How will new international standard affect specialist landlords?

A brand new international standard on lease accounting was published last month after an extensive eight-year deliberation period.

The new international standard, set out by the International Accounting Standards Board, are likely to result in a higher demand for shorter leases, industry analysts have stated.

Under the guidelines, leases will be treated more like mortgages and properties will appear on balance sheets as both an asset and liability. The standard is set to come into effect from January 2019.

Rent will no longer be recorded on the income statement as an operating expense. Instead, landlords will need to publish the amortisation of the asset and interest on lease liability, which will be detrimental during the early stages of a lease.

The process of punishing landlords that hold a significant number of long and/or new leases is likely to fuel tenant demand for shorter leases with additional break clauses and turnover-related elements. This will undermine security of income, as well as property values.

This puts landlords in something of a dilemma. Shorter leases can be offered to cater for tenant demand. However, investor preferences are currently towards long-term arrangements, and demand in among this group has never been higher.

These changes to the international standard are likely to affect landlords differently depending on the size of their portfolio and tendency towards residential or commercial property. The only way to find out what action is best to take in your specific circumstance is to speak to an accountant with specialist landlord expertise.

For more valuable landlord accounting insight, call on the experts at 3 Wise Bears today.