verbal “OK” from the landlord will not be sufficient (the law requires written form). If a tax audit occurs later, you will need to prove it with a document. The attorneys at ARROWS can help you draft legally robust consent wording that will stand up even before the Czech tax authority.

3. Is an email from the landlord saying “I agree with depreciation” sufficient?
A simple email without a guaranteed electronic signature is risky. Although the Czech Civil Code is more liberal on the issue of written form, for tax purposes and legal certainty in real estate agreements it is highly advisable to have a document with a handwritten signature or a qualified electronic signature. Tax authorities may be skeptical of informal messages.

Tax depreciation of technical improvements

If you have the landlord’s written consent, you may depreciate. The tenant follows the same procedure as when depreciating its own tangible assets.

Technical improvements are classified into the same tax depreciation group as the leased asset itself. This is important—the landlord must therefore tell you which group the leased premises (building) are classified in. Technical improvements are always depreciated in the same group as the improved asset.

Examples:

  • You lease an office building (administrative buildings are typically in depreciation group 5). Your alterations to the premises will also be classified in group 5.
  • You lease retail premises in a shopping centre (also usually group 5). Your alterations will be classified in group 5.
  • You lease a production hall made of lightweight materials (it may be group 4). The alterations will be classified in group 4.

In practice, this means you cannot choose an arbitrary number of years. Minimum depreciation periods are set by law under Czech legislation. For group 5 (most office buildings) the depreciation period is 30 years; for group 6 (hotels, historic buildings) it is 50 years; and for group 4 the depreciation period is 20 years. In practice, this means you cannot choose an arbitrary number of years, because minimum depreciation periods are set by law.

In your accounting, you record your costs (accounting depreciation) based on how long you expect to use the technical improvements (e.g., for the duration of a 5-year lease). This may be a different figure than tax depreciation. The difference between accounting and tax depreciation is then dealt with in the tax return.

So if you invest CZK 100,000 and have written consent for a building in group 5, you can claim for tax purposes (using straight-line depreciation) approximately CZK 3,334 per year (CZK 100,000 / 30 years). The remaining value stays on the tenant’s balance sheet and is depreciated very slowly.

Related questions on depreciating technical improvements

1. If the landlord changed their tax depreciation group, will ours change as well?
Yes, technical improvements are always depreciated in the same group as the improved asset. The landlord should inform you about the asset’s classification. It is therefore a good idea to agree in the lease that the landlord will provide the tenant with all relevant information. The attorneys at ARROWS can oversee the lease negotiations to ensure such an obligation is clearly drafted.

2. Can I claim depreciation even if I financed the technical improvements with a loan?
Yes. The method of financing (own funds vs. a loan) does not change the fact that you can claim the costs of technical improvements through depreciation. Interest on the loan is then claimed separately as a finance expense (if it relates to generating income). But again: without the landlord’s written consent to depreciation, it is not possible for tax purposes.

3. What happens if I depreciate and then decide to leave the premises halfway through the lease?
If you leave the premises before the technical improvements have been fully depreciated for tax purposes (which with 30-year depreciation almost always happens), you will have a so-called tax residual value on the asset card. If you do not remove the technical improvements and leave them to the landlord without compensation, this residual value is not tax-deductible. If you transfer them for consideration (sell them to the landlord), the residual value is tax-deductible up to the amount of the sale proceeds.

End of the lease and the tax treatment

The last day of the lease arrives. The landlord wants the premises back from you. The question is in what condition you must return them and who pays if you return the premises with your alterations. This is where the legal and tax reality becomes dramatically more complicated.

Basic legal rule on restoring the original condition

Under Section 2225 et seq. of the Czech Civil Code, the tenant is obliged to return the leased item in the condition it was in at the time it was taken over, taking into account normal wear and tear from proper use, unless the parties agree otherwise.

That sounds simple. In practice, it means: if you installed a new floor, new lighting fixtures and partitions in the leased premises, you should remove them and restore everything to its original condition. Normal wear and tear is tolerated—but building alterations are not. In practice, this means that if you installed a new floor and partitions in the leased premises, you should remove them and restore everything to its original condition.

But that is not all. The legal reality is more complex. Tenants often ask whether they really have to remove everything, or whether the landlord will keep it. The answer to each question has its legal and tax consequences.

Option 1: You return the premises with alterations and the landlord pays you compensation

This is the cleanest tax solution for the tenant if the premises are not restored to their original condition. If you agree that the landlord will keep the alterations and pay you for them (e.g., in the amount of the tax residual value), this constitutes a sale of assets. The residual value of the technical improvements is recognised as a tax-deductible expense.

