FRS 102 Lease Modifications and Remeasurement
Lease modifications are changes to lease terms after commencement. FRS 102.20.70-20.73 requires remeasurement of the lease liability when modifications occur, with specific rules about which discount rate to use.
What is a Lease Modification?
A lease modification is any change to the scope of a lease, or the consideration for a lease, that was not part of the original terms. Common modifications include payment changes, term extensions, and scope adjustments.
FRS 102 Reference: FRS 102.20.70-20.73
What Happened: The Five Types
The wizard is headed "Record a change to this lease" and its list is grouped by one question you can answer from the contract: was the change already written into it, or newly agreed? The discount rate rule follows the group.
FRS 102 Reference: FRS 102.20.44, 20.66(a), 20.67, 20.70-20.73
Nothing here creates a new record
| Group | Type | What it records | Discount rate |
|---|---|---|---|
| An option in the contract was exercised | Renewal option exercised | An option to renew, written into the lease, is exercised. The term is reassessed to the option's end | Revised, always |
| An option in the contract was exercised | Break option exercised | A break clause written into the lease is served. The term is reassessed to the break date | Revised, always |
| New terms were agreed with the landlord | Term extension (agreed) | A longer term agreed outside the lease, dated the day both parties agreed it | Revised, unless the extra consideration is insignificant (20.72(a)) |
| New terms were agreed with the landlord | Term reduction (agreed) | A shorter term agreed outside the lease | Revised, unless the original is kept under 20.72(b) |
| The rent moved under a clause in the contract | Index adjustment | A CPI, RPI or market rent review | Original, always (20.68(b), 20.69) |
Renew: Two Questions Choose the Record
Under Add, Renew asks two questions about the contract and opens the right record. Was the renewal an option written into the existing lease? Yes: Renewal option exercised on this lease. No: was the new term agreed before the existing lease ended? Yes: Term extension (agreed) on this lease, with the new agreement held against the change. No: a new record copied from this one and marked as continuing it. Each answer states what Lease102 will do. An agreement for a different asset is a separate lease, and a rolling hire that continues under its existing terms requires no entry.
From an Imported Document
When an imported document's reference matches one existing lease, the possible-duplicate banner on the review screen offers Record as a renewal of that lease. The same two questions open on the matched lease; the extracted dates, rent and rate pre-fill the destination. When the change or the new record has been recorded, the draft is marked handled with a note saying what was recorded, so no second lease is approved from the document.
Starting the Next Contract: Copy
Where a lease has ended and a fresh agreement follows for the same asset, do not delete and reload. Open the old lease and click Copy. The dialog opens with the new commencement defaulted to the day after the old end (or after its termination date, where it was terminated early) and the rent defaulted to the rent in force on that day (the last level, never an earlier step, a purchase-option payment or a closing part-period); enter the new contract reference, end date and discount rate, and tick whether the new record continues the old one. A new record is created inactive for review and opens in the edit form, where break clauses, options, incentives and the document are added as for any new lease. Nothing on the old lease changes.
Continues and Continued by
| Carried over | Starts afresh |
|---|---|
| Landlord, counterparty, asset, location, serial and registration numbers | Contract reference, commencement and end dates |
| Portfolio, cost centre and allocations (dates clamped to the new start) | Rent, discount rate and its source |
| Payment frequency, timing, rent payment day and Quarter Day calendar | Break clauses and renewal options |
| Service charges, tax classification, related-party facts, conventions | Incentives, direct costs, restoration costs, deposit |
| Record kind (lease, sub-lease, licence or non-lease contract) | Transition figures, documents, modifications, terminations, impairments |
Two Records Loaded Separately
Where the new agreement was already loaded as its own record, the link can be made afterwards. Open the later record: under Contract & Counterparty, Continues reads "Record which lease this continues". The dialog lists earlier records of the same kind that end before this one starts, ranked by same landlord and location, with the gap between them. Select one and the two records show each other. The link can be removed from the later record. It is not offered for the sample lease, a record of a different kind, or an earlier record already continued by another.
