I started our review of net leases with a review of the business model. Net leases have evolved into investment vehicles for absentee landlords. They are priced so to yield a predictable, steady yield. The contracts take much of the 'business' out of the business of renting commercial property.
The tenant can be charged (in theory) a lower per sq. ft. rate, but is then at risk for some or potentially all the costs of upkeep, maintenance, their share of taxes, utilities, etc. Since that's the common portrayal of the agreements, let's look at the operation.
Tenant agrees to lease space, and needs HVAC. HVAC equipment is indeed Section 1250 property, as supported by a cost segregation assembly put together by IRS (http://www.irs.gov/Businesses/Cost-Segregation-ATG---Chapter-6.4-Relevant-Court-Cases). The court cases listed are noteworthy for their items added to buildings, and the 1245 or 1250 treatment determined by litigation.
I think we can further agree that Section 179 property must be 1245 property, so HVAC equipment, or the roof in your prior example, would not be eligible for accelerated depreciation. Things like glass storefronts, floor coverings, etc., are.
I agree that the 1250 property paid for by the tenant must be treated as 1250 property, depreciated over its useful life, with an adjustment at lease termination for unused depreciation (when the tenant vacates).
I also agree that under the extreme model we are using, that landlords are using the net lease model to put responsibility onto the tenant. At this extreme, it is hard to see what involvement a landlord would even have. Even if the landlord builds out for the tenant and includes some 1245 property, the landlord does not have an accelerated tax advantage in the build out.
One example of a landlord's tax advantages
can come from accruals they can establish for things like end of lease remodeling/rehab we discussed earlier. The model does allow for a known history of these accruals, so some deduction
acceleration is available. That Dollar store example is useful here. The life of the store as a store is generally ten years with renewal options, but the stores are located in lower income areas. Their second use is often as an auto body shop, which might require significant revisions for access and egress, utility usage, shop doors, interior build out for office/waiting areas, etc. I believe those costs can be accrued before the lease term ends, which would give a landlord a tax advantage based on the terms of a net lease.
Otherwise, I think your answer covers the subject. Thanks again from Just Answer and me, PDtax.