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Lease Concessions and COVID-19


The FASB staff has issued a Q&A summary related to the accounting treatment for lessees who are granted lease concessions due to the COVID-19 pandemic. Business disruptions from the COVID-19 pandemic are resulting in lessors providing rent concessions to lessees. Stakeholders expect the concessions to be primarily related to lease payment forgiveness or deferrals.

These concessions may have contractual implications. Is a concession a modification of an existing lease or can it create a new lease? FASB has advised that unless there is a significant increase of rights to the lessor or a significant increase in obligations to the lessee, the lessee can choose whether or not to use the guidance under lease modification rules within GAAP related to the concessions received from the lessor. The lease modification guidance states that a concession would typically be accounted for as a new contract.

If a lessee does not elect to use the guidance under lease modifications, the FASB Q&A provides two options to account for the lease going forward:

  1. If the concession is a deferral of payments for a certain period of time, the lessee should still record the same rent expense every month for the months the concession is granted, and record a payable to offset future rent payments. The lessor should continue to recognize income on a monthly basis for the months the concessions are granted, and record a receivable for future rents expected to be collected.
  2. If the concession is rent abatement for a certain period of time, the FASB concluded a lessee and lessor should account for it as variable lease payments.

The lessee is required apply this guidance consistently with leases that are similar in nature and circumstances.

To review the entire FASB Staff Q&A document, click here.

As always, BP will continue to monitor any developments regarding this topic or other announcements made by FASB, as well as other impacts from the COVID-19 pandemic. Visit our online Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.



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