Lease Modifications
Lease modifications are changes to lease terms after commencement. FRS 102.20.54-20.58 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 102.20.54
Types of Modifications
Lease102 supports all FRS 102 modification types:
| Type | Example | Rate Treatment |
|---|---|---|
| Index/Rate Adjustment | CPI-linked rent increase | Original rate retained |
| Term Extension | Adding years to the lease | Revised rate required |
| Term Reduction | Exercising break clause | Revised rate required |
| Scope Increase | Adding floor space | Revised rate required |
| Scope Decrease | Proportionate reduction | Original rate permitted |
| Payment Change | Renegotiated rent | Depends on circumstances |
Rate Selection Rules
FRS 102.20.58 specifies when the original discount rate may be retained versus when a revised rate is required:
FRS 102 Reference: FRS 102.20.55-20.58
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 102.20.58, 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.
Recording a Modification
To record a modification in Lease102: Open the lease, click the Modifications tab, click Add Modification, complete the form with effective date, type, description, and any rate changes, then save.
EAR Conversion
Modification History
All modifications are tracked chronologically with full audit trail. View the history in the Modifications tab to see each change, 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 modifications display a lock icon.
Chronological Integrity
Backdated Modifications (Option D)
If the modification's effective date is in the past (for example, a January rent review only agreed in March), Lease102 calculates the catch-up interest from the effective date to today and shows it in the modification preview so you can confirm before saving.
FRS 102 Reference: FRS 102.20.54-20.58
Why "Option D"
When This Applies
Any modification where the effective date is earlier than today. Typical cases: a rent review agreed retrospectively, a CPI uplift recognised late, a scope change with a backdated commencement.
The Interest Delta
On a backdated modification the lease liability would have evolved differently from the effective date onwards. The preview shows the interest catch-up amount, that is, the difference between interest accrued under the prior schedule and what would have accrued under the modified schedule, between the effective date and today.
Reading the Preview
The preview surfaces three numbers: opening liability immediately after the effective date, total interest from effective date to today, and the corrected closing liability today. You can confirm or cancel before posting.
What Gets Posted
On save, the corrected amortisation schedule replaces the prior one from the effective date forward. Closed-period journal corrections are exported separately if needed.
Record lease modifications
Lease102 handles FRS 102 modification accounting with automatic remeasurement.