Whitepaper

Lease Concessions Related to the Effects of the COVID-19 Pandemic: A Guide for Lessees

An overview of rent concessions related to the COVID-19 pandemic

As a result of the coronavirus pandemic, commercial tenants who have negotiated agreements for deferred rent or other lease concessions with their landlords will need to account for these lease modifications on their balance sheets. What will lease accounting journal entries pertaining to these changes look like, and how can occupiers move forward with these changes while still complying with lease accounting standards?

Your lease modification accounting questions, answered.

The Financial Lease Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have issued guidance on how to deal with COVID-19 rent concessions, and each document provides elections to make the accounting for these rent concessions more manageable.

On the whole, COVID-19 rent concessions can be treated in one of two ways:

  1. Accounted for as a lease modification. If you clearly determine that the original terms of the lease agreement contained no obligation by the lessor to grant any COVID-19 rent concession, then that concession is a lease modification.
  2. Accounted for as not a lease modification. If you identify enforceable rights to the concession in the original contract (such as force majeure language that applies to COVID-19, governmental edict, etc.), then that rent concession is not a modification.

In this guide, we will explain in general terms the lease accounting methods for these two different treatments and provide some sample journal entry examples. You’ll learn:

  • How to determine if COVID-19 rent concessions should be treated as lease modifications
  • What to do if you receive a COVID-19 rent concession
  • How technology can help you deal with lease concessions
  • What a sample lease accounting journal entry will look like

Learn more about MRI Software’s lease accounting solutions.

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