Lease Obligations Research Articles

Does the COVID-19 affect tenants’ adherence to lease obligations in rental market? Property managers’ perspective

PurposeThe purpose of this paper is to investigate how the pandemic affects tenants’ response to their lease obligations. This paper commences with examining the adopted tenant selection criteria during the COVID-19 pandemic. Then, this paper statistically tests if there is a relationship between selection criteria and response on whether the pandemic has effects or not. Then, this paper investigates the specific areas of impact on tenants’ ability to adequately keep to lease agreements in the Nigerian rental market. Finally, this paper proceeds to confirm if there is a relationship between selection criteria and the aspects of tenants’ deficiencies in rental obligations because of COVID-19.Design/methodology/approachSurvey data, backed with interviews, is elicited from practicing estate surveyors and valuers and licensed property managers in Lagos, the largest property market in Nigeria and sub-Sahara Africa. Policy solutions and implications were solicited from personnel at the ministry of housing and senior professionals in the property sector. Data were analyzed using descriptive statistics, factor analysis and computer-aided qualitative data analysis, Atlas.ti.FindingsTenant’s health status is now accorded a priority together with others. Numbers of tenants are challenged with keeping to the prompt-rent-payment rule. Other areas of slight breaches included livestock rearing, subletting, alteration and repair covenants. Except for tenant reputation and tenant family size, there was no significant relationship between tenant’s health status consideration and the COVID-19 effect on tenant non-compliance with lease obligation. Tenants’ non-compliance with tenancy obligations has a connection with the tenants’ affordability, reputation, ability to sign an undertaking and health conditions during the pandemic. This paper recommends rental housing policy review.Practical implicationsIt is recommended that the rental policy should be reviewed to give room for rental allowance or palliatives, private rental market regulation, exploration of the national housing fund and, if possible, social housing adoption policy in Nigeria.Originality/valueThis paper draws policymakers’ attention to the need to prepare for the future safety net that caters to citizenry welfare in challenging times.

Trends of development of financial and economic activity of entrepreneurial structures during the period of quarantine restrictions

Purpose. To study the impact of quarantine restrictions on the financial and economic performance of business structures. Methodology. Both general and special methods of cognition were used in the study: system analysis, structural and functional method, comparison, synthesis, deduction, logical research, graphical way of presenting information. Findings. The study revealed the impact of quarantine restrictions due to COVID-19 on the financial and economic activities of business structures and studied trends in the industry. A financial and economic analysis of the activity of enterprises, leaders of the international market in the chosen field of research is carried out. The data in the forecasts for the following periods have been adjusted to take into account the following factors: recognition of assets in the form of rights of use, separation of lease obligations, transfer of lease costs from operating expenses and depreciation assets in the form of rights of use. This made it possible to study the further development of new tools and their impact on future financial and economic performance of enterprises in quarantine conditions. Originality. The analysis, estimation and forecast concerning financial and economic activity of business structures are given and the tendencies of development in the period of quarantine restrictions of COVID-19 are revealed. This analysis makes it possible to make a forecast for the following periods adjusted taking into account quarantine restrictions. Practical value. The results of the study presented in this work can be used by economists, scientists and practitioners to develop and launch investment projects for enterprise development programs.

