Termination Options
Related terms
Category
IFRS 16
Termination options are provisions that give the lessee the right to end a lease before the stated expiration date, typically upon payment of a penalty. Under ASC 842 and IFRS 16, periods after the termination date are excluded from the lease term when the lessee is reasonably certain to exercise the option.
Why it matters
Termination options reduce the lease term when exercise is reasonably certain, which decreases the lease liability and ROU asset. The assessment mirrors extension options. considering penalties, relocation costs, and operational factors. Companies must reassess reasonable certainty when significant events or changes in circumstances occur.
How Arvexi handles this
Arvexi identifies termination provisions during document extraction and incorporates them into lease term analysis. When circumstances change and termination becomes reasonably certain (or ceases to be), the platform triggers remeasurement of the lease liability and ROU asset.