FASB ASC Topic 840 and 842 Related to COVID19

Cresa Global Inc. has investigated, vetted and taken a position related to the opportunity for companies to seek concessions from landlords if their business revenues are adversely affected by COVID-19.  We expect that some landlords will be open to providing rent cost relief to tenants that are adversely affected by the COVID-19 pandemic.  Noted examples include deferred rental payments from three to six months, most initiating in April 2020.  Deferred rents are then to be paid back in addition to base rents mandated in the lease agreements, starting in 2021, amortized over a reasonable period.  This is a fluid situation that will be affected over time based on the length of our national shut down and the depth of the damage.  A key point as stated by FASB, is that the tenant must be “affected by the economic disruptions caused by the COVID-19 pandemic” and not use the opportunity to take advantage of the general circumstances. FASB will continue to work through this issue in 2020 and anticipates hosting a lease roundtable later this year.  Some key points to understand include the following considerations related to COVID-19:

  • The negotiated concessions needed must be a direct result of the ramifications of COVID-19;
  • FASB notes the current underlying premises requiring a modified lease to be accounted for as if it were a new lease under Topic 842; wherein modified terms and conditions affect the economics of the lease for the remainder of the lease term. This could be costly and complex for tenants to account for at this point and may lead to a modification in guidance under the COVID-19 circumstances.
  • To ease the burden, FASB staff believes that it would be acceptable for tenants to make an election to account for lease concessions related to the effects of COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 840 or Topic 842, as though enforceable rights and obligations for those concessions existed in the initial lease (regardless of whether those enforceable rights and obligations for the concessions explicitly exit in the contract).
  • It is important to note that the concessions should not result in any substantial rights of tenants under the existing lease and reasonable judgment will be expected.  Also, deferred payments may be accounted for as variable lease payments.
  • Tenants should expect, based on existing disclosure requirements in GAAP, to be accountable to provide disclosures about material concessions received and the accounting effects to enable users to understand the nature and financial effect of the lease concessions related to the effects of the COVID-19 pandemic.

Expect FASB to continue to have considerable discussion throughout 2020 that may result in additional practical rulings related to the COVID-19 pandemic.  We will continue to follow this closely and report our findings as we move forward.


   Download More Information   

Download our AccountLease PDF or reach out to Don Mitchell, Simon Terry-Lloyd, Ryan Mitchell, or Josh Estill for more information

Related blog posts

Office Interior
June 4, 2020

Occupier Resources for New York State Businesses

While the long-term effects on the workplace are still unknown, we do know that short-term changes are necessary for a safe return to the office. Read more on New York State Guidelines for a safe reopening.
Overhead of employees working far apart, social distancing
June 2, 2020

The Return to Office

Whether reconfiguring your space to accommodate social distancing guidelines or enhancing your remote work program, find out how to reduce density, increase sanitization and foster productivity when you return to the workplace.
Fun Office Signage
May 28, 2020

Conversations with Cohen - Designing the Post-COVID Office

Reducing density, adopting social distancing practices and focusing on elevated cleaning and hygiene has become the baseline on which many businesses are planning re-occupancy. But what does that look like from an execution standpoint and how will design play a role?