Lease obligation in Russia in the context of the problem of common understanding

Lease obligation in Russia in the context of the problem of common understanding

АНАЛІЗ ПРОЦЕНТНИХ ТА КОМІСІЙНИХ ВИТРАТ |БАНКІВСЬКОЇ УСТАНОВИ

The article is devoted to the analysis of interest and commission expenses of a banking institution. Analysis of the dynam-ics and structure of the bank's income, the overall assessment of their level was carried out on the example of the joint-stock company "State Savings Bank of Ukraine". Structural and dynamic cost analysis made for five years, namely 2017–2021 on the basis of separate financial statements of the joint-stock company "State Savings Bank of Ukraine" and the report of the indepen-dent auditor for 2017–2020 and interim condensed separate financial statements for nine months , which ended on September 30, 2021. Structural-dynamic analysis was used for the analysis, the purpose of which is to determine the share of a particular type of costs in the total amount. The article presents a structural analysis of the costs of JSC "State Savings Bank of Ukraine" for the last 5 years, namely interest, commissions and operating. The article analyzes the dynamics of interest expenses of JSC "State Savings Bank of Ukraine" for the last 5 years, namely interest on customer accounts, interest on loans received from international and other financial organizations, interest on other borrowed funds, interest on subordinated debt, interest at the expense of banks, interest on lease obligations. The article analyzes the dynamics of commission expenses of JSC "State Savings Bank of Ukraine" for the last 5 years, namely transactions with plastic cards, settlement and cash transactions, foreign cur-rency transactions, securities transactions. The article analyzes the structure of operating costs of JSC "State Savings Bank of Ukraine" for 2017–2021, namely wages and bonuses, depreciation of fixed assets and intangible assets, maintenance of fixed as-sets, payroll, communication services, utilities services, taxes, except corporate income tax, office expenses, security expenses, professional services, operating rent, insurance expenses, advertising expenses, travel expenses, other operating expenses. The article proposes measures to minimize the costs of JSC "State Savings Bank of Ukraine".

The prospects for regulating superficies in modern civil legislation of the Russian Federation

The need for the reform of civil legislation and, namely, the real right, is a frequently discussed and valid problem of the Russian civil law. The solutions this problem have been devised for over a decade, which resulted in the Concept of the Development of Legislation on Real Right that presents the fundamentally new system of limited real rights, particularly the superficies. The subject of this article is the institution of superficies, the establishment of the real right essence of which comprises the hypothesis of scientific research. The authors examine the doctrinal provisions that regulate the legal nature and essence of this phenomenon, outline the advantages of the right of superficies with regards to the practice of application of lease obligations under the condition of superficies, analyze the foreign experience of exercising the right of superficies for its implementation by the Russian legislator within the framework of finalizing the Concept of the Development of Legislation on Real Right. The conclusion is made on the prospects for regulating superficies as the real right due to the existence of reasonable advantages with regards to tenancy, as well as on establishment of possibility of abusing such right by the developers (tenants) in the context of application of the provisions of the  Article 39.20 of the Land Code of the Russian Federation – benefits in acquisition of the right to public land; feasibility of consolidation of the nature of the right of superficies in the aspect of using proprietary methods of protection (including the claims of the owner) that would ensure and guarantee the holder of the right of superficies the protection against claims of third parties, including landowner; finding compromise solution with regards to securing guarantees for compensation payment to the superficiary for the build real estate object if the right of superficies is terminated. This would allow retaining the principle superficies solo cedit and enhancing the proprietary  nature of the right of superficies.

Problem aspects of application by state enterprises of international standards of accounting and reporting in rental operations

The purpose of the article is to determine the peculiarities of public sector enterprises' use of international and national accounting and financial reporting standards governing the accounting of lease transactions, study the impact of their provisions on financial reporting indicators, substantiation of the most acceptable lease accounting models for public sector enterprises. The information base of the empirical study was the data of the official website of the Ministry of Economic Development, Trade and Agriculture of Ukraine for 2013-2020. Methodical and methodological basis of accounting for lease transactions were the provisions of P (S) of Accounting 14, NP (S) of Accounting SS 126, IPSASB 13, IAS 17, IFRS 16. In the study used such techniques as comparison, l, time series, structural -dynamic and coefficient analysis. The essence of the concept of "lease" is clarified on the basis of a comparative analysis of its various definitions given in international, national standards of accounting and financial reporting for business entities, public sector entities, as well as in other regulations. The conceptual model of rent accounting for P (S) of Accounting 14, NP (S) of Accounting SS 126, IPSASB 13, IAS 17 and IFRS 16 is considered, the problematic aspects of its application in the accounting practice of domestic state enterprises are identified. Discussion issues concerning the application of the provisions of IAS 17 are highlighted, which include: the lack of a financial component in rental costs; lack of information in the financial statements about lease obligations not incurred by the company; Insufficient information in the financial statements about the existence of the asset to which the lessee has the right to use. The results of the study are to identify the key problems of the lease accounting model in accordance with IAS 17 for state-owned enterprises and make suggestions for their solution. Recommendations for assessing the impact of the lease accounting model in accordance with IFRS 16 on the financial statements of the lessee have been developed. The main directions of elimination of obstacles to the implementation of IFRS in the domestic accounting practice concerning the lease operations of state-owned enterprises are identified.

