Office lease terms
With the shifting demand for office space, lease terms are being negotiated differently, with more negotiating “power” residing with tenants as landlords seek to keep occupancy levels at a sustainable rate. This has given rise to a shortening in average lease terms, preferable rent levels for tenants, improved lease incentives, and changes to break clauses. There are some financial reporting concessions available where these renegotiations are directly attributable to COVID-19, but where they are not, they need to be considered under the existing accounting frameworks. The nature and terms of lease agreements can materially affect how these are accounted for, in terms of reported financial results, the ability of a company to meet investor expectations and compliance with existing lender covenants.