New Accounting Reg Will Lead to Shorter Lease Terms

Veronica Bulman

A new accounting regulation could have a major impact on office lease terms. ASC 842 is now in effect for public companies, as of December 15, 2018, and will come into effect for private companies on December 15, 2019, and it sets a new standard for leases. According to Veronica Bulman of RSM, the new standard will require lessees, or tenants, to recognize assets and liabilities associated with most leases. This new requirement could encourage companies to sign shorter-term leases.

“While the bookkeeping requirements of long-term leases under the rule require significant data tracking, companies can avoid the issue entirely by moving to short-term leases, which can continue to be recognized over the term of the lease on a straight-line basis,” Bulman, a senior real estate manager at RSM, tells GlobeSt.com. “ASC 842 permits lessees to make an accounting policy election by class of underlying asset for leases with lease terms of 12 months or shorter.”