Understanding Upcoming Changes to Commercial Lease Laws

By March 24, 2017 News No Comments

Rules and regulations in the world of commercial real estate leases are always changing, and the upcoming development that everyone is talking about is the new set of accounting rules that are potentially coming into effect as early as January 2019 for public companies and January 2020 for private companies. If they do come to pass, they will have a significant impact on your ability to attract investors, receive loans and the amount of business taxes you need to pay.

The new accounting climate

The International Accounting Standards Board (IASB), which sets the standard globally for developing international financial reporting standards, is stipulating that all leases that are at least 12 months long are required to be recorded as an upfront liability on your balance sheet. Rather than designating it as an operating or capital lease, commercial leases will now have to be classified as a Type A or Type B lease.

So what should you do to protect your commercial leases? Read on to see the handy list of advice we’ve compiled for you.

Ensure you comply with the new rules

Step 1: Determine if your lease is covered (whether or not it is at least 12 months long)

Step 2: Classify your lease as either Type A or Type B

Step 3: Make sure the lease is properly accounted on your balance sheet

Make sure your company is protected

These are things that you will need to do and remember to ensure that the new changes do not have a negative impact on your business.

  1. Make sure that you fully understand how the new reporting requirements for balance sheets affects you. This is especially important for negotiating or renewing a commercial real estate lease.
  2. Shift payment obligations to non-reportable expenses.
  3. Ensure that all operating cost payments are based on actual costs, and not adjustments against a base year.
  4. Make sure that the owner is fully committed to financial transparency.
  5. Structure commercial leases as Type B rather than Type A leases. This is because Type B leases will allow you to combine both amortisation and interest expenses as a single lease cost on a straight-line basis.

Rest assured that the professionals at CR Commercial Property Group have the expertise to ensure that our clients are always receiving an ethical deal and the best solutions for their bottom line.

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