Companies are currently reevaluating their lease portfolios to ensure these costly agreements still make sense in light of their new business goals and operations. As a result, many of these same organizations are making modifications to existing leases or are considering different options and/or terms for new agreements.

Stepping into 2022 should be a good deal less jarring. And yet, there might be changes and surprises. Here’s what experts see as coming up.

Majority of surveyed tenants plan to expand their commercial real estate footprint in the New Year  

Woodbridge, NJ (Nov. 9, 2021) Visual Lease, the #1 lease optimization software provider, today unveiled a survey of 400 senior accounting and finance professionals and commercial real estate executives, 200 of whom representing the perspective of tenants, and 200 of whom representing the perspective of landlords. The report entitled, “Commercial Real Estate in 2022: Outlook for an Industry in Recovery,” shares insights into how both sides are approaching leases in response to the ongoing effects of the COVID-19 pandemic.  

“The commercial real estate industry has dramatically changed over the past nineteen months,” said Marc Betesh, founder and CEO of Visual Lease. “Businesses have grappled with new restrictions, considerations and challenges, which have directly impacted their real estate needs. Both landlords and tenants are uncertain of what shifts and trends are here to stay, which has made planning ahead more difficult than ever before. We created this report to help both parties better understand the industry and ensure that they are maximizing the value of future leases, setting themselves up for success in 2022 and beyond.” 

Key 2022 trends and predictions from the report include:  

• Ready to Commit to Longer Terms – Sixty-five percent of surveyed tenants are considering their physical space needs more than one year prior to signing a new lease agreement. Fifty-eight percent of tenants are prioritizing leases of at least five years in length, with nearly 20% interested in 10 or more years of occupancy. While plans are being made, the future remains uncertain as 93% of tenants note that their 2022 real estate strategy is temporary and will likely be revised post-COVID.  

• Real Estate Footprints Poised to Expand – Sixty-five percent of landlords expect tenants will add space to their real estate portfolios in 2022. Similarly, 70% of tenants plan to expand their commercial real estate footprint in the year ahead.  

• Back to Work: Urban Revival – Seventy-eight percent of landlords predict that the greatest demand for leased properties in 2022 will appear in cities. Tier 1 cities like Los Angeles and New York are anticipated to draw the biggest crowd, signaling a revival for major metropolitan areas that were previously hard-hit during the onset of the pandemic.  

• Rents Bounce Back, But Not All Businesses Will – Seventy-five percent of landlords expect 2022 commercial rent prices to be about the same or higher than rent prices were prior to the pandemic, which is in line with what 61% of tenants expect, as well. A rent increase may create some challenges as 61% of tenants admit that their organization fell behind on rent during the pandemic, and 37% are still behind on rent.  

• Future-proofing Leases to Accommodate Changing Demand – All surveyed (100%) landlords had tenants request modifications to their leases mid-term in response to the impacts of COVID-19. As a result, 99% of landlords have revised their agreements to better accommodate existing and future tenants, including changes to building rules and regulations (57%), operating expenses (54%), indemnification and insurance (45%), as well as sublet/assignment rights, rent abatement and force majeure clauses. 

• Approaching New Terms With Caution – Based on what they learned from managing their businesses during COVID-19, tenants note that the following will be important considerations when negotiating future leases: flexible scaling plans for space (57%), flexible lease termination (49%), shorter lease duration (36%) and an ability to sublease (33%), among others.  

• Poor Lease Management Led to Costly Mistakes – Nearly 80% of tenants have experienced negative impacts due to inadequate lease controls, the most frequently reported being the inability to respond to changing circumstances due to the pandemic (34%), missing an option to extend a deadline (28%), miscalculating lease costs (28%) and forgetting to update unfavorable or unwanted lease terms (28%).  

For full study results, download Commercial Real Estate in 2022: Outlook for an Industry in Recovery. 

About The Visual Lease Data Institute 

The Visual Lease Data Institute is a collection of market-leading data, trends and insights on lease accounting, management and optimization created and curated by Visual Lease, provider of the #1 lease optimization software. The Institute was founded on 35 years’ experience managing lease data and financials and was created to arm organizations with the knowledge required to achieve and maintain lease accounting compliance and leverage their leases as strategic business assets. 

About Visual Lease 

Visual Lease is the #1 lease optimization software provider. We help organizations become compliant with FASB, IFRS and GASB lease accounting standards, while simultaneously improving the financial, legal and operational performance of their leases. Our easy-to-use SaaS platform is embedded with more than three decades of best practices from major corporations and leading industry professionals. Our award-winning solutions are used by 800+ organizations to manage 500,000+ real estate, equipment and other leased assets. Committed to ongoing innovation and unparalleled customer service, Visual Lease helps organizations transform their lease compliance requirements into financial opportunities. For more information, visit visuallease.com.  For more information, visit visuallease.com. 

Media Contacts 
Erica Bonavitacola 
Visual Lease 
T+1 732 860 4838 
ebonavitacola@visuallease.com 
 
Anna Patrick 
Gregory FCA 
T+1 212 398 9680 
apatrick@gregoryfca.com 

 While 100% of surveyed companies agree on the business value of complying with the lease accounting standard, most are underconfident and unprepared for the looming deadline

Woodbridge, NJ (July 29, 2021) – Visual Lease, the #1 lease optimization software provider, today unveiled the results of an in-depth study of 500 senior finance and accounting professionals analyzing where companies are in their efforts toward achieving compliance with ASC 842. The report reveals that despite 100% of respondents acknowledging the many benefits that lease accounting can bring, 75% are not yet compliant. This report marks the first release under The Visual Lease Data Institute, a collection of market-leading data, trends and insights on lease accounting, management and optimization created and curated by Visual Lease.