The New Agreement on a Term Extension
Where a term extension rests on a deed of variation or a new contract signed while the lease still ran, record that agreement on the extension: its reference, the date it was signed and the document. The lease keeps its original reference as its identity; the agreement's reference shows on the modification ("under agreement DOV-2026-014 signed 10 Jun 2026"), as "Current agreement" under Contract & Counterparty, and the Leases list search finds the lease by it. The document is filed against the change and marked so in Supporting documents; deleting the change keeps the file as an ordinary attachment. A new rent entered on the extension is payable from the modification date and replaces any later rent steps in the lease; deleting the extension restores them.
Which Type to Record
Which type applies is a question about the contract, not about the figures. Answer it before opening the wizard.
FRS 102 Reference: FRS 102.20.44, 20.66(a), 20.67
The lease term was set on day one
| What happened | Record it as | What Lease102 does |
|---|---|---|
| An option to renew was written into the lease and has now been exercised, or has become reasonably certain to be | Renewal option exercised | Reassesses the term to the end of the option and remeasures the liability from the reassessment date at a revised rate. The option's dates and rent are read from the lease record. |
| A break clause written into the lease has been served | Break option exercised | Reassesses the term to the break date and remeasures from the date notice was served at a revised rate. The lease's break clauses are offered as the date; a break penalty is discounted into the liability. |
| A further term was agreed while the lease was still running, whether by amending it or by signing a new agreement for the same asset | Term extension (agreed) | Remeasures from the date both parties agreed the new term, at a revised rate unless the insignificant-extension tick applies. |
| A shorter term was agreed with the landlord that was not in the lease, the lease running on to the new, earlier end date (a surrender that ends it on the day it is agreed is a termination: click Terminate) | Term reduction (agreed) | Remeasures from the date it was agreed at a revised rate, unless the original rate is kept under 20.72(b). |
| The lease had ended and a fresh agreement was reached afterwards | A new lease | Created as its own record with its own commencement date. Nothing on the old record changes. |
Rate Selection Rules
FRS 102.20.68-20.69 (reassessments) and 20.71-20.72 (modifications) specify when the original discount rate may be retained versus when a revised rate is required:
FRS 102 Reference: FRS 102.20.71-20.72
Original Rate Retained
Index-linked payment changes (CPI, RPI adjustments) and market rent reviews affecting future payments always use the original discount rate.
Original Rate Permitted
Per FRS 102.20.72, you may use the original rate when: (1) additional consideration is insignificant, (2) proportionate scope reduction with corresponding payment decrease, or (3) consideration reduction without scope decrease.
Revised Rate Required
Term extensions/reductions, scope increases with additional payments, and other significant payment changes not tied to indices require a revised discount rate at the modification date.
What the audit trail records
Applying a modification writes an entry to the Audit Trail naming the type, the date it takes effect and the liability before and after it, and removing one writes an entry saying which modification was removed. Both appear under Audit Trail with their own event types, Modification Applied and Modification Removed, so they can be filtered for on their own. Deleting a modification removes it from the lease, so the audit entry is the record that it was ever applied.
