Lease incentive definition
/What is a Lease Incentive?
A lease incentive is an inducement for a lessee to sign a lease. In these arrangements, either the lessor directly pays for expenditures, or the lessee does so and is then reimbursed by the lessor. A lessor enters into these arrangements in order to fill vacant office space. Such deals are especially common in a soft real estate market, or when a lessor wants to attract a high-profile, stable prospective tenant.
Examples of Lease Incentives
Here are several examples of lease incentives:
Rent-free period. The tenant is allowed to occupy the property without paying rent for a set period.
Reduced rent. The landlord offers a temporary rent reduction, either at the beginning of the lease or for the entire term.
Cash payments or moving allowances. The landlord provides a cash bonus or covers moving expenses to attract tenants.
Tenant improvement allowance. The landlord contributes funds for renovations or modifications to customize the space for the tenant.
Covered operating costs. The landlord agrees to pay certain expenses, such as utilities, property taxes, or maintenance fees, for a specified period.
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FAQs
What disclosures are required for lease incentives?
Lease incentives are not disclosed separately under U.S. GAAP, but their effects are included within required lease disclosures under ASC 842. Entities must disclose information about lease costs, lease income, and lease payments, which are presented net of lease incentives. In addition, significant judgments and assumptions used in measuring lease liabilities and right-of-use assets, including the treatment of lease incentives, must be disclosed.