The 2021 Lease Accounting Market Analysis: The Road to Readiness for ASC 842 explores the journey, opportunities and barriers that companies face in their efforts to comply with the new accounting standard published by the Financial Accounting Standards Board (FASB), which requires them to track and fully disclose all qualifying leased assets, including commercial real estate and equipment leases. The report was informed by a proprietary survey of 500 senior finance and accounting professionals at private organizations with more than 1,000 employees.  It excludes public sector organizations and governmental entities, which have to comply with a similar lease accounting standard.

Key highlights of the report include:

• Real Business Opportunity – All surveyed senior finance and accounting professionals recognize that complying with ASC 842 will offer their companies substantial benefits, including more transparent valuation of the organization (54%), cost savings (54%), easier preparation for audits (53%) and the ability to make strategic lease decisions (50%).
• Need for Urgent Action – Despite the significant business opportunity that comes with lease accounting compliance, of the 75% of surveyed companies who are not yet fully compliant, nearly half (46%) are less than halfway through or have not yet begun the process. Moreover, a shocking one in five respondents admit that achieving full compliance has been a low business priority.
• Pandemic Delays – Many private companies may now be playing catch-up from the impact of Covid-19, with more than two in five respondents (43%) noting that their organization’s process has been delayed due to the global pandemic.
• Race Against the Clock – With the December 2021 deadline for private companies less than five months away, two in five respondents (40%) are only somewhat, not very, or not at all confident about their organization being ready to reach full compliance with ASC 842. One reason why? More than two in five (42%) surveyed admit that the ASC 842 compliance process has taken more time than expected, which puts those who have not started the process at serious risk. This is particularly concerning considering the average anticipated staff hours to gather all the necessary lease information to fully adopt ASC 842 is 1,334 hours, equivalent to more than 33 weeks of full-time labor for a highly skilled worker.
• Companies Can’t Do It Alone – More than one in three (36%) of senior finance and accounting professionals surveyed note that they don’t have the right people, technology and tools in place. High among the things they consider to be essential in the process are implementing new (48%) or upgrading existing (51%) lease management and accounting software.
• Not a One-and-Done Disclosure – Reaching ASC 842 compliance in time for the standard’s effective date is only part of the battle. Ninety-nine percent of respondents expect to face ongoing challenges maintaining compliance after the 2021 deadline. Among the most anticipated challenges include accurately tracking and managing future modifications to leases, adopting new technologies to optimize the process and continuing to train and educate staff.

“We understand just how complex lease accounting is,” said Marc Betesh, founder and CEO of Visual Lease. “For 35 years, we’ve seen firsthand how tight lease portfolio management can amount to millions of dollars in savings and improve business performance. With the deadline for private companies to comply with ASC 842 rapidly approaching, we knew it was the right time to gather our insight, experience and expertise to provide you with the first report under The Visual Lease Data Institute. Our goal is simple – to arm you with the information you need to feel confident about your organization’s lease accounting compliance journey.”

For full study results and helpful guidance towards ASC 842 compliance, download The 2021 Lease Accounting Market Analysis: The Road to Readiness for ASC 842.

About Visual Lease

 Visual Lease is the #1 lease optimization software provider for managing, analyzing, streamlining and reporting on lease portfolios. Developed by industry-leading lease professionals and CPAs, it combines GAAP, IFRS and GASB-compliant lease accounting controls with easy, flexible and automated lease management processes. More than 700 of the world’s largest publicly traded, privately-owned and public sector organizations rely on Visual Lease to control their lease portfolios, integrate with their existing business systems and maintain regulatory compliance. Committed to ongoing innovation and unparalleled customer service, Visual Lease helps organizations transform their lease compliance requirements into financial opportunities. For more information, visit visuallease.com.

About The Visual Lease Data Institute

The Visual Lease Data Institute is a collection of market-leading data, trends and insights on lease accounting, management and optimization created and curated by Visual Lease, provider of the #1 lease optimization software. The Institute was founded on 35 years’ experience managing lease data and financials and was created to arm organizations with the knowledge required to achieve and maintain lease accounting compliance and leverage their leases as strategic business assets.

Media Contacts
Erica Bonavitacola
Visual Lease
T+1 732 860 4838
ebonavitacola@visuallease.com

Katie Vroom
Gregory FCA
T+1 212 398 9680
kvroom@gregoryfca.com

There is power within your lease portfolio. Over the last year, public and private businesses have taken a closer look at their leases – and experienced the downstream benefits of lease optimization. Businesses who must comply with the new lease accounting standards (e.g., FASB ASC 842) are now examining their leases with a higher level of scrutiny than ever before. Additionally, over the last year, companies looked to their leases to reduce the financial impact of COVID-19. In return, these businesses have experienced operational benefits associated with lease optimization.

What is lease optimization?

Optimizing your lease portfolio means:

1. Having a controlled inventory of all lease documentation that is updated to account for all changes and modifications.
2. The ability to capture, monitor and act on all critical lease dates, including end of-term options.
3. Ensuring changes in lease terms are reflected in payment schedules and lease accounting disclosure reports.
4. Conducting regular audits of your leases and the underlying assets by taking stock of your portfolio and identifying gaps and opportunities.

Lease optimization allows your business to uncover savings, streamline lease accounting compliance and accommodate pivotal business needs with agility.

Identify cost-saving opportunities

Over the last year, businesses looking to cut excess business expenses were increasingly mindful of their leases, given leases are the second largest business expense besides payroll. Lease optimization helps organizations identify areas of their leases where they are overspending – and save money through visibility into that data.

Real customer lease optimization examples

Here are some examples of how Visual Lease has helped hundreds of customers save money through lease optimization. Before partnering with us:

• A large manufacturing company lost $105k because they did not realize that their lessor was continuing to bill expenses for surrendered property.
• One of the largest insurance companies in the US lost $185k because they didn’t realize their landlord needed to offset operating expense increases against tax decreases.
• A national bank lost $500k because the tenant forgot to request reimbursement for tenant improvements from the landlord.
• A large tech company lost $210k because the tenant was not aware that tax abatements were not being added back to the base tax amount.

