FASB to Propose Amendments to Leases Standard that Aligns with Nareit Position on Accounting for Common Area Maintenance
On Nov. 29, the Financial Accounting Standards Board (FASB or board) held a meeting to discuss possible solutions to lease implementation questions. Among the items discussed is a major issue faced by Nareit members operating as equity REITs planning for the implementation of the leases standard that will be effective in 2019. The issue centers on allocating the consideration called for in the lease to lease and non-lease components (e.g., common area maintenance). The board concluded that the standard would be amended to provide an option for lessors to avoid separating the gross rent between components where the pattern of income recognition of the components is similar.
Nareit had previously raised this issue with the board, but the FASB did not address the issue until Nareit member companies began planning the leases implementation during 2017. Two REIT sectors, multi-family and office, formed coalitions of financial officers and sent letters to the FASB explaining the issue in further detail. On Nov. 1, Nareit, including representatives of the sector coalitions and financial statement users, met with a number of FASB members and staff to fully discuss this significant implementation issue. During the meeting, financial statement users explained that separating gross rent between these lease components would not affect their valuation. At the conclusion of the meeting, the FASB representatives indicated that they clearly understood the issue and would consider possible solutions.
Next Steps
The board plans to issue an exposure draft covering the conclusion reached in January 2018 with a 30-day comment period
Contact: George Yungmann (gyungmann@nareit.com) or Christopher Drula (cdrula@nareit.com).