On Oct. 20, the Financial Accounting Standards Board (FASB) issued a proposal (the Proposal) that would make targeted improvements to the Leases standard. The Proposal focuses on three issues that have been identified by the FASB through its post-implementation review of the Leases standard. The three issues are:

  • Issue 1 - Sales-type leases with variable lease payments (lessors only),
  • Issue 2 - Option to remeasure the lease liability (lessees only), and
  • Issue 3 - Modifications reducing the scope of the lease contract (both lessees and lessors).

Of interest to Nareit members operating as equity REITs is the third issue. If a master lease agreement or a lease containing multiple elements like floors of a building is partially terminated, existing lease guidance requires the lease contract to be accounted for as a lease modification. The Proposal would simplify existing lease guidance to avoid applying lease modification guidance to the remaining portion of the lease agreement that continues to be in place.

If you are interested in participating in a task force that will evaluate the Proposal and consider whether Nareit should develop a comment letter, please complete this form by Oct. 30. Comments are due to the FASB by Dec. 4.

Sales-type leases with variable lease payments (Lessors only)

For lessors, the Proposal would amend lease classification requirements for leases in which the lease payments are predominantly variable by requiring lessors to classify and account for those leases as operating leases. The Proposal is intended to mitigate the risk that lessors recognize losses at lease commencement for sales-type leases that are expected to be profitable; thereby more faithfully representing the economics underlying the lease. 

Accounting policy option to remeasure the lease liability (Lessees only)

For lessees, the Proposal would provide an entity-wide accounting policy option to remeasure lease liabilities for changes in a reference index or rate affecting future lease payments at the date that the changes in the index or rate take effect.

Modifications that reduce the scope of the lease contract (Both lessees and lessors)

For both lessees and lessors, the Proposal would change the requirements when there is an early termination of some leases within a contract that does not economically affect the remaining leases in the contract. In these circumstances, companies would be exempt from applying lease modification accounting to the remaining leases that continue to be in effect.


Please do not hesitate to contact  Nareit’s Senior Vice President for Financial Standards Christopher T. Drula (cdrula@nareit.com), or Nareit’s Senior Vice President for Financial Standards George L. Yungmann (gyungmann@nareit.com) with any questions that you may have about this proposal to the Leases standard, or related matters.