What is a rent free period?
What is a rent free period?
A period at the beginning of a tenancy during which no rent is payable by the tenant. It is given: Recognition of the fact that until the tenant’s fitting out works are complete, it cannot use the premises for its business.
Is a rent free period a lease incentive?
A rent free period is a lease incentive (as defined in the glossary of FRS 102) and under FRS 102 paragraph 20.15A, it must be spread over the lease term as a reduction to the lease expense.
How is rent free period calculated?
A free rent period is a type of lease incentive that has a discrete cash value. For example, 2 months of free rent in a $1000/month space has a value of $2000. Any lease incentive of this type must be amortized over the life of the lease on a straight-line basis.
How do I record free rent expense?
Make a general journal entry in which you debit the rent expense account for the monthly rent payment determined in step 2 and credit deferred rent expense, a liability account, for the same amount. Repeat step 3 for each month during which you are granted free rent.
How do I record deferred rent revenue?
Since deferred revenues are not considered revenue until they are earned, they are not reported on the income statement. Instead they are reported on the balance sheet as a liability. As the income is earned, the liability is decreased and recognized as income.
Is a rent free period a lease incentives under IFRS 16?
IFRS 16 on the other hand, restricts lease incentives to include only payments made by a lessor to a lessee associated with a lease, or the reimbursement or assumption by a lessor of costs of a lessee (i.e. excludes rent-free periods).
What is rent incentive?
What are Lease Incentives? Lease incentives, sometimes called tenant inducements, are enticements lessors provide to encourage lessees to sign a lease. The most common type of inducement is the tenant improvement allowance (TIA), which reimburses or pays lessees for property improvements.
How do you amortize free rent?
Renters are typically offered a concession in the form of one month’s free rent. It may be amortized over a 12-month period; that’s called a net effective price, calculated by taking the total amount of concession, dividing it by the term of the lease, then deducting that amount from the monthly asking rent.