Operating lease obligations and corporate cash management

Our study addresses two issues overlooked in prior research: Does a firm's future operating lease obligations influence its current cash holdings? Does this relationship contribute to the temporal increase in corporate cash holdings? We provide evidence that these future obligations significantly influence a firm's cash holdings and contribute to the temporal increase in U.S. corporate cash holdings. Consequently, our findings are consistent with the options offered by operating leases to young growing firms and the effect of these operating lease obligations on the firm's operating leverage.

Operating Leases and Corporate Cash Holdings

Our study addresses two issues overlooked in prior research: Does a firm’s future operating lease obligations influence its current cash holdings? Does this relationship contribute to the temporal increase in corporate cash holdings? We provide evidence that these future obligations significantly influence a firm’s cash holdings and contribute to the temporal increase in U.S. corporate cash holdings. Consequently, our findings are consistent with the options offered by operating leases to young growing firms and the effect of these operating lease obligations on the firm’s operating leverage.

The examination of operational leasing in term of Turkish accounting regulations

Purpose- The purpose of this study is to explain the accounting principles for the issues that are special in operating leasing transactions in the framework of Tax Procedure Law, General Communique on Accounting System Application, Turkish Accounting and Financial Reporting Standards and the Financial Reporting Standard for Large and Medium-Sized Businesses. Methodology- Accounting of operating leasing transactions will be handled within the framework of existing accounting regulations. Thus, similarities and differences in the accounting of these transactions will be revealed. Findings- In TFRS 16, which was put into practice instead of TAS 17, it was stated that the right of use should be shown in assets and the lease obligations should be shown in liabilities without discriminating financial or operational leases for the lessee. In terms of the leaser, the classification of operations and financial leases continued, as in TAS 17. In TAS 17 and SME FRS Chapter 15, the distinction between operational and financial lease remains valid for the lessee and the lessor. It has been determined that only provisions regarding financial leasing are included in VUK, and accounts that will be used only for leasing transactions are included in MSUGT. Conclusion- Prediction of a uniform rental model for lessee businesses within the scope of TFRS 16, it is expected that these types of businesses will have significant impacts on ensuring the fair presentation of their assets and liabilities and increasing the comparability of financial statements.

Legal Regulation of Land Lease in Ukraine

The paper investigates the legal regulation of land lease in Ukraine. The expediency of strengthening the role and responsibility of the state in the field of conservation of leased land is substantiated. The current legislative provisions governing the legal issues of leasing land plots in Ukraine are provided. The main issues of legal regulation of land lease in Ukraine are formulated from the standpoint of the current legislative acts. The relevance of the issue is determined by the urgent need to resolve all issues arising between the parties upon handover (acceptance) of land for lease in Ukraine within the framework of the current legislation. Legal regulation of all issues related to the lease of land in Ukraine helps to prevent and resolve disputes between the parties related to ignorance, or failure to perform obligations of lease agreements, which are consolidated by the provisions of the current legislation, by any of the parties. Relations between lessees and lessors acquire a legislative framework, which greatly facilitates the resolution of all possible disputes. The practical significance of the study lies in identification and statement of the main regulations of current legislation, which objectively govern the issues of lease relations between the parties in Ukraine, from a legal position. The results of the paper, the conclusions and opinions contained therein, can be used in practical activities by organizations and individuals concluding lease agreements with each other for the right to use land plots in order to settle their lease obligations from the standpoint of the law. Of particular importance is the ability to facilitate the successful resolution of disputes between parties entering into lease relations, or to completely avoid them.

