IFRS 16 Leases has been published and is effective for periods beginning on or after 1 January 2019 (subject to EU endorsement).  This publication highlights issues from the new leasing standard that will be of interest to property occupiers.

• Most property leases will come on-balance sheet for lessees, prompting recognition of a right-of-use asset and a liability for the lease component, but not the maintenance or other service component of payments.
• Straight line operating lease expenses will be replaced with depreciation and front-loaded interest.
• There is no requirement to estimate variable payments.  Those varying with an index or rate are initially measured at the rate on the date of commencement, and are subsequently remeasured.
• For sale and leaseback transactions only the gain on the portion of asset not leased back is recognised immediately.
• Capturing all the necessary data for implementation could be a sizeable task.  Two particular practical challenges will be determining appropriate discount rates and remeasuring the asset and liability when payments change.

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