51²è¹Ý

This section is applicableÌýto entities applying FRS 102 pre 2024 amendments or FRS 105, and for lessors only under IFRS 16 and FRS 102 (2024 amendments).Ìý

See BLM17000Ìýfor lessee accounting under the on-balance sheet model under IFRS 16 and FRS 102 (2024 amendments).Ìý

Accounting for subleasesÌýunder the on-balance sheet model under IFRS 16 and FRS 102 (2024 amendments) is covered at BLM17060.Ìý

The three parties to a chain of leases may be termedÌý

In effect, the intermediate party is both a lessee in the original (or head) lease and a lessor as regards the sub-lease.Ìý

Original lessorÌý

In normal circumstances, where the sub-lease is entered into independently of the head lease, the accounting for the original lease by the original lessor should not be affected by the fact that the intermediate party enters intoÌýa sub-lease, unless the original lease is replaced by a new agreement.Ìý

Intermediate party Ìý

However, the accounting by the intermediate party is more complex and will depend on the structure of the arrangements with both the original lessor and the ultimate lessee.Ìý
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Where the intermediate lessor is in substance only acting as a broker or agent between the original lessor and the end-user the intermediary should not account for the leased asset as an asset, nor account for the lease obligations as a liability. InsteadÌýthe net income (which will representÌýany difference between the headÌýand sub-lease rentals) should be accounted for as income.Ìý
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This would be the case where, for example, the rentals under the head finance lease are payable only if the intermediate lessor receives rentals under the sub-lease (that is, the head lessor has no recourse to the intermediate party in the event of default by the sub-lessee).Ìý
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Conversely, where the intermediate party enters intoÌýa lease with the original lessor, the terms of which require payments to be made to the lessor regardless of whether payments are received from the ultimate lessee then the leases should be accounted for separately. This situation might arise where the asset is sub-leased by the intermediate party to the ultimate lessee, but the lease agreement between the original lessor and the intermediate party remainsÌýin effect. If the original lease is a finance lease, the intermediate party should record the lease obligation that arises thereunder. If the sub-lease is also a finance lease, the intermediate party should account for the lease receivables due from the ultimate lessee. The asset will therefore not be recorded by the intermediate party. If the sub-lease is an operating lease, the leased asset remainsÌýas a fixed asset. The principal differences which arise if the sub-lease is a finance lease as opposed to an operating lease are that the intermediate party (a) treats the asset as a receivable instead of a fixed asset and (b) recognises income according to finance lease principles.Ìý

Ultimate lessee Ìý

The ultimate lessee should classify the sub-lease according to the accounting principles explained from BLM10010Ìýonwards and account for it accordingly.Ìý

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