When does a lease start
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The document explains the difference between the lease start date and the commencement date for accounting purposes, emphasizing that the lease officially starts when possession is transferred to the tenant. While the commencement date is often outlined in the lease, it does not affect the actual lease start date, which is critical for recording expenses. The document also promotes LeaseQuery software for managing lease accounting efficiently.
When does a lease start
- 1. DO YOU KNOW WHEN A LEASE STARTS? www.LeaseQuery.com
- 2. FOR ACCOUNTING PURPOSE, WHAT IS THE CORRECT DATE A LEASE STARTS? A) Lease start date B) Move in date C) Possession date D) Commencement date E) Execution date
- 3. WHEN DOES A LEASE START? For accounting purposes, a lease “starts” on the date possession is passed from the landlord to the tenant On that date, the lessee or tenant should start recording straight-line expense, even if that date is earlier than the “commencement date” specified on the lease
- 4. EVERY LEASE HAS A “START” DATE, BUT MOST PEOPLE DO NOT UNDERSTAND WHAT THAT DATE REALLY IS.
- 5. “COMMENCEMENT DATE” Specified on the lease document has ABSOLUTELY no bearing whatsoever on the lease start date under current (and the new) lease accounting rules.
- 6. WHAT IS A COMMENCE- MENT DATE? For accounting purposes, the commencement date specified on the lease may be used to determine the lease end date, as most of the time the “lease term” specified on the lease document starts on the commencement date.
- 7. A SAMPLE LEASE TERM Lease Term: A term commencing on January 1, 2016 (Commencement Date) and continuing for sixty-six (66) full calendar months. Tenant shall be granted access to the Premises sixty (60) days prior to the Commencement Date to install equipment and furnishings (the “Early Access Period”). Such access shall be subject to all the terms and conditions of this Lease, except that the Commencement Date and the payment of Rent shall not be triggered thereby.
- 8. Based on the language in the previous page, for accounting purposes, the lease start date is actually November 1, 2015 (or whenever access is granted), and the lease term is actually 68 months. The tenant would record expense in the months of November and December (the offset is to deferred rent), even though the lease explicitly asserts that the commencement date is January 1, 2015.
- 9. HERE’S ANOTHER EXAMPLE: The Lease Term shall be for a period of one hundred twenty (120) months commencing one hundred fifty (150) days after the date upon which Tenant Opens for business at the Demised Premises (the “Commencement Date”).
- 10. Assuming the tenant takes possession of the premises on January 1, 2016 (to construct leasehold improvements) and opens for business on June 1, 2016, then the commencement date per the lease document is November 1, 2016.
- 11. However, for accounting purposes, the lease start date is actually January 1, 2016 (the possession date), and the tenant would have to record expense for January through October 2016, even though the lease asserts that the commencement date is November 1, 2016
- 12. In addition, the accounting lease term is actually 130 months, as opposed to 120 months as stated in the lease.
- 13. SO THERE YOU HAVE IT; THE DIFFERENCE BETWEEN COMMENCEMENT DATES AS STATED IN THE LEASE, AND THE COMMENCEMENT DATE FOR ACCOUNTING PURPOSES.
- 14. AS YOU ARE MAKING DECISIONS ABOUT YOUR LEASE ACCOUNTING SOFTWARE, BE SURE TO ASK IF THE SOFTWARE TRACKS BOTH THE COMMENCEMENT AND POSSESSION DATES.
- 15. MAKE SURE THE SOFTWARE AMORTIZES RENT EXPENSE FROM THE POSSESSION DATE AND NOT THE COMMENCEMENT DATE
- 17. EASY TO USE LEASE ACCOUNTING SOFTWARE LEASEQUERY HELPS BUSINESSES MANAGE THEIR LEASES AND AVOID OVERPAYING RENT. REQUEST FOR FREE TRIAL >>
- 18. IDEAL FOR OVER 30 LEASED ASSETS - BUILDINGS, EQUIPMENT OR BOTH. REQUEST FOR FREE TRIAL >>
- 19. BENEFITS OF LEASEQUERY Determine impact of new lease accounting rules on the lease portfolio Instantly generate error-free lease journal entries for posting 24/7 access to lease documents and information from any location Effectively manage and minimize financial risk associated with lease portfolios Perform lease versus buy analyses when evaluating equipment or real estate purchases
- 20. For more information on lease, please visit www.LeaseQuery.com