Can we capitalize fees for removal of illegal squatters?

Question:

We have incurred considerable legal expenses to remove illegal squatters from a piece of land we own in order for us to build a shopping center on the land. Can we capitalize those costs?
 

Answer

In line with IAS 16, YES.

These legal costs are directly related to getting the land ready for its intended use — so they can be capitalized as part of the cost of the land.

IAS 16 allows you to include directly attributable costs necessary to bring an asset to the condition required for use.

Removing legal or physical obstacles is part of that.

In some countries — like Spain with the “okupas” — this is a real and recurring issue in property development.

Important note:

When I talk about the obstacles, I mean it purely from an accounting perspective, without any judgment on people’s lives or struggles.

And so, squatters may find themselves in difficult situations and while someone as a rightful owner of the land may classify them as an obstacle to remove, we should never forget the human aspect.

That’s all I want to say as a side note – please, focus on accounting perspective of this issue here.