Differences Between New Ifrs and Us Gaap Lease Standards and their Effects on Publicly Listed Companies

Abstract Leases are quite relevant to a large number of enterprises. Due to the fact that a lease reduces an entity’s exposure to risks inherent in asset ownership, it is a widely used method of obtaining access to property, plant and equipment. At the beginning of this article sources of existence of various international accounting standards as well as primary incentives (estimation of unrecognized lease obligations) to change the previous widespread lease standards used by publicly listed companies are mentioned. The IASB and FASB aware of the importance of this issue, put forward new similar accounting solutions. Despite the joint effort, there are some discrepancies between promulgated IFRS 16 and ASC 842. In the article they are divided into three groups of differences (basic, accounting and other lease issues). The main objective of this article is to point out those differences between new lease standards, as well as their distinct effects on the reporting entities’ financial statements and crucial financial metrics. In particular, the impact of operating lease capitalization on the Warsaw Stock Exchange entities’ assets by sector indices, as well as on EBITDA by industries on the global scale are presented. The article involves research methods such as: analysis of literature, global accounting regulations and financial statements, as well as comparison and deduction methods. The new lease standards have significant impact on those reporting entities with a great number of previous off balance sheet leases. Therefore, Polish sectors such as WIG-ODZIEZ, WIG-TELKOM and WIG-MOTO as well as global industries such as retail, airline and health care are the most affected. This paper may be useful for many users of financial statements (e.g. potential investors), because it provides information about effects of changed lease standards on financial position and performance of the most affected reporting entities.

PERLINDUNGAN HUKUM PIHAK KETIGA (PENYEWA) TERHADAP INVESTOR AKIBAT TIDAK MELEPASKAN HAK GUNA BANGUNAN PASCA PEMUTUSAN KONTRAK BAGI TEMPAT USAHA

Uncertainty of the status of the building rights after the termination of the contract for th e place of business has an impact on third parties (tenants) who do not get certainty to who pays the lease obligations. Each party, both from the Tegal City Regional Government and the Investor claim as the right party. Even since the settlement of the peace agreement for the implementation of the Reinjection Decision Number 413/PK/Pdt/2008 (from the Investor's lawsuit against the Tegal City Government) after th e termination of the contract for the place. The tenant gets uncertainty again when the In ve stor's lawsuit against the tenant after receiving the morning market compensation fro m the Tegal City Government, increasingly becomes unclear the status of the HGB for th e stall occupied. This study uses a normative juridical approach to analyze court decisions and termination of agreements and legal protection. The research specification is descriptiveanalytic and the analysis is based on secondary data. Te rmination of the contract for the place of business does not necessarily mean that the status of the HGB has also been transferred. This must bedone with the release of rights as regulated in Article 35 of Government Regulation Number 40 of 1996, Land Use Rights, Building Use Rights, and Land Use Rights, namely paragraph 1 (c) , in th e case of the author who raised the status of the HGB above the HPL of Block B and C of the Tegal City Morning Market after the termination of the contract for the place of business is still on behalf of the Investor as the rights holder. Legal protection for third parties/tenants is the first repressive form of protection which is reflected in the objection ruling Decision Objection. Number 7/Pdt.G.S/2018/PN. The Tegal District Court's claim from an investor that was declared unacceptable refers to the im plementation of a peace agreement between the Tegal City Government and the In ve stor.

Does recognition versus disclosure affect risk relevance? Evidence from finance leases in Japan

This study examines the risk relevance of recognized versus disclosed finance leases in Japan. More specifically, this study investigates whether and why equity investors treat recognized and disclosed finance lease obligations differently when assessing firms’ equity risk. This study shows that recognized finance leases are associated with equity risk while disclosed finance leases are not. Moreover, the relationships between recognized versus disclosed finance leases and equity risk are substantially different. However, for firms with higher levels of institutional ownership, the risk relevance of disclosed finance leases is similar to the risk relevance of recognized finance leases. These results suggest that institutional investors are more sophisticated at processing disclosed finance leases and treating disclosed and recognized finance leases similarly when assessing firms’ equity risk. Thus, this study provides evidence that investors’ information processing has significant effects on the risk relevance of lease arrangements.

