How to Apply the COVID-19 Rent Concession Practical Expedient for Lease Payments Forgiven or Deferred by the Lessor
Applying the ASC 842 and IFRS 16 practical expedients for COVID-19-related lease concessions — accounting for rent reductions, deferrals, and forgiveness as negative variable lease expense rather than as lease modifications.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Lease Liability — Operating Lease (Reduced for Forgiven Rent) | Liability (-) | 285,000.00 | - |
| Variable Lease Income (Negative Variable Expense — Concession) | Expense (-) | - | 285,000.00 |
| Lease Liability — Operating Lease (Increased for Deferred Rent) | Liability (+) | - | 185,000.00 |
| Accrued Lease Liability — Deferred Rent Payable | Liability (+) | - | 185,000.00 |
💡 Accountant's Note
During COVID-19, many landlords provided rent concessions (forgiveness or deferral) to struggling tenants. Under normal modification accounting, each concession would trigger remeasurement of the lease liability at a new IBR — operationally burdensome for thousands of leases. FASB and IASB issued practical expedients: if the concession is entirely due to COVID-19, does not increase the lease term or scope substantially, and results in total payments remaining substantially the same or less — the lessee may elect to account for it as a NEGATIVE VARIABLE LEASE EXPENSE (not a modification). For deferrals (payment postponed, not forgiven): increase the lease liability (you owe more in future periods) and recognize as additional variable expense in the deferral period, reversing when paid. For forgiveness: reduce the liability and recognize a negative expense (income-like credit).
Practitioner & Systems Framework
💻 ERP Architecture
The practical expedient election must be made by class of asset and consistently applied. Document: (1) whether the concession is COVID-related (not a renegotiation opportunistically labeled COVID), (2) whether total payments under the modified terms are substantially the same or less (total payments, not just current period), (3) the accounting treatment elected (variable expense vs. modification). For deferrals — enter a temporary additional payable; when the deferred rent is later paid, the payable is eliminated. For forgiveness — reduce the outstanding liability. Both treatments avoid the remeasurement complexity of formal modification accounting.
⚠️ Audit Flags
COVID-19 concession practical expedient elections must meet the eligibility criteria — auditors verify concessions were genuinely COVID-related (documented in correspondence with the landlord), and that total future payments are not materially higher than pre-concession (some 'concessions' involved adding payment periods that increased the total — these do not qualify). For large portfolios, auditors may sample-test the concession terms to verify eligibility. Missing the recording of deferred rent payables (treating deferrals as if the obligation was forgiven) is a common completeness error.
📄 Required Documentation
Landlord concession agreement or correspondence (COVID-19 basis, forgiveness vs. deferral terms), eligibility assessment for practical expedient (same or less total payments, same or shorter lease term), practical expedient election documentation (by asset class), lease-by-lease concession schedule, variable expense/income recognition amounts, deferred rent payable rollforward (for deferrals), cash flow impact disclosure.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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