FRS 102 Reference: FRS 102.20.71
Recording a Modification
Open the lease, click Add and choose Modification, then pick what happened from the grouped list. The details step asks only for what that type needs: an index adjustment takes the index and the new payment; a term extension takes the new end date and either a revised rate or the insignificant-extension tick; a term reduction (agreed) takes the new end date, any penalty, and a revised rate unless the original is kept under 20.72(b); a renewal option exercised takes which option, the reassessment date, a revised rate and a reason, with the option's own dates and rent shown beneath; a break option exercised takes the reassessment date, the break date (offered from the lease's clauses), any break penalty, a revised rate and a reason. An agreed term reduction decreases the scope of the lease: the part of the right-of-use asset that relates to the days given up is removed in proportion, the liability for those days at the rate the lease already carries is removed with it, and the difference is a gain or loss in profit or loss (FRS 102 paragraph 20.73(a)); the remeasurement at the revised rate then adjusts what remains of the asset. A break option exercised is a reassessment, so the whole change goes to the asset. Journals post a modified lease from its schedule as recorded, with one entry on the change's effective date for the step in the liability and the asset and any gain or loss. A term reduction or a break option can also carry a refund from the landlord of rent already paid for days after the new end date: enter the amount and the date it is received, which must fall after the change takes effect and on or before the new end date. The refund is entered as a receipt in the revised lease payments, so it reduces the remeasured liability, which can fall below nil until the refund is received, and it shows on the schedule as a negative payment on its date. Where the instalment covering the new end date is still to fall due and Lease102 already reduces it to the days up to that date (Quarter Day rents, and rent paid in arrears), there is nothing to refund, and a refund entered against it is refused so the saving is not counted twice. A term reduction or a break that ends before a purchase option recorded as reasonably certain is refused, and the message names the option's date; contact support@lease102.co.uk to record such a change. A renewal option exercised or a term extension dated later than the day after the lease term ends (its end date, or the end of a renewal option already judged reasonably certain) is refused, and the message names the latest date accepted: correct the end date first where the term runs later, or use Copy on the old lease where the agreement came after the lease had ended. A term reduction or a break option exercised must end after its own date and before the lease ends; one ending on the day it takes effect is recorded with Terminate. Review and Confirm shows the impact before anything is applied, together with any warnings: one of them appears when the modification takes effect before the date a transitioned lease was brought onto the balance sheet, because the lease is measured from its transition date and a modification dated earlier produces a schedule that starts before it.
EAR Conversion
Filling the Date from a Break Clause
Where the lease records break clauses, they are listed in the Break option exercised step. Select the break being served: its date fills the Break Date field, and the clause is named in the reason so the record shows which break was used.
Nothing is preselected
Which Dates Are Offered
A date recorded as the date the lease ends is offered, provided it falls after the modification date and before the current end date. A date recorded as the day the break opens is never offered, because the lease ends a notice period after notice is served. Where nothing is recorded about what the date is, a date shared by two clauses is treated as an opening and any other date is offered.
Rolling Breaks
Where a break runs through the term and carries no date, the end date is derived from the notice period: four months' notice, served on the modification date, gives a date four months later. Derived dates are labelled as such and can be overwritten.
Notice Check
Select a clause, then enter a date sooner than its notice period allows, and the earliest date that notice would produce is shown. It is a check rather than a block: the date you enter is the date used.
Modification History
All modifications are tracked chronologically with full audit trail. The Modifications section of the lease lists each change by the date it takes effect, most recent first, with the time it was recorded, the rate used, and the impact on liability and asset values.
Deleting Modifications (LIFO)
Modifications can only be deleted in LIFO (Last-In-First-Out) order to maintain chronological integrity. Only the most recent modification shows a delete button; earlier ones show none. On a terminated lease the button is greyed out with the reason: none can be deleted until the termination is deleted.
Chronological Integrity
Changes Dated Before Today
A change is remeasured from its own date: an agreed modification from its effective date (FRS 102.20.71), a rent review when the new rent takes effect (20.68(b)), an option exercised at the reassessment date (20.66(a)). Where that date is before today, for example a January rent review agreed in March, the review step shows the estimated difference in interest from that date to today before you apply the change.
FRS 102 Reference: FRS 102.20.65-20.73
When This Applies
Any change dated earlier than today. Typical cases: a rent review agreed after the new rent took effect, a CPI uplift recorded late, or an extension recorded some time after it was agreed.
The Interest Delta
On a backdated change the liability runs differently from its date onwards. The review step estimates the difference between the interest on the liability before the change and after it, from that date to today. It is an estimate: it does not follow the gradual repayment of the difference over those months.
Reading the Preview
The review step shows the liability and the right-of-use asset before and after the change, with the rate used and any gain or loss, and for a backdated change the estimated interest difference. Nothing is saved until you apply the change.
What Gets Posted
On applying, the schedule is recalculated from the change's date; the rows before it are unchanged. The journal for the change falls in the month of its date. Where that month's journals are already posted, the dialog asks before the change is applied, because a later sync does not post a posted month: post the entries by hand, or reverse and post those months again.
Record lease modifications
Lease102 handles FRS 102 modification accounting with automatic remeasurement.