Impacts of Lease Accounting changes on occupiers & CRE teams

Richard Drake, former Property Finance Director for Barclays,  discusses the likely impacts of Lease Accounting changes on occupiers and CRE teams.  He can be contacted via LinkedIn or direct: richdrake@yahoo.co.uk

Lease Accounting changes

Although the new Lease Accounting changes are taking a long time to develop, they are still coming and will affect anyone dealing with Corporate Real Estate (CRE).  This is a great opportunity for CRE teams to engage, proactively, with their businesses, to add value to business planning.

What are the main accounting impacts?

  • The value of leasehold commitments will go on Balance Sheet with a matching “right of use” asset.
  • It is likely that rental payments will be split between interest and capital repayments, resulting in an increased P&L cost at the beginning of leases.

What are the likely impacts for Corporate Real Estate?

  • Pressure from Finance and Treasury to reduce the length of leases
  • Freeholds become more attractive
  • Incentive to reduce cost of fit-outs to reduce depreciation over shorter leases
  • Real need to understand and document business occupation requirements

What are the timescales?

  • A revised Exposure Draft will be published in Q2 2012
  • A new Standard to be published late 2012/early 2013
  • To apply from 2015/6 but comparatives required from 2014

What do you need to do?

  • Make sure you know your real estate portfolio
  • Engage with your business, finance department and treasury
  • Watch out for the new Exposure Draft and respond to it (the IASB welcome comments)
  • Don’t panic!

Want to know more?

Drop Richard an email:  richdrake@yahoo.co.uk

Also:

The IASB have their own site for the Leasing Project: www.ifrs.org/Current+Projects/IASB+Projects/Leases/Leases.htm

Jones Lang LaSalle have produced a dedicated site that is also helpful: www.leaseaccountingchanges.com

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