Example: You invested CZK 600,000; during the lease you managed to depreciate CZK 60,000 for tax purposes; CZK 540,000 remains. The landlord pays you these CZK 540,000. You have income of CZK 540,000 and an expense of CZK 540,000. The tax impact is neutral.

Option 2: You return the premises, the landlord keeps the alterations and provides no compensation

This is tax-wise complicated for both parties. If you return the premises with your alterations and the landlord keeps them without paying you, the tax residual value of the technical improvements becomes a non-deductible expense. You lose this amount for tax purposes.

The landlord incurs a so-called non-monetary income in the amount of the value of the technical improvements. The landlord must tax this “gift” with income tax, even though they received no money.

Option 3: Restoring the original condition

If the tenant removes everything at its own expense, the technical improvements are disposed of. The tax residual value of the disposed technical improvements is a tax-deductible expense (provided that the technical improvements were frustrated/disposed of). However, it is necessary to have a disposal report.

VAT issue when transferring improvements

Watch out for VAT. If you are a VAT payer and you claimed input VAT on the acquisition of technical improvements, transferring them to the landlord free of charge may be deemed a supply of goods or provision of services. Under the Czech VAT Act, an obligation to account for output VAT may arise based on the usual price.

Specifically: You paid a construction company CZK 600,000 plus VAT of CZK 126,000. You claimed input VAT of CZK 126,000. Now you are transferring the improvements to the landlord for free. You must pay VAT to the state on this transaction.

Risk table for alterations to leased premises

Possible issues

How ARROWS helps (office@arws.cz)

Missing the landlord’s written consent to depreciation.

All costs of technical improvements are tax non-deductible. Our attorneys in Prague can help you negotiate an amendment to the lease agreement or a separate agreement including the landlord’s consent so that everything is tax-compliant.

At the end of the lease, the landlord keeps the alterations without compensation.

The residual value of the technical improvements is non-deductible for the tenant (a loss), and the landlord has non-monetary income subject to tax. ARROWS will ensure you agree clear compensation with the landlord that is tax-efficient for both parties.

It is unclear what will happen to the technical improvements after the lease ends.

Disputes over the obligation to restore the premises to their original condition lead to costly demolitions or litigation. ARROWS attorneys clarify the scenarios with clients already when the lease is being concluded and incorporate them into the agreement.

The resulting obligation to pay VAT surprises the tenant.

If you transfer technical improvements free of charge, there is a risk of an additional VAT assessment. Our Prague-based attorneys can help you structure the lease termination so that VAT impacts are minimized or properly settled.

A change of landlord or the tax depreciation group of the asset during the lease.

If the landlord changes the tax depreciation group of their asset, you must also change your depreciation. ARROWS attorneys will adjust the lease agreement so that the landlord is obliged to inform you about such changes.

Legal ownership of technical improvements

The key point is this: technical improvements made by a tenant to real estate generally become part of that real estate. Under the principle of superficies solo cedit (the surface yields to the land) and the concept of components of a thing (Section 505 of the Czech Civil Code), you cannot separate, for example, new tiling from a building without devaluing it.

This means that the owner of the improvements (as part of the building) is the landlord from the moment they are installed. The tenant may depreciate the technical improvements for tax purposes and treats them as its own asset only for income tax purposes, but in terms of civil law the owner is the landlord. The tenant cannot take “its floor” away.

Typical real-life scenarios

Scenario 1: A startup leases an office in shell & core condition

A startup leases 100 square metres of office space in a building near Prague. The space is empty—just concrete and basic connections. The startup decides to invest CZK 800,000 in interior fit-out: a new floor, partitions, lighting, a meeting room. The landlord agrees, but insists that the tenant must pay for everything itself.

The landlord knowingly leases a bare space. The startup and the landlord agree in writing that the startup may depreciate the technical improvements.

After three years the startup grows and needs a larger space. The lease ends. The landlord wants the premises back “in the original condition”—i.e., stripped back to concrete. The startup then has to remove everything, which costs tens of thousands of Czech crowns for demolition and disposal.

If the landlord does not pay the startup for the improvements, the startup has a tax problem and, in addition, demolition costs. ARROWS attorneys would have addressed this situation already when the lease was being concluded, preventing demolition costs.

Scenario 2: A development company leases storage space

A development company leases 500 square metres of storage space. The developer decides to create an office and staff facilities there, which means building new partitions and installing water supply and waste pipes. The developer invests CZK 3 million.