These are examples that with the right information, perspective and tools in hand, lease optimization can be leveraged to materially improve business processes and generate savings in a previously undermanaged area of an organization.

Capture modifications and adjustments that impact lease accounting compliance

Leases change – and adjustments need to be tracked and evaluated under the new lease accounting standards (ASC 842, IFRS 16, GASB 87).

Determining whether a modification has taken place can be operationally challenging, particularly for companies with large lease portfolios or for organizations that do not have the systems and processes in place to properly handle and account for these events. This analysis is complicated and will most likely require a dedicated team and technology to ensure attention to detail.

That said, this is THE perfect time for you to take the extra steps towards optimizing your lease portfolio.

You need to feel confident throughout every stage of the lease accounting compliance journey:

• Day 1 – Compliance (centralizing leases and producing accurate reports)
• Day 2 – Sustainable Auditability (implementing processes and controls)
• Day 3 – Optimization (revisiting and bridging gaps)

Accommodate business needs with agility

Another positive of lease optimization is that it enables your business to pivot and identify emerging lease needs as your organization grows – or vice versa. Having the ability to access your leases in one centralized location – and report on your portfolio in any way helps you to identify the most effective way to scale your lease portfolio to meet your needs.

This article originally appeared here in Forbes.

As a result of Covid-19 and the changing landscape related to leases, private companies have received more time to prepare for and adopt the new lease accounting standards in their financial reporting. Last year, the Financial Accounting Standards Board (FASB) further delayed the deadline for private companies to comply with the lease accounting standard ASC 842, which brings most of a company’s operating leases onto its balance sheet. This delay has given private companies nearly two additional years to comply with the new lease accounting standard. Because public companies have already gone through this process, there are many lessons that can be derived from their journey to help private companies as they move through their own adoption.

Perhaps the biggest lesson learned from public companies, which we’ve seen through our clients’ experiences, is that adopting the new lease accounting standard takes time, can be quite complex and results in a resource-consuming process, particularly if there is a lack of cross-departmental collaboration. With the ASC 842 deadline for private companies looming, there are several things private organizations can do to set themselves up for success.

Know What Lease Data To Gather And Where To Get It

Public companies learned that gathering and validating data was the most challenging part of the lease accounting compliance journey. Companies with large, diverse lease portfolios found lease contracts — and thus the data within those documents — can be scattered across any number of separate sources. Not only is it tedious to gather contracts and relevant data, but it’s also easy to overlook required information if the individuals abstracting the data don’t have an informed sense of what is required for compliance. Failure to properly capture all the relevant data elements can ultimately diminish the value of a company’s financial reporting. Due to this important — and heavy — lift, and despite the deadline delay, getting an early start is key to a private company’s successful adoption.

It’s worth noting that not all required data elements for effective lease accounting compliance will be found within an organization’s lease agreements. In some cases, only about half of the data will be found within contracts, while the remainder will be contained in other sources and require some level of judgment to establish.

When private companies begin down the road to lease accounting compliance, they should first reflect on what the required data is and where it can be found within their organization. These answers can be overwhelming, but in this case, knowledge is power. This is because there can be as many as 70 distinct data elements, such as lease terms, payment schedules, end-of-term options and incentives, that need to be identified and captured to be compliant with the lease accounting standards. To properly collect, organize and analyze all the required data, private companies should get ahead of the process and start to prepare now.

Use A Centralized Data Repository

Another lesson learned from public companies is the importance of a central lease document and data repository. A 2016 survey by PwC found that 39% of companies manage their lease agreements and related accounting in a decentralized manner. While this approach can work for some, it’s time-consuming and can increase the chance of human error during the data collection process. Public companies that had an organized centralized lease portfolio learned that it saved them time on gathering and analyzing required information, which ultimately saved them money in the long run.

When setting up a centralized lease portfolio, public companies were able to streamline and optimize global reporting processes and track lease data in real time, which has proven benefits for lease accounting compliance. By having all of the necessary lease data at their fingertips, these organizations experienced a faster, more efficient lease compliance process while also uncovering cost savings including overpayments, unreceived lease incentives and reduced full-time equivalent costs, among others. Not to mention, centralizing leases can be instrumental in supporting a company’s audit process.

Put Dedicated Teams In Place

Public companies have also seen the value of having the right people in place:

• Cross-departmental collaboration: Working with other internal teams on data collection creates visibility across an organization, streamlining the process and positioning the accounting team as a stronger partner to their business.
• IT assistance: When opting to leverage a centralized data repository or any other dedicated technology, it is critical to enlist one’s IT department from the outset of the project to ensure a smooth implementation, particularly as it relates to the eventual integration with other systems such as an ERP.
• Dedicated players: Bringing in experienced lease accounting, project management and other expert professionals — whether they’re in-house or outside service providers — can minimize the impact on a company’s other resources.

While every organization’s lease accounting compliance journey is different, many public companies discovered that some of the most daunting tasks with the new leasing standards were only tangentially related to accounting. Rather, the most significant challenges were in the preparation process. Once private companies get their leases in order and dedicate the time and resources required, they are positioned to better achieve compliance and drive a positive impact on their business’s financial reporting and compliance.

This article originally appeared here in Forbes.

In 2020, many companies were forced to make tough decisions regarding their leased commercial spaces. From office closures to consolidations and deferrals, many of these decisions will have long-term impacts beyond the pandemic. To survive and thrive in today’s new norm, these same companies now need to evaluate how these decisions will continue to affect the leasing landscape, and what that means for their future finances and operations.  

Lease Market Considerations for 2021 

Covid-19 had a devastating effect on the real estate market in 2020. As organizations continue to adapt to remote work environments, the trickle-down effects will likely play out over the next few years. Unlike the economic downturn in 2008, the commercial real estate market was in a strong position at the start of 2020 — in fact, it was predicted to grow. However, as tenants struggled to meet their rent obligations, and tenant-landlord tensions and lawsuits ensued, the market quickly took a downward spiral. 

