Real Estate Insights Volume 02 | Summer 2018 | Page 13

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.