Chapter 4

Real Estate Leases

4.1 Overview

What agreements are considered leases? Topic 840, Leases (Financial Accounting Standards Board (FASB) Statement No. 13, Accounting for Leases), defines a lease as an agreement conveying the right to use property, plant, or equipment (land or depreciable assets or both) usually for a stated period of time.1

Agreements that transfer the right to use property, plant, or equipment meet the definition of a lease even though substantial services by the lessor may be called for in connection with the operation or maintenance of the asset under lease. The evaluation of whether an arrangement contains a lease within the scope of Topic 840 (Statement No. 13) is based on the substance of the transaction rather than its legal form. An agreement may not be designated as “lease” but nevertheless meet the definition of a lease, such as a heat supply contract for nuclear fuel.2 Similarly, certain agreements designated as “leases” may not meet the definition of a lease. The accounting guidance for leases does not apply to lease agreements related to the rights to explore for or to exploit natural resources, such as oil, gas, minerals, or timber; or to licensing agreements for items such as motion picture films, plays, manuscripts, patents, and copyrights.3

Topic 840 (Statement No. 13) provides the basic framework for determining whether a contract is within its scope. Before the issuance of Emerging Issues Task Force (EITF) Issue No. 01-8, Determining ...

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