Subleases

Learning objectives

• Determine the classification of a sublease by reference to the right-of-use asset arising from the head lease, and as an operating lease when the head lease is an exempt short-term lease.L3, L4

Normative references

• IFRS 16 §B58The intermediate lessor classifies the sublease as an operating lease if the head lease is a short-term lease accounted for under the exemption in paragraph 6; otherwise, it classifies the sublease by reference to the right-of-use asset arising from the head lease, rather than by reference to the underlying asset.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

6 questions

• Orvane leases a warehouse for 12 years from an investor (head lease) and subleases part of it to a logistics firm. The head lease is not a short-term lease. By reference to what does Orvane, as intermediate lessor, classify the sublease?L3
• Brelin leases an exhibition stand for 9 months and applies to this short-term lease the exemption allowing it to recognise the lease payments as an expense. Throughout this period, it subleases the stand to a young brand. How does Brelin classify the sublease?L3
• A restaurant group, Tavira, is the lessee of commercial premises for 15 years and subleases part of them to a franchisee. The head lease is not accounted for under the short-term lease exemption. Which of the following statements on Tavira's classification of the sublease are correct?L3
• Kelmar is the lessee of an office building for 20 years; the economic life of the building is estimated at 50 years. At the start of year 3, Kelmar subleases the entire building to Doriel for the remaining 18 years of the head lease, without any particular option or guarantee. Kelmar's controller proposes an operating lease, on the grounds that 18 years are only a small part of the 50-year life of the building. Which analysis do you adopt?L4
• Nautéa leases a cold-storage warehouse for 10 months. For the class of warehouse assets, it has not elected the short-term lease exemption and therefore recognises a right-of-use asset and a lease liability. It subleases the warehouse to a fish wholesaler for the 10 months. How should Nautéa approach the classification of the sublease?L4
• You are preparing the classification file for a sublease granted by Ardoval, the lessee of a production line for 8 years. Which information is relevant for this classification?L4