Lease Accounting Software for Escalating Rent Payments

ASC 842 lease accounting standards apply to all types of rent payments, regardless of their structure. That includes fixed rent, rent escalations or percentage rent.

Fixed rent, also referred to as a gross lease, is a monthly payment by the tenant. Fixed rent is often the easiest to account for. 

Percentage rent is popular amongst retailers, especially those who want the property owner to be invested in their success of the lease portfolio. As the lease specifies rent as a percentage of gross sales against a base rent.

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Are you a retailer struggling with co-tenancy clauses?

The monthly rental amount stated in the real estate lease is the base rent. Additional rent encompasses any charges specifically outlined in the lease. For example, building repairs or fees related to late payments. 

Oftentimes, rent agreements classified as operating leases have uneven rent payment terms such as escalating rent payments. For example, a 10-year building lease could specify a rent increase of 3 percent every year after the first year. The goal is to help reduce the negative effects of inflation and other costs. These costs can hurt the lessor’s profits.

ASC 842 compliance and IFRS 16 compliance elevates all operating leases from the footnotes and onto the balance sheet. This necessitates capitalization of the present value of minimum lease payments as a lease liability and the capitalization of an asset for the “right to use.”

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The way expenses will recognized under the new standard will be similar to the GAAP approach before compliance, with expenses recognized evenly across the term. Although for multi-national companies, it’s important to note the expense pattern will be front-loaded under IFRS. The difference of the timing of expense recognition is the most significant divergence of the two boards.

Learn more about lease management and accounting solutions from CoStar Real Estate Manager. This ASC 842 software is compliant with all Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) lease standards. This includes ASC 840/FAS 13, ASC 84 and IFRS 16. And CoStar's lease accounting software solution enables lease-by-lease evaluation and classification and international currency conversion.