Despite this negative trend, several bright spots signal recovery within commercial real estate. We surveyed several hundred companies across retail, manufacturing, health care, financial services and more to gain critical insight into how the leasing market has changed since the start of the pandemic and to help organizations to make better-informed business decisions for the year ahead.  

Revenue Impact of the Pandemic 

By the end of 2020, nearly three in five respondents to our survey reported a 59% loss of revenue in their business since the start of the Covid-19 outbreak in March 2020. Of those that saw a negative impact on revenue, 80%, fortunately, expect that impact to be short-term. As a result, many organizations are more likely to seek and prioritize opportunities to save money — and leases provide a way for companies to do just that. 

Over the past year, many organizations made changes to space and equipment leases. However, most still need to get creative and find other ways for monetary gain. PPP loans, insurance policies and lawsuits were some ways that businesses across all sectors chose to subsidize their company’s overhead in the short-term, but these options are now carrying over into 2021. 

The Future of Office Space 

To cut additional costs, many have turned to their commercial office leases to identify savings. With the pandemic, there has been a monumental shift in the traditional office space, but most companies are not resolved on what that looks like for their businesses in the future. This year, the industry will need to consider several changes to the office market as they make broader business plans: 

• Remote work: The acceleration of remote work has shifted the office environment, resulting in widespread downsizing and a decreased demand in the market. Despite this change in behavior, there are now new opportunities for organizations looking to retain office space in major cities, such as opting for smaller regional offices or expanding office space to allow for social distancing.
• Coworking: Coworking spaces and other short-term rental options may see a rise in popularity as companies continue to explore ways to stay out of the traditional long-term lease options but still provide a home base to employees.
• Subleasing: In addition to coworking, the sublease market has become larger than it was during the dot-com bubble, providing another flexible lease situation for companies to consider.

Important Lease Clauses In 2021 

Lease clauses offer necessary legal protections for both tenants and landlords. However, the onset of the coronavirus pandemic presented unique challenges, which left attorneys scrambling to identify protections for their clients. Many explored force majeure clauses to save costs, only to find that these clauses do not typically extend to pandemics or other public health crises. 

To date, the biggest impact that Covid-19 has had in the market is that it’s suspended progress on new transactions, and by the end of 2020, global CRE deal volume declined 36% YoY. Tenants have been reluctant to sign new leases and because of this, landlords do not have visibility into the future of their buildings. To add to the lack of certainty, where leases are expiring, others could potentially not be renewed until there is more clarity on their business needs, leading to reduction through attrition in the short-term. As such, new leases should include updated clauses to make new and existing tenants feel comfortable with signing their agreements. Our survey identified the most important lease clauses to consider in today’s environment as flexible termination (34%), specific pandemic force majeure clauses (32%) and shorter lease windows (16%). 

To effectively navigate today’s commercial real estate landscape, it’s important to recognize that some changes brought on by the pandemic — such as remote work environments and reimagined workspaces — are likely here to stay. Companies will need full visibility into lease terms and options for negotiation and payment to better manage their businesses in this new climate. Flexibility ultimately creates a win-win scenario for tenants and landlords alike in 2021 and beyond. 

As the accounting profession navigates the challenges brought on by COVID-19, FASB shifted the deadline to grant private companies more breathing room to achieve compliance with its major lease accounting standards, including ASC 842, and recently released proposed changes to its lease guidance – some of which are a direct result of the pandemic.

How to Save Money and Improve ROI with Lease Accounting Technology

Leases are complex documents that can be challenging to interpret. Critically important details are often buried deep within a lease and can be (literally) hard to find. — Multiply that by hundreds of leases that companies often have, keeping up with all the different lease provisions is even more demanding.

Yet, understanding lease obligations and options is a fundamental requirement of doing business and managing costs. A lack of insight into important lease details can put organizations at risk of unnecessary expenses — or of not meeting compliance requirements.

With the new lease accounting standards, the penalty for not accurately reporting your lease obligations is now much higher and can include steep fines. These high stakes are what make a lease accounting and administration solution such a powerful tool — one that provides valuable insights that can help your business avoid unnecessary lease costs and maximize the return on your lease investments.

Let’s take a closer look at how a lease accounting solution can help you identify cost savings and improve your ROI.

1. Improved Visibility into Lease Obligations

For public companies, lease obligations have implications for the balance sheet and compliance. For private companies, these obligations also have an impact on compliance, as well implications for bank covenants and for stakeholders who are concerned with assessing business risks.

A lease accounting system should provide tools for not only automating vital accounting and disclosure reporting functions, but also ongoing tracking of all the leases in your portfolio.

Technology should make leases more clearly defined and understandable — providing fixed fields of data that improve visibility into key aspects of leases such as:

• Financials, including calculations and reports
• Critical dates — and the consequences of missing those dates
• Termination rights, like early termination, lease bailout (“sales kickout”), co-tenancy, exclusive use and sublet clauses

This high level of transparency regarding lease obligations helps you mitigate risks and stay on top of important lease details that need your attention.

For example, the system should alert you about an automatic renewal on a property lease you negotiated long ago — giving you the opportunity to determine whether the terms are still favorable or if they need to be renegotiated.

Similarly, with visibility into equipment lease auto-renewals, you can compare the lease cost with the current market value of the asset to determine whether it makes more sense to purchase than to continue leasing the equipment. 

Some systems can also alert you to events that you have to act on by a certain deadline, such as lease buyout opportunities.

2. Additional Savings in Auditing Costs

By improving lease transparency and automating the tracking and accounting process, lease accounting technology helps improve the accuracy and thoroughness of reporting. In turn, this reduces the amount of back and forth with auditors, which reduces costs overall. (For example, one customer saved tens of thousands of dollars in auditor fees by using Visual Lease’s lease accounting system.)