The developer and the landlord agree on a ten-year lease with the right to depreciate the technical improvements. After 10 years the lease ends. The landlord wants the developer to return the premises to their original condition. The developer refuses to pay a million for demolition, while the landlord argues that it was the tenant’s investment.

In the end, they agree on a compromise where the landlord pays an amount as a buyout of the improvements. The developer will then be able to claim the residual value in its tax return only up to the amount of this compensation. If they had clarified all of this during the lease with ARROWS attorneys, they could have set the compensation for the improvements in the contract from the outset. 

Related questions on lease termination and technical improvements

1. Do I really have to remove everything I did in the leased premises?
Legally, yes, unless the agreement provides otherwise. The tenant is obliged to return the premises to their original condition. In practice, however, you will often agree a compromise with the landlord—for example, the landlord keeps certain elements that increase value (new windows, new electrical wiring) without you having to dismantle them. But this is a matter of agreement. ARROWS attorneys can help you negotiate clear handover terms with the landlord already when signing the lease agreement.

2. If the landlord refuses to return part of the compensation for technical improvements, do I have any rights?
If you do not have an agreement in the lease, the statutory entitlement to compensation is disputable and depends on whether the landlord consented to the improvements and whether they undertook to pay. Under Section 2220(2) of the Czech Civil Code, upon termination of the lease the parties settle according to the extent to which the landlord was enriched, if the landlord gave consent. However, this right is often excluded in contracts. 

3. What if I decide during the lease to sublease the premises to someone else?
The relationship is: landlord → tenant → subtenant. Technical improvements made by the subtenant are more complex. The subtenant may depreciate the technical improvements if it has an agreement with the tenant and the owner’s (landlord’s) consent. After the sublease ends, the tenant remains liable to the landlord for the condition of the premises.

Final summary

Alterations to leased premises may look simple, but the legal and tax reality is complex. The main thing is to understand four points: the landlord’s consent to depreciation, the CZK 80,000 threshold, ownership of building alterations, and the tax impacts at the end of the lease.

Many entrepreneurs do not realise these consequences until they face a dispute over compensation or an additional tax assessment. 

It is safer to address the matter with experts from the very beginning. The attorneys at ARROWS, a Prague-based law firm, specialise in real estate law and the tax aspects of leases. They can help you obtain written consent, draft clear terms for the end of the lease, and address VAT together with tax advisers. 

If you are planning major alterations to the leased premises, contact us at office@arws.cz.

FAQ – Most common questions about tenant alterations to offices and non-residential premises

1. How can you tell when it is a technical improvement and when it is routine maintenance?
A technical improvement (over CZK 80,000) changes the technical parameters, purpose, or level of equipment of the asset (reconstruction, modernisation). A repair means restoring the asset to its original or operational condition (replacing a broken window with the same one, painting, repairing roof covering). Repairs are a tax-deductible expense immediately, while technical improvements are depreciated. 

2. What risk do I face if I do not legally address a technical improvement?
The risks are legal (an obligation to remove/demolish at your own cost, a dispute over compensation), tax-related (inability to depreciate, non-deductibility of the residual value) and financial (penalties, VAT).

3. Can I keep the technical improvement if the landlord agrees?
Structural technical improvements (partitions, floors) cannot legally be “kept” and taken away, because they form part of the building. However, you can agree on a financial settlement.

4. What if the landlord sells the building to someone else during the lease?
The sale of the building does not affect the validity of the lease agreement – the new owner assumes the rights and obligations of the original landlord (Section 2221 of the Czech Civil Code). Written consent to depreciation granted by the original owner remains valid also in the relationship with the new owner.

5. What is the difference between a technical improvement and repairs that the landlord is supposed to carry out?
The landlord is obliged to maintain the leased premises in a condition fit for use. However, routine maintenance and minor repairs are paid by the tenant under Government Regulation No. 308/2015 Coll. (for apartments) or under the contract (for non-residential premises). Major repairs (emergencies, structural elements) are paid by the landlord. A technical improvement is an above-standard enhancement that the tenant makes for its own benefit – the landlord does not have to pay for it unless they undertake to do so.

Notice: The information contained in this article is of a general informational nature only and is intended to provide basic guidance based on the legal status as of 2026. Although we strive for maximum accuracy, legal regulations and their interpretation evolve over time. We are ARROWS advokátní kancelář, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client protection we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages arising from the independent use of information from this article without prior individual legal consultation.

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