In our last blog, we addressed accounting for leases when a lessee is granted access to a part of a building at first and then granted access to the rest of the building at a later date. This week’s blog addresses a similar situation: Accounting for leases when a tenant signs a contract that legally requires the tenant to expand the leased premises by a pre-determined amount at a later date. This scenario is called a “Phase in” or “Must Take” in real estate circles. For instance, a tenant could sign a lease for a building where the tenant occupies the first floor in year one, but MUST also lease the second floor in the second year. As we stated in our last blog, under current GAAP rules, the FASB states that if rents increase because the tenant gets access to additional property, then rent expense should be allocated proportionally to the fair value of the additional property. As we always do here at LeaseQuery, let’s simplify the accounting with an example.
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