Lease accounting software also should provide an audit trail, including a detailed log in which every lease change can be viewed. This helps to assure auditors that all lease information is up to date and accurate.

3. Analyses That Help Lease Negotiations

The reporting and analysis capabilities within lease accounting and administration systems should enable you to identify and capture information that is valuable to your business — information that can help you make decisions for the future.

For example, in light of COVID-19, many businesses are now reevaluating boilerplate language within leases and abstracting clauses related to lease terms such as force majeure, business interruption insurance and termination options.

A lease accounting and administration solution should enable you to search your leases for particular clauses that have been favorable to you — or, on the other hand, clauses that have not been beneficial — and use that knowledge when negotiating a new lease or a renewal.

For instance, you might uncover that your monthly rent includes duplicate costs for services you were not aware of and are also paying for separately, such as cleaning, repairs or trash removal.

Armed with this information, you may be able to renegotiate to have those costs removed from your lease agreement — or, you can cancel the services you have been paying for separately and take advantage of the services that the landlord provides.

4. Automated Lease Accounting ROI

For anything other than a small lease portfolio, manual accounting simply does not provide the tracking and analysis capabilities that a business needs to effectively manage leases on an ongoing basis. The alternative of outsourcing the task to an accounting firm can rack up thousands of billable hours in fees — a costly proposition for even a large company.

Automating the lease accounting process brings a new level of efficiency into your business while helping you use your leased assets more effectively, for a greater return on those investments. The bigger your lease portfolio, the greater your opportunity for savings.

How much can you save? Find out by using our simple ROI Calculator.

Just plug in some numbers — including both real estate leases and equipment leases — for how many leases you have and your average annual spending per lease. 

The ROI Calculator will not only show you the savings to be gained by automating your lease tracking and reporting functions, but also demonstrate the value that a lease accounting and administration solution delivers to your business.

Fig. 1: COVID-19 had a substantial impact on commercial real estate leases, causing a majority of surveyed companies to make critical decisions regarding lease payments and office locations.

Fig. 2: Visual Lease customers, experienced significantly variable differences in office closures due to COVID-19, although most companies continued to pay rent without any additional relief.

Recently, we have talked a lot about ways that companies can understand their lease obligations and reduce costs  in light of COVID-19. What many businesses have discovered during this time is that a lack of insight into these responsibilities and costs has huge implications — not just for lease accounting, but also for day-to-day business decisions and ongoing cost management.

As companies look ahead to recovery from the economic impacts of COVID-19, it is more important than ever to have a technology solution in place to help avoid financial issues and better manage the obligations associated with leases.

That is where a robust lease administration solution can help businesses avoid risk and realize benefits beyond lease accounting in three crucial ways.

1. Gain Greater Visibility into Leases with Lease Administration Software

As many companies have recently learned, the ability to find leases and uncover the important details buried within them — including clauses, due dates, and options that have an effect on lease obligations and costs — can be a complex and time-consuming task. This is especially true for organizations with multiple locations and, potentially, hundreds of leases to manage.

A lease management solution such as Visual Lease, which combines lease administration and lease accounting capabilities, makes it easy to manage lease data and determine your rights and responsibilities. The software provides the ability to search for specific lease parameters and gather the information you need to:

• Track payments and analyze costs
• Identify overpayments or opportunities to cut costs
• Get a complete picture of leases as part of the company’s bigger financial picture
• Make informed business decisions related to lease obligations and overall costs

2. Keep Track of and Manage Changes Related to COVID-19

With the closures, disruptions, and cut-backs to businesses related to the COVID-19 pandemic, many companies are coping with another new challenge — the need to keep track of any changes made to their leases during this time, such as:

• Lease modifications
• Lease terminations
• Lease impairments
• Variable payments
• Operating expense pass-throughs

Finding every affected lease and manually updating each one is cumbersome and time-consuming. Plus, it opens your business up to the risk of manual errors.

Lease administration software makes it easy to change lease information when you need to — providing the tools to find the pertinent leases and quickly update them with changes to payments, terms, options, and other information you will need later for lease accounting.

3. Stay Current on All Leases with Lease Administration Tools

A lease administration system also helps you stay current on critical dates and upcoming events within your leases — including opportunities to make changes and save money.

Lease administration software provides tools for tracking changes, alerting you to important  dates and events, and keeping your critical lease data up to date at all times. For instance, you can have the solution automatically alert you to deadlines for exercising lease options.

Find More ROI in Your Leased Assets

A combination lease accounting–lease administration software solution not only helps you organize, track, and report on lease data in accordance with the latest lease accounting standards. It also provides ready access to accurate, up-to-date information that can help you get the most value from your leased assets.

So, while some lease accounting deadlines have been pushed back, it makes sense to implement and use a lease management solution now. It will empower you to not only handle lease issues related to COVID-19 lease, but also manage lease financials in a way that can help you maximize lease ROI, improve liquidity, and plan for the future

Ready to get started ASAP? Request a demo of Visual Lease today!

Across industries, sectors and organizations of different sizes, the COVID-19 outbreak has touched virtually every business in some way. Between stay-at-home orders, emergency closures, and supply chain disruptions, companies are coping with a lot of operational and financial challenges posed by the crisis. 

In the middle of all this uncertainty, the deadlines for compliance with the latest lease accounting standards have once again been extended. That means: 

• Private companies have an additional year to adopt new lease accounting standards in their financial statements. 
• Public not-for-profit companies that have not yet issued financial statements also get an extension. 
• Government entities that comply with GASB 87 postponed the effective date and subsequent reporting deadlines for 18 months.  

That’s good news for businesses that have yet to fully implement the new lease accounting standards or are still in the process of updating their accounting practices. But just because there has been a reprieve does not mean you should delay implementing a lease accounting software. Furthermore, implementing a tool to track your leases can be incredibly helpful.  

Stay Ahead of Compliance with Lease Accounting Software 

Like we’ve been saying, getting ready for compliance with the new lease accounting standards is a time-consuming and intensive process. That’s because the reliability of your financial reporting depends on doing a thorough lease inventory and accurately consolidating all your lease data. 

