The continuing COVID-19 crisis has forced employees nationwide to work from home in large numbers. This in turn has spurred businesses to think about their leases, in particular whether they should apply for lease concessions. To explore this question, we sat down with Ane Ohm, cofounder and CEO of LeaseCrunch, to discuss the difference between lease concessions and lease modifications, current lease concession guidance and thresholds, and more.

If you’d like, you can download this episode’s audio file. Additionally, you can follow us on iTunes, Google Play, or subscribe to our RSS feed.


Thank you to our sponsor:





View sponsorship and commercial opportunity details.

By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

With so many individuals still working from home due to COVID-19, it opens up serious consideration for firms and organizations as it relates to lease concessions. In this episode, we talk to Ane Ohm, cofounder and CEO of LeaseCrunch, to discuss the difference between lease concessions and lease modifications, the continuing lack of clarity around lease accounting standards, current lease consideration guidance and thresholds, and much more.

Can you tell us a little bit about why the need for lease concessions has come up in the wake of COVID-19?

[Ohm] So, many, many, many of us experienced shutdowns for a time, and some are still experiencing that. With that, there are businesses who are not able to pay their rent. They have no revenue coming in. If they're dependent on in-person customers, that makes it pretty difficult to run a business when the entire place has to be shut down.

One of the things that was great about the FASB Light Speed is, on April 10th, they actually issued some guidance on lease concessions versus lease modifications.

What is the difference between lease concessions and lease modifications?

[Ohm] That is absolutely the place to start. A lease concession is something that happens as part of the existing contract. It's something that, let's say you are paying $100 a month, and you have an option in the contract to change that dollar amount based on circumstances, and that's written into the contract. That is a lease concession. It's something that changes as part of the contract. A lease modification is something where the original scope of the contract has changed. Something has happened, and it wasn't anticipated in the contract. It's outside of the original contract, so you actually have to modify the contract as you move forward.

When people are making a decision around their lease, and the impact of COVID-19 and what it's had on it, how difficult is it that there's still some lack of clarity around the rules and standards for lease accounting? How does that complicate things?

[Ohm] I wouldn't say it's a lack of clarity. It's actually almost too much clarity. The way the rules work is that, if you have an event, you have to analyze that event to determine whether or not it's a concession or modification. That's a volume of work that needs to happen. Then, if you've determined that it is a modification, there is another volume of work that needs to happen. All of that work was anticipated to be happening kind of one off.

You don't have things change that frequently. What was acknowledged this spring is that that volume of work is unreasonable when it's happening a lot and so pervasive across our country. So, what the FASB has done is saying that you don't have to go through that analysis. We're going to just streamline this for you, get you right to lease concession.

You may have covered this a little bit there, but what sort of guidance is out there currently on lease considerations? What has the FASB had to say? What are they looking at going forward?

[Ohm] This is one place, like I said, that is really light speed on responding to lease concessions and the pandemic. April 10th, they actually issued a Q & A on this, so I was really impressed by that. What they're saying is, as I mentioned, lease concession versus lease modification, you have to decide whether or not that's actually a thing. Which one is it? They're saying that you could argue that even if you've had to "modify the lease," it's basically due to force majeure. It's something happening that's greater than you. You are not driving that. They're saying that you can go straight to lease concession. That's one thing that's really a good thing. The second thing they're saying is that then you can recognize the change that resulted. So, maybe it's nonpayment for two months. You can recognize that change as income or lack of an expense.

You don't have to actually modify the lease. So, if somebody already has adopted the new lease standard, at least the ASC 842, you can actually recognize that as a variable change, and you don't have to reassess the entire ROU asset and lease liability. It is important, though, that the lease concession had to result from economic disruptions from COVID-19. It can't increase the lessee's obligations. It has to decrease the lessee's obligations. They're looking at it, and they're saying, "You can't just use this as an opportunity to increase payments for lessees." A lessor might come and say, "This is a way for me to kind of get some more money," but that would not count.

This question may be sort of along those lines: Are there any qualifications or thresholds a business has to meet to be able to make that election for a lease concession?

[Ohm]  You don't have to do an analysis, but you definitely do have to show that it is the result of this pandemic. This isn't a permanent election. That's important to note as well. This is something that only is for this particular pandemic. We're experiencing a surge now. This is something that is going to continue to affect us for a number of months, and so it continues to be valid. It's not something that just applies to the spring of 2020. You do need to do that, make it very clear that this is a result of COVID-19, and that you have reduced the obligations, not increased them.

Clearly, firms and organizations have so much flying at them as a result of their everyday, but especially because of COVID-19. Are there steps organizations can be taking to help them better manage or streamline the process of applying for lease concessions?

[Ohm] The good news is that it's just about documentation. If you are preparing your financial statements for your auditor, your auditor will want to see that you have shown, represented, why this is the result of a shutdown, for example. The good news is there's no filing. There's no reporting externally that you need to do in order to record this properly on your financial statements. It is making sure that your backup documentation exists. It doesn't have to be expensive, so that's the good thing. This is one of these places where you can say that the FASB came out with something that truly did make the process for accountants more simple, and for good reason. It just makes sense.

How does the fact that there's no concrete way of knowing when this crisis is going to be concluded complicate the process?

[Ohm] Because you can't predict, we just don't know. We hope, but we don't know. What I think is important is making sure that you document what is happening as it goes along, not projecting for the future, but at least right now, this is what's happening. Make notes about it because it's going on for a long time. What happened back in March feels like an eternity ago. How do I remember? How can I possibly remember? So, take notes. That is probably the number one most important thing, take notes. Just make sure you document once a month as you're closing month-end. What has changed? Let's just, it doesn't even have to be extensive, briefly document it. The good news about these lease concessions is that you can handle them on a one off basis.

If I pay my rent, if I did not pay rent for a month, I can record that one month appropriately as kind of that variable payment. If I do pay rent the following month, because I was able to open, then I can go back to normal. If the third month, I can't again, for some reason related to COVID, then, again, I can esoterically record that month. That is the very important part about this is that it can be taken at a time. If we had to go through those lease modifications, you actually would literally be reconsidering your entire lease and the future payments. You don't have to do that in this situation.

Talking about the most important thing there for people who are going through the application process, what would you say is the most important or needed role that a CPA can play for a client who's considering lease concessions for their business?

[Ohm] I actually think making sure to help them not be overwhelmed by it. One of the things that I have seen with this is that we assume that it's complicated. I have seen this multiple times over the last few months, where someone's sure it has to be more complicated, and it really creates an incredible amount of stress. We don't need added stress. I think CPAs can do a great service to businesses to help them see that. Okay, you know what, you can just deal with this right now, at this time. You focus on the business. This is not another new complicated thing that we have to add on right now.