BPM Real Estate Insights
or leasing guidance. Currently, under either standard, lessors
recognize variable payments as revenue in the period earned.
Under the new standards, if the transaction falls under the
lease guidance, variable payments based on usage are not
included in the lease receivable or lease income until earned.
If the transaction falls under the revenue guidance, variable
payments may be recognized as revenue upfront, provided
certain conditions are met. A lessor must analyze the contract
language to assess which pronouncements are applicable.
Strategy for negotiating with tenants: Lessors and lessees
in sales-type leases may have different preferences as to
whether rent payments are fixed or variable. Lessees may
prefer variable payments based on usage, which are likely
13
to reduce the lease liabilities on their balance sheets, while
lessors may prefer fixed payments, which are recognized at
lease commencement. n
Mark Leverette is a partner and the real estate industry group co-leader at
BPM. Contact Mark at [email protected] or call 415-288-6206.
Kristin Harrison is a supervisor in the assurance group at BPM. Contact
Kristin at [email protected] or call 415-288-6255.