Our advice is to continue moving forward as quickly and efficiently as possible on these compliance efforts. That includes implementing lease accounting software to help you organize and report on your lease data in support of the new standards. 

Having access to accurate lease data is also crucial to business and accounting decisions related to the pandemic. 

That means lease accounting software will not only help you meet the compliance deadline down the road. It will also enable you to search for and manage critical lease information right now — and even find ways to save money in circumstances related to COVID-19. 

Leverage the System to Save Time and Money  

Now more than ever, companies need to understand their lease obligations and rights so they can manage costs and find areas where they might have some flexibility. (Read more in our blog COVID-19 and Lease Accounting: Understanding Your Lease Obligations and Costs.) 

A lease accounting and management solution such as Visual Lease can help your company save time and money by providing greater control over your leases. It provides the tools to search for and view important information needed to stay on top of your lease requirements in three crucial areas: 

Better Manage Your Financial Responsibilities 

Visual Lease tracks the relevant language of all your leases, to help you determine what rights and options you have regarding rent and other payments. For example: 

• What are your monthly payments obligations across all your leases? 
• Are you paying for assets that the business no longer uses or needs? 
• Do the leases include a grace period before any late fees apply? 
• Do any leases allow you to defer payment and if so, for how long? 

• Is the company overpaying for services that it is not receiving during a business closure? 

Having this and other lease information readily available can help you better manage costs and cash flow. It can also save valuable time when you are looking for lease clauses and other helpful information you need to effectively negotiate with landlords (or with tenants, if you are a landlord). 

Understand Your Legal Responsibilities 

Are there any lease clauses that protect your business from potential casualty, force majeure, or even bankruptcy? 

Without a lease accounting and management solution, you would have to look for that type of information by manually reviewing all of your leases. But with a solution such as Visual Lease, you can easily search for pertinent clauses to help determine what the business’s legal rights and responsibilities are. 

Keep Track of Lease Options and Notices 

You can also use Visual Lease to find options that will help you improve liquidity and reduce expenses during a business closure or slowdown. For example, you can search leases to find out what options you may have for downsizing or relocating a space — or for rent abatements or lease renewals, impairments, or terminations. 

You can even set up the lease management solution to automatically alert you to important events, such as: 

• Options that must be exercised by a certain date 
• Notifications that must be sent about upcoming lease options 

The alerts will continue to be important as companies reassess how they do business, the resources they need, and the options they will exercise moving forward in what may be a very different, post-COVID environment. 

Lease Accounting Software: Beyond Compliance 

How leases address defaults, terminations, options, rent abatements, and other issues can have a big impact on the decisions that a business must make, under all sorts of circumstances. 

Having lease accounting technology that puts these and other lease details at your fingertips will not only prepare you for lease accounting compliance — it will also empower the business to make more informed and timely decisions, both during the COVID-19 pandemic and in the days, weeks, and months to follow. 

In addition, lease accounting software provides the tools a business will need to calculate and report on lease modifications, deferrals, and other changes post-COVID. 

With all the business closures and cutbacks due to the COVID-19 pandemic, a lot of companies are worried about not only managing their lease expenses now, but also accounting for changes to payments and other lease obligations later. 

As the COVID-19 emergency continues, more companies are faced with making critical decisions on lease issues, which in turn have an impact on lease accounting.  

How will lease concessions and other changes that occur in the wake of the COVID-19 crisis affect your lease accounting? 

How to Handle Lease Changes Related to COVID-19 

While there are not any additional lease accounting processes or rules to learn for handling concessions due to circumstances surrounding COVID-19, you may elect the method of selecting practical expedients, instead of performing a lease–by–lease analysis of the legal language. This change currently applies to both FASB guidelines (whether 842 or 840) and IASB, but only for lessee schedules. Other lease accounting issues will continue to be guided by the specific terms of your lease contracts and your lease accounting standards (i.e. ASC 842, IFRS 16, GASB 87). 

While you should always consult with your accounting advisory partner regarding your specific situation, the following guidelines can help as you consider the different concessions that may apply to your lease accounting during and after COVID-19: 

• Rent Abatement  

The COVID-19 pandemic is causing companies to ask how to account for rent abatements. The FASB and IASB have provided the ability to elect to treat rent abatements as either existing lease obligations, or as negotiated amendments to the terms. However, there are limitations on this ability to choose. For example, modifications which materially increase the lessor’s rights or the lessee’s obligations must be treated as modifications.  

If a company elects to not take the expedient of not determining if the lessor is obligated to provide a rent concession, or if the lease is not eligible for such election, the treatment will be dictated by the terms of the lease: 

• If the landlord is obligated, the concession is considered a variable lease payment. No remeasurement is required, and the abatement will flow through to any disclosure reporting. 

• If the landlord is not obligated, the concession is considered a negotiated modification. A remeasurement should be run when the abatement term is agreed on and continue through the lease term. 

• In the event there is not an agreement to abate rent, this is considered a short payment. The payment is recorded in Visual Lease as if made, but as in the normal course of events, the cash transaction books to Accounts Payable. Therefore, while the Ending Liability is reduced on schedule, it is replaced by an Accounts Payable liability until the payment is made. 

COVID-19 presents such an unforeseen and disruptive impact upon operations, therefore, many companies are electing to keep related costs and abatements distinct from normal operating expenses. As a result, we suggest creating distinct financial categories in this situation. 

• Accounting for Changing Discount Rates 

Lower interest rates in response to COVID-19 may affect the Incremental Borrowing Rate (IBR) that lessees typically use as their “discount rate” for lease accounting. The IBR may also be affected if borrowing costs change — for example, because of a declining credit rating. 

A lower interest rate increases the calculated amount of a lessee’s right-of-use (ROU) assets and lease liabilities. This in turn affects balance sheets when lessees enter new leases, remeasure existing leases, or transition to new lease accounting guidance. 