Main provisions of lease agreement: draft common frame of reference and civil code of Ukraine

In the context of the adaptation legislation to the European standards, the article presents a comparative analysis of the norms of contractual lease obligations on the basis of acts of EU legislation and national code. Determine the main definitions, content and form of the lease agreement in both legislative acts. The aim of the research is to make a comparative analysis of the norms of European legislation and national legislation based on the CCU and DCFR. Based on the analysis of the application of definitions, we can conclude that the DCFR – generalized use of property under one definition, and in our opinion, it is more acceptable for ease use in practice. We believe that the legislation should apply the unified terminology of the most important institutions.

Recognition versus disclosure of finance leases: Evidence from Japan

AbstractThis study examines whether credit market participants—bond investors and credit rating agencies—treat recognized and disclosed finance leases differently when assessing firms’ credit risk in Japan. I use firms’ credit risk, measured by bond spreads and credit ratings, to investigate the relations between recognized versus disclosed finance lease obligations and firms’ credit risk following the adoption of Statement No. 13, Accounting Standard for Lease Transactions. For a sample of firms issuing new bonds, I find that, unlike recognized finance leases, disclosed finance leases are not associated with bond spreads. Moreover, the associations between recognized versus disclosed finance leases and bond spreads are substantially different. Conversely, recognized and disclosed finance leases are associated with credit ratings and are processed similarly when credit ratings are determined. Taken together, my results suggest that the sophistication of capital market participants influences their credit risk assessments of recognized versus disclosed finance leases.

Leases on balance, a level playing field?

AbstractDue to changes in lease agreements accounting standards, firms will soon have to recognize operating lease obligations that historically have been kept off-balance sheets (OBS). Research indicates that this change will have substantial effects on the presentation of the financial position and results of firms involved. It is also expected that this will affect decision-making by stakeholders such as boards, managers, bankers and financial analysts. Although it is assumed that these professionals consider all relevant information, it is also known that the smaller the chance of relevant information being overlooked, the better the decision-making. In this study we examine whether IFRS 16 has that positive effect. The results from this research suggest that the accounting treatment under IFRS 16 contributes to the quality but not necessarily to the ease of making investment financing decisions.

Dilapidations in Scotland: A Scottish surveyor's perspective

Dilapidations work relates to the process of establishing liability for the carrying out of repairs or other works to a property under the obligations of a lease agreement. This paper deals with the practice of dilapidations work in Scotland in respect of commercial property. Dilapidations in Scotland is to a large extent no different than in the rest of the UK, but there are a few nuances that should be borne in mind. This paper touches on the legal principles surrounding dilapidations work in Scotland, including interpretation of the contract of lease, the transfer of common law obligations from one party to another, and the difference between ordinary and extraordinary repairs. It also looks at the role of the surveyor in dilapidations matters, and what that surveyor needs to do to carry out a dilapidations survey and prepare a schedule of dilapidations. It then looks at the various options open to tenants in fulfilling their various lease obligations, and how landlords can protect their valuable assets when tenants fail to honour those obligations. Throughout the paper there are references (and some limited commentary from a surveyor's perspective) to case law relevant to the subject, including some very recent, influential Scottish cases.

