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Tenants’ real estate leases

Tenants’ real estate leases

IFRS 16 for real estate tenants

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Simon Nicholas

Partner: Audit and Advisory

KPMG in the Isle of Man

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Real estate leases are the ‘big-ticket’ leases that almost every business has

The tenant perspective

Real estate leases will be at the heart of many IFRS 16 implementation projects. They are the ‘big-ticket’ leases that almost every business has, from retailers to banks to media companies. 

Our Real estate leases – The tenant perspective (PDF 1.4 MB) publication covers key areas of IFRS 16 that are particularly relevant to tenants in real estate leases. Each section is illustrated with examples based on real-life terms and conditions.

Practical challenges

Real estate leases pose many practical accounting challenges for tenants. This is because: 

  • the underlying asset has a high value
  • lease terms can be long
  • discount rates can be complex to determine
  • the leases often contain multiple options and rent adjustment mechanisms
  • the contracts can contain lease and non-lease components.

On top of these challenges, tenants will find that the new standard significantly changes how they account for their real estate leases, impacting many key financial ratios.

A successful implementation project will therefore require a good working understanding of the new standard, and of the contracts themselves.

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