• Partial Termination  

With more people working from home, some businesses may invoke a lease clause or negotiate a lease modification to reduce their square footage and the related costs.  

Referring to your lease accounting guidance can help you identify what options you may have for recording a partial termination or other modification that reduces the scope of a lease. For example, under ASC 842, you have the choice of reducing the ROU asset proportionate to either the reduction in the lease liability or the reduction in the leased space. 

• Impairment  

In an economic downturn, leased assets such as property, plants and equipment may be valued below their current balance. The result is the impairment of ROU assets, which may require a different amortization calculation for operating leases. 

From the lease holder’s/lessor’s point of view, some assets held for lease may be impaired if demand for those assets decreases or if rental rates drop significantly. 

For either party, a lease accounting software solution with automated impairment processing helps to simplify the complex process of recording these types of lease impairments. 

Handle It All with Good Communication, and Intuitive Software 

In any still-evolving situation like the COVID-19 pandemic, it is always a good idea to consult with your legal counsel and accounting advisory partner as needed to make sure you understand all your rights, obligations and expenses regarding your leases. 

Maintaining good communication among all parties in a lease is extremely important to help you from avoiding potential high-risk misunderstandings and mitigate conflict. For example, a landlord may misinterpret a tenant’s need to shutter the doors for the short term as abandonment. Or, a tenant could have difficulty getting a concession for unused office space if the business closure is not documented and the landlord is not notified according to the lease terms. 

Additionally, taking advantage of tracking your leases clauses and financials within a reliable lease accounting and administration software, such as Visual Lease, is incredibly helpful to save your organization significant time and money during and after COVID-19. For more information to see how Visual Lease can help your business evaluate your leases as it relates to COVID-19, visit here or reach out to us today to learn more about our COVID-19 lease impact service. 

Deciphering financial and contractual obligations of a lease can be a challenge. And that is especially true during an unprecedented event, such as the COVID-19 pandemic. All you really want to know is, what are you responsible for?

Below, we answer questions about some of the common lease provisions that may pertain to COVID-19 and how they could affect your lease obligations — and ultimately, your lease accounting.

Provisions That May Pertain to COVID-19 and Lease Accounting

Since every lease has different language, obligations and consequences, we always recommend talking to your legal counsel to get help interpreting lease provisions and determining if and how they pertain to your business.

Regardless, the common lease clauses below may include language that will have an impact on tenant/lessee or landlord/lessor responsibilities during unusual situations such as the COVID-19 crisis.

What is a Force Majeure provision?

Force Majeure is a clause excusing nonperformance by the landlord/lessor or tenant/lessee, with specific lease language that defines what events trigger an exclusion. This lease provision typically also defines whether or not specific types of performances are covered — for example, a landlord’s obligation to perform certain maintenance and repairs.

The lease language might provide different definitions of “Force Majeure” events, but they may include acts of God, terrorism, natural disaster, governmental action, riots, or more generally, events out of the party’s reasonable control. The more specific the language is, the less likely you can rely on the clause to postpone or cancel obligations under the lease.

What does Force Majeure excuse or not excuse?

The Force Majeure clause may excuse things such as a landlord’s requirement to make repairs or a tenant’s requirement to maintain janitorial services within the premises. Note that the payment of rent is often not excused.

What is an example of a Force Majeure clause under which rent payment is not excused under COVID-19? 

“This Lease and the obligation of Tenant to pay the due rent hereunder and perform all of the other covenants and agreements hereunder on the part of Tenant to be performed shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this Lease . . . if Landlord is prevented or delayed from so doing by reason of strikes or labor troubles or by accident, or by any cause whatsoever beyond Landlord’s control, including, but not limited to, laws, governmental preemption in connection with a national emergency or by reason of any Requirements of any Governmental Authority.”

What is a casualty provision?

Most leases have a provision regarding what happens when the building, premises, or property is damaged by a casualty such as a fire, flood, hurricane, earthquake, and similar events.

What does a casualty provision mean in a pandemic like COVID-19?

Casualty provisions rarely cover government shutdowns or pandemics. Usually the only events covered are those that would physically damage or destroy a building or asset in some way.

What kind of obligations are included in leases regarding landlord vs. tenant responsibilities?

Generally, leases may include obligations such as maintenance and repairs, how common areas are handled, building hours, base-building cleaning, and extra cleaning. Specific lease language will differentiate what responsibilities fall on the landlord/lessor versus on the tenant/lessee for tasks such as:

• Maintaining the building
• Maintaining the specific tenant space
• Emergency repairs/maintenance
• Common area maintenance (CAM) and use

Are there specific lease obligations that may be more relevant during the COVID-19 pandemic?

Due to the nature of the virus, any lease clause concerning maintenance and cleaning of the building and tenant’s premises is relevant. Additionally, clauses concerning any “above and beyond” maintenance and cleaning are relevant.

For instance, specific lease language may include expenses that the landlord can choose to undertake but then pass on to the tenant — such as extra deep-cleaning that might be required during the pandemic (or at other times).

Are there any third-party agreements that should be reviewed?

Depending on the specific lease language requiring tenants to maintain and clean their own premises, any third-party agreements concerning the “Supplemental Cleaning of Tenant’s Premises” would be relevant. Other obligations with third-party contracts may include construction or renovations and other premises maintenance.

Most supplemental cleaning contracts can be terminated with 30 days’ notice, which means a tenant can potentially renegotiate scope and pricing changes depending on how the current situation develops.

What insurance provisions are included in leases?

Most leases contain requirements for both the landlord/lessor and the tenant/lessee to obtain and maintain certain insurance policies. While not all are applicable during the COVID-19 pandemic, some may be, depending on the exact policy and what coverage it includes.

Some policies — such as business interruption insurance — may help with rent, operational costs, lost profits, and similar issues. However, the policies must have been put in place prior to the current COVID-19 pandemic.

