Lease Incentives
Category
ASC 842
Lease incentives are payments or benefits provided by a lessor to a lessee, such as tenant improvement allowances, rent-free periods, or moving cost reimbursements. Under ASC 842, lease incentives reduce the measurement of the right-of-use asset at the commencement date.
Why it matters
Lease incentives are common in commercial real estate, where landlords offer tenant improvement allowances, free rent periods, or cash payments to attract tenants. Under ASC 842, these incentives reduce the ROU asset (not the lease liability), which affects the amortization pattern over the lease term.
Incentives received before commencement reduce the ROU asset directly. Incentives receivable at commencement are also deducted. This treatment ensures the ROU asset reflects the lessee's net investment in the right to use the asset.
How Arvexi handles this
Arvexi extracts lease incentive provisions from documents and applies them correctly during initial measurement. Tenant improvement allowances, free rent periods, and other incentives reduce the ROU asset, and the resulting amortization schedule reflects the net asset value.