Commercial real estate software provider Quarem released tips to help with lease negotiations for FASB ASC 842 and IFRS 16 contracts, the company announced today.
Public and private companies worldwide have been busy the last several years implementing the new lease accounting guidance, but very little attention has been paid to how leases can be negotiated.
FASB ASC 842 Lease Negotiation Tips
“There are two phases of ASC 842 compliancy: the initial Implementation, and the ongoing process of maintaining compliancy,” Quarem President John Rice says. “Accounting departments must be in the communication loop of lease negotiations and subsequent execution to avoid being months behind in amortizing leases that were executed months prior.”
Quarem’s CRE software solution helps with future negotiations to make lease accounting easier, with fewer errors, and with a significantly reduced management burden. Related to this, the company has provided the following tips to help simplify lease accounting moving forward:
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Tip #1: Renewal Options: Push landlords to define rent schedule for renewal option terms.
Tip #2: CPI Increases: Avoid variable rent increases tied to CPI (substitute explicit percentage increases instead).
Tip #3: CPI Increases: If CPI unavoidable, negotiate a percentage cap on the CPI increase.
Tip #4: European and APAC Leases: Try to eliminate the traditional “market review” for rent adjustments during the term of the lease.
Tip #5: Lease Agreement Execution: Timing is vital. Don’t wait for the fully executed lease to be returned to you before sending the lease for abstraction and amortization. Have the lease abstracted and amortized immediately after lessee execution.
“The two major steps in maintaining reliable ASC 842 compliancy are improved interdepartmental communications and well-defined lease accounting policy elections,” Rice adds.
Quarem is a cloud-based CRE platform built to encapsulate and strategically organize all lease data, documents and activities associated with CRE lease and property portfolios.