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Rent free period accounting quandry

Rent free period accounting quandry

Office lease : 6 mths rent free + and first break clause is @ 5 years

But rent month 7-12 £1400/mth

and in  months 13-24  £ 1625 /mth

and         25- 60  £1800/mth

the book keeper [md's wife] has simply posted the monthly invocies upon receipt from period7 direct to p+l  ie 6 x £1400

So: please what value does one attribute to the p+l for the  6mth rent free period   and entry required

If one used 6mths x£1400 =  8400, plus 12mths @ £1625 = 19500 plus 36mths@ £1800 = 64800

Total rent over period =£92700 or 1545/mth.   this monthly then of  1545 it would not reflect contracted lease values in the future peroiods [ ok if the rent was fixed over the fully period ]

many thanks for input [in advance]


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By blok
29th Mar 2010 16:41


£1,545 per month to rent.

 If for nothing else this will show a consitent approach.  (appreciate that someone will quote the FRS which escapes me right now, however even without quoting the frs, I still think I am correct).

The payments over the lease term divided by the number of months.


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By Anonymous
29th Mar 2010 16:44

Something wrong with your text

last paragraph doesn't make sense. If you were to charge £1,545 per month, of course that would not reflect the higher lease values in later periods - but that is exactly what you would expect by spreading the lease payments over the term of the lease!

What I would perhaps suggest is to calculate the benefit of the rent-free period per your calculation (£1,545 per month) and then deduct that on a monthly basis over the remaining 54 months. This would give 6 months at £1,545, 6 @ £1,228, [email protected],453 and 36 @ £1,628.

No idea if there is any authority for this treament, but it seems fair to me. Alternatively, take the simpler route and just spread the total amount payable over the lease term.


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By Anonymous
29th Mar 2010 17:20

Lease rentals

The aim is to approximate the p&l charge to the market rent for using the asset.  So 1545 a month is correct.  The fact that there was a rent free period and lower rents initially suggest that the final amount charged is in excess of the market rate when the lease was signed.  It is correct to spread the total payments made over the period to the next rent review when the market rent will be able to reassessed.  A constant charge over the lease term also reflect the likely pattern of use and matches a rent cost to the consistent annual benefits received.  There is something on this in SSAP 21 (operating lease rentals section) and an UITF abstract on operating lease incentives.  Good luck.

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By Anonymous
30th Mar 2010 10:30

service office 30 day notice

interesting thread.  I today have had a call from a client saying that they are moving into a "serviced office"

They have negotiated 6months rent free, followed by  6 mths @ £1250/mth There is a minimum 12 month agreement followed by 3o days notice either party   Rent from period 13 onward will be 1725/mth  + RPI at each 12 month [ 24 36 etc ]

If they do not make any accounting entries for rent other than merely booking the invoices from p7 to p+l

 Year one p+l contract cost will be £7.5k  [ ie 1250x6] with the benefit included. 

The real difference i guess would be in the monthly accounting only, with periods 1-6 being -rent free  + periods 7 -12 @ 1250.   versus  a revised monthly charge of  625/mth p1-12 if the benefit was recognised

1] what are the entries at inception to recognise the rent free ? over 12 mths or longer ?

2] i take it that as its a rolling 30 day contract after p12 that it is year one only that the rent free would be  apportioned?

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