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IFRS 16 – Leases: Rent Concessions

Many lessees are asking lessors for rent concessions because the COVID-19 outbreak has had a negative effect on business conditions. Rent reductions can be made on a one-time basis, postponed, or changed from fixed payments to variable payments. Rent reductions frequently match the criteria for a lease modification under IFRS 16 Leases. However, it can be challenging to account for lease modifications. For instance, the lessee might have to change right-of-use assets and recalculate lease liabilities using a new discount rate.
The recent amendments to IFRS 16 introduce a practical expedient for lessees to assess whether eligible rent concessions are a direct effect of the COVID-19 pandemic are lease modifications. The amendments were issued swiftly and can be applied immediately, subject to any local endorsement process. As a result, lessors must assess whether rent concessions are lease modifications and account for them accordingly. This article provides practical guidance on how a company recognizes rent concessions allowed for the hands-on expedient and how to account for them.