Leasing: reducing the game of hiding risk

Purpose – This paper aims to examine the status and implications of the Financial Accounting Standards Board (FASB) and International Accounting Standards Board’s (IASB) forthcoming standard on leases. The proposal arose from concern that many lease obligations are unrecorded on the balance sheet and that current accounting for lease transactions does not represent fully the economics of many lease transactions. Design/methodology/approach – On September 20, 2012 and September 25, 2012, the Boards decided to account for some lease contracts using an approach similar to their proposed 2010 leases exposure draft (interest and depreciation) and to account for some leases using an approach that results in a straight-line lease expense. On May 13, 2013, the Boards decided to continue to account for some lease contracts on a straight-line basis, and others on an amortization basis separate from interest expense. Identification of the type of lease requires a two-step process at lease commencement, and all leases are recorded identically at inception. The subsequent measurement gives rise to differences. Some concerns are that an increase in assets and liabilities may result in debt covenant breaches that will require renegotiation and adjustment. Findings – While understanding that many financial users, preparers and auditors favor retaining the current and long-standing leasing standards, the FASB and IASB should recognize many unexpected consequences of its new proposals, including the changing of many long-held financial ratios and the resultant violations of many bank loan covenants. Research limitations/implications – The only limitation is that this manuscript is not based on primary empirical data. There are no implications for the study’s purpose is an update of a proposed FASB/IASB standard, an analysis of the empirical impact studies that have been done, a questionning of whether a new standard is really needed or that the current standard is not being implemented properly, and guidance for the implementation at transition and on-going for the proposed standard. This study gives a reader a compact update, implications, ramifications and guidance for preparation of a new standard if it is passed. Practical implications – The new rules will alter many key financial metrics that investors use to determine company valuations and credit agencies use to determine credit worthiness. Some items will improve, such as gross margin, cash flow from operations and earnings before interest and taxes. Reported interest coverage and return on assets will be lower under the new rules. Industries that make extensive use of operating leases such as transportation, banking, telecommunications, retail and real estate will be most affected. Social implications – In the best case scenario, the new standard would destroy approximately 190,000 US jobs. US gross domestic product (GDP) would be reduced by $27.5 billion annually. In the best case, the household earnings would be reduced by $7.8 billion annually. In the worst case, this decrease is $135.2 billion a year. The apparent liabilities of US publicly traded companies would increase by $1.5-$2 trillion, the equivalent gross state product of 20 states. Approximately $1.1 trillion of this would be attributable to balance sheet recognition of real estate operating leases, while the remainder would come from recognizing equipment and other leases as liabilities. Originality/value – The value of this research is the unique analysis of the proposed lease standard, and in looking at why the previous models did not work or did they? Is it the current requirements that are wrong or their implemenation? The reader is given a detailed overview of the proposed standard, its economic and social impacts, an update of the proposed standard, what companies must do now to get ready for the transition and on-going requirements, and a discussion of the tremendous opposition to any proposed changes in the current lease requirements from what they are.

Market Recognition of the Accounting Disclosure and Economic Benefits of Operating Leases: Evidence from Borrowing Costs and Credit Ratings

We contribute to the current debate on the accounting treatment of operating leases by providing evidence from bond markets and private lending on the market recognition of the role of leasing in determining borrowing costs and credit ratings. Borrowing costs and credit ratings are less sensitive to lease obligations than to debt financing for firms that are financially constrained or have lower marginal tax rates, consistent with theoretical predictions based on tax sharing and bankruptcy costs. Firms closer to ratings borderlines lease more, especially those firms around the investment grade borderline. Our evidence suggests that leasing provides financial flexibility to some firms, relative to debt financing, by preserving or extending credit capacity, and that the credit markets evaluate the economic characteristics of operating leases and treat them differently in their pricing. Our finding on the differential pricing in the credit market is particularly relevant to the current lease accounting debate because the mandatory capitalization under the proposed new accounting rule might curtail such differentiation, diminishing the information value of financial statements. We expect to observe a continuing demand for leases independent of accounting treatments as long as there are economic benefits associated with lease transactions such as preserving or expanding credit capacity.

Management Credibility and Investment Risk: An Experimental Investigation of Lease Accounting Alternatives

ABSTRACTThis paper examines how users' understanding of the financial statement impact of accounting alternatives and the disclosure choices management has made jointly influence users' assessments of management credibility and investment risk. Specifically, in a lease obligation setting, management's reporting choice (i.e., recognition versus disclosure), the presence of a supplemental reconciliation from disclosure to recognition, and the source of that reconciliation (as company management or an independent analyst) are manipulated. As predicted, the findings indicate that users assess a management credibility deficiency only when they understand both the financial statement implications of an incentive-consistent reporting choice and that management has not been forthcoming about that choice. In contrast, users' understanding of the financial statement implications of the reporting choice is sufficient to influence their investment risk judgments. This research extends the literature on managerial reporting by documenting necessary knowledge conditions for users to make differential assessments of managers.