What is a business interruption insurance policy?

This is usually an add-on to a business’s property/casualty insurance policy to cover loss of business income in a disaster that is covered by the main property/casualty policy. However, since it is usually applicable to a natural disaster or fire, the policy would have to be reviewed and interpreted to determine if the current COVID-19 situation is covered.

Do government orders, regulations, or laws concerning COVID-19 take precedence over lease provisions?

Any government order, regulation, or law issued concerning the pandemic may take precedence over any lease provision. This could include anything from the payment of rent and the status of evictions to the physical use of buildings.

For example, the governor of New Jersey issued a lockdown order for nonessential businesses, requiring them to close to the public. But whether this action cancels lease performance or obligations would depend on the specific Force Majeure language contained in the lease.

As time goes on, there may be additional government actions that supersede any lease language to allow for delayed performance and even delayed evictions. New York, for instance, delayed all commercial lease evictions until at least June 20, 2020, and there are proposals to consider delaying rental payment obligations for 90 days.

What is a Continuous Operations clause?

A Continuous Operations clause is lease language that requires a retail tenant to be open and operational for a certain number of hours per day and/or days per week. This provision generally applies to retail tenants, although it does not necessarily appear in all retail tenant leases. The provision is rarely found in other commercial tenant leases.

Are there exceptions to a Continuous Operations clause?

Specific lease language may give exceptions, such as Force Majeure events, that allow for not continuously operating. But again, this depends on the specific language in the lease. In most cases, Continuous Operation provisions still require payment of rent.

What are some other lease provisions that may be relevant during COVID-19?

• Notice provisions provide guidance for ensuring that notices between tenant and landlord are legal and binding — for example, regarding lease renewal, lease termination, lease options, and general requirements for providing official notice of any action to the other party.
• Gross-up provisions state that if a building is shut down for an extended period, landlords must credit back the costs of any unprovided services when issuing their year-end reconciliations. Tenants should keep an eye on this issue when reviewing their year-end statements.
• Percentage or profit-sharing rent provisions specify a rent charge based on the gross income of the tenant rather than a fixed monthly or annual value.

Get Help from the Experts

Your legal advisor and accounting advisory partner can both help you understand how lease provisions may pertain to COVID-19 and result in lease concessions and other changes that will affect your lease accounting.

In addition, a lease accounting and administration software solution such as Visual Lease can help during this process — providing abstracted clauses and tools for organizing your lease data.

Visual Lease is providing the information above for informational purposes only and should not be construed as legal or accounting advice.

The COVID-19 pandemic has impacted every company in some way. With “social distancing” and all the emergency regulations that are in place, many offices and nonessential businesses are shut down entirely — or at the very least, their brick and mortar locations are closed while employees work from home.

One of the business effects of COVID-19 that does not get a lot of attention is its impact on leases and the related financial obligations. Whatever leases a company holds — not just for office, warehouse, manufacturing, or retail spaces, but also for equipment, vehicles, and other assets — the pandemic-related shutdowns complicate lease obligations and the associated lease accounting and administration.

What should you look for in your leases to understand your obligations and manage costs?

1. Review Your Leases to Know What You Owe, and When

Although many companies are not using their leased assets while business is “on hold”, they may still be required to pay rent through the end of their lease terms, as well as any other costs spelled out in their lease agreements.

That is why now more than ever, it is critical to understand exactly what is in each of your leases and make sure you don’t miss payments and important events during closures or cutbacks due to COVID-19. Otherwise, you could be subject to late fees or nonpayment penalties — or worse, face eviction and still have to pay the rent.

What to Look for in Leases

The table below shows some examples of categories, events, and obligations to look for and review in your leases — given there may be changes to how and if your business is using leased assets.

Every lease will have different language, obligations, and consequences for the lessee/tenant and for the lessor/lease holder — and few, if any, probably anticipated anything quite like COVID-19.

2. Evaluate Your Lease Financials and Options Under COVID-19

With the timetable to get “back to normal” still to be determined and so much that remains unsure, it is also important to conserve business spending wherever possible.

For instance, now is a good time to print out a general ledger to date and review all of the recorded transactions to get an overview of your current expenses. You might even find some unnecessary or optional recurring charges you can cancel or put on hold.

In addition, by understanding your leases and being clear about your rights and obligations, you may be able to find areas where your company can avoid overpaying or incurring additional fees during this time.

Where You Might Save

For example, part of your monthly rent may go toward front-desk/lobby security or other services you are no longer receiving because the building is closed. If so, you may be able to negotiate with the lease holder for a lower monthly payment.

Or, your building may be reopening with some restrictions and now requires more intensive cleaning and sanitation in all public areas. Are you obligated to pay that additional cost under the term of your current lease? You’ll want to check before you agree to pay anything extra.

Does your lease include any language around rent abatements or what happens if the space cannot be used due to circumstances beyond anyone’s control (Force Majeure)? Ideally, your leases are clear and thorough — though, of course, even the best lease cannot include every “what if” scenario.

When an area of cost concern is not covered in a lease, having a good relationship with the lease holder will improve your chances of being able to negotiate a term that will satisfy both parties.

Reflecting Changes in Your Lease Accounting

If you cannot get out of a lease and must abandon an asset, you will need to write down its value over a short period of time while still retaining the liability and making the payments. If the landlord will let you out of the lease, you will need to account for any termination fee you pay, as well as write down the asset and the liability in your lease accounting.

In these and other circumstances,you can account for changes in lease payments, such as the remeasurement requirements for abandoned or terminated leases.

Next Up: How These Changes Will Affect Your Lease Accounting

In this series of blogs, we will talk about the impact of COVID-19 on lease obligations and your lease accounting practices moving forward.

In the meantime, if you have a lease accounting system already in place — or better yet, a lease management solution that combines lease accounting and administration functions in one system — you have tools that will make it easier to identify your current lease obligations and understand their financial implications.