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Perspectives

Lease modification considerations

The accounting implications of real estate rationalization

Embarking on a real estate rationalization initiative? Many businesses are as they consider where employees will work and hybrid work models. But coming up with the right approach requires an understanding of the lease modification and impairment accounting implications. Our accounting resources can guide you through these complexities.

Lease modification, impairment, and abandonment implications of real estate rationalization

To adapt in the changing business environment, CFOs continue to play a critical role in helping C-suites strategically reassess current business structures. Among the areas they have been tasked with is reevaluating where employees may work and to what extent they will rely on the use of brick-and-mortar real estate assets.

The goal of these real estate rationalization programs is a rightsized real estate portfolio that manages costs while supporting evolving business needs. To meet that goal, we have seen CFOs and their teams embark on rationalizations initiatives that fall into four main categories:

  • Exiting leased space before the end of the contract term
  • Modifying existing lease agreements
  • Purchasing or leasing additional space
  • Reducing owned space by executing a sale-and-leaseback transaction

Each rationalization initiative has certain accounting implications that may not be fully understood and can introduce unexpected complexities and outcomes. For guidance on these more complex accounting activities explore our executive summary, “Reevaluating your real estate footprint,” and read our full report to go deeper into the accounting nuances.

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Finding the right size for your real estate footprint

How CFOs are rightsizing for a remote work world

The current environment has changed the way work gets done. As some companies recognize remote work as a viable long-term option and others are increasing their space to allow for better social distancing, many CFOs are reviewing their organizational real estate portfolios. In a poll* conducted on the March 2021 Deloitte Quarterly Accounting Roundup Dbriefs webcast, a majority of respondents said they were taking action to rightsize their portfolios.

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Real estate rationalization 101: Observations and potential lessee accounting implications

If you’re looking to exit or modify your real estate lease agreement, the associated accounting implications could be more complex than expected. Watch our Quarterly Accounting Roundup Dbriefs webcast for specific guidance on applying the ASC 842 modification guidance, as well as the more challenging ASC 360 impairment and abandonment models.

Insights to inform your real estate rationalization strategy

How might the new lease accounting standard impact your real estate rationalization activities? Tune in to our Consumer Speaks podcast. Get an overview of current market trends and the accounting implications associated with various rationalization approaches from a lessee’s perspective.

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The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.

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