Landlords found much that was familiar in IFRS 16 Leases. But some things have changed.
More recently, the impact of the COVID-19 coronavirus pandemic has meant that landlords have been dealing with unprecedented levels of defaults, rent concessions and other lease modifications. IFRS 16’s guidance on lease modifications has been vitally important, particularly given the Board’s decision not to extend to landlords the practical expedient that it offered to tenants.
IFRS 16 preserves the basic landlord accounting model but introduces important changes in key areas.
Landlords continue to use the basic accounting model that applied under the old guidance. This means that landlords continue to classify real estate leases as either: operating leases, recognizing the net consideration for the lease, including lease incentives, as income over the lease term, typically on a straight-line basis; or finance leases, presenting the right to receive future rentals as a receivable, and recognizing interest income on that receivable.
As previously, the long useful life and high residual value of non-specialized real estate mean that many real estate leases will be operating leases. Finance lease accounting may be required in certain circumstances, typically for more structured transactions and/or leases of more specialized real estate.
Many of the changes introduced by IFRS 16 are detailed and subtle – but they can be very important.
Our Real estate leases – The landlord perspective publication covers key areas of IFRS 16 that are particularly relevant to landlords in real estate leases. Each section is illustrated with examples based on real-life terms and conditions.
A companion publication looking at real estate leases from the tenant’s perspective is also available.
More in-depth guidance on particularly complex areas of IFRS 16, such as lease modifications, lease term, discount rate and lease components, is available on our IFRS Insights page.