Lease accounting reset – Variable rents

Jul 1, 2025

Join Marc Jerusalem, a leasing expert at PwC, and Suzanne Stephani, a director specializing in cash flows and leasing guidance, as they dissect the nuances of variable lease payments. They delve into the differences between fixed and variable payments, touching on how usage-based and index-based payments influence lease classification. The duo also explores tenant improvement allowances, the impact of CPI on leases, and the complexities of lease remeasurement, offering valuable insights for navigating accounting practices under ASC 842.

Ask episode

AI Snips

Chapters

Transcript

Episode notes

INSIGHT

Fixed vs Variable Lease Payments

Lease payments split into fixed and variable categories; fixed are known and unavoidable at lease start.
Variable payments vary due to circumstances like usage or index changes, impacting accounting treatment.

ADVICE

Classify Fixed and Variable Payments Separately

Include fixed payments in lease classification and measurement; variable payments are generally expensed as incurred.
Distinguish payment types clearly to apply correct accounting and disclosure rules.

ANECDOTE

Take-or-Pay Lease Payment Example

A pharma company paid $2 per unit leased but had a penalty ensuring minimum $1M annually to the lessor.
This penalty constituted an in-substance fixed payment impacting lease measurement.

Get the Snipd Podcast app to discover more snips from this episode

Get the app

We continue our lease accounting miniseries with a focus on variable lease payments, an area that can significantly influence lease classification and measurement. In this episode, we explore the complexities of usage-based and index-based payments, fair market rent adjustments, in-substance fixed payments, and more – providing insights into how these variable rents affect the accounting and disclosures.

In this episode, we discuss:

1:12 – Fixed versus variable lease payments and their accounting implications
7:13 – Fair market rent adjustments
9:37 – In-substance fixed payments, including take-or-pay arrangements
15:44 – Usage-based lease payment structures
22:18 – Tenant improvement allowances and lease incentives
26:10 – Accounting for variable lease payments during lease remeasurement

For more information, see chapter 3 and chapter 5 of our Leases guide. In case you missed it – check out the other episodes in this podcast miniseries:

Be sure to follow this podcast on your favorite podcast app and subscribe to our weekly newsletter to stay in the loop.

About our guests

Marc Jerusalem is a managing director in PwC’s National Office specializing in leasing. Marc consults with clients on complex lease accounting issues and is a frequent contributor to many related PwC National Office publications.

Suzanne Stephani is a director in PwC’s National Office specializing in the statement of cash flows as well as the application and interpretation of the accounting guidance related to financing and leasing transactions.

About our guest host

Guest host Diana Stoltzfus is a partner in the National Office who helps to shape PwC’s perspectives on regulatory matters, responses to rulemakings and policy development, and implementation related to significant new rules and regulations. Prior to rejoining PwC, Diana was the Deputy Chief Accountant in the Office of the Chief Accountant (OCA) at the SEC where she led the activities of the OCA’s Professional Practices Group.

Transcripts available upon request for individuals who may need a disability-related accommodation. Please send requests to us_podcast@pwc.com

Did you enjoy this episode? Text us your thoughts and be sure to include the episode name.