Variable Lease Payments Under FRS 102 Section 20

Not every rent is a fixed sum. FRS 102 Section 20 separates variable payments into those that enter the lease liability at the commencement date and those that are expensed when they arise. The split turns on what drives the variability, not on the label the lease gives it.

Three Kinds of Variable Payment

The lease liability comprises the payments listed in FRS 102.20.51. Two kinds of variable payment are on that list and one is not.

FRS 102 Reference: FRS 102.20.51-20.54, 20.64(b)

Kind	Examples	In the lease liability?
In-substance fixed	A turnover rent with a guaranteed minimum; a payment that is variable in form but unavoidable in practice	Yes, at the unavoidable amount (20.51(a), 20.52)
Linked to an index or a rate	RPI or CPI uplifts, a rent that moves with market rents	Yes, at the index or rate at the commencement date (20.51(b), 20.53)
Linked to usage or performance	Turnover above the minimum, mileage charges, a per-page copier charge, a per-hour plant charge	No. Expensed when the trigger occurs (20.64(b))

Index-Linked Payments at Commencement

A payment that depends on an index or a rate enters the liability at the index or rate assessed under the contract at the commencement date. The measurement contains no assumption about later movements in that index or rate (FRS 102.20.54). A schedule that projects future RPI uplifts into today's liability is therefore not permitted, however predictable the uplifts appear.

FRS 102 Reference: FRS 102.20.51(b), 20.53-20.54

No Forecasting

Enter the rent at the commencement-date index. Do not add later tiers for expected inflation; each uplift is recorded when it takes effect.

RPI-Linked Rent

Rent: £50,000 a year, uplifted every year by RPI Commencement: 1 Jan 2026 Liability at commencement: present value of £50,000 for every year of the term. The uplifts are ignored until each one takes effect.

When the Index Changes

The liability is remeasured only when the change in cash flows takes effect, for example on the date an RPI uplift or a market rent review starts to apply (FRS 102.20.68(b)). The revised payments for the remainder of the term are discounted at the unchanged discount rate (20.69). The remeasurement adjusts the right-of-use asset (20.65). A payment linked to a floating interest rate is the one case that takes a revised rate under 20.69; Lease102 has no dedicated route for it, so such a lease needs a manual remeasurement and a note to support.

FRS 102 Reference: FRS 102.20.65, 20.68(b), 20.69

Market Rent Review Settled

Rent: £50,000 a year, open-market review after year 3 Review settled: rent rises to £56,000 from 1 Jan 2029 From 1 Jan 2029 the remaining payments of £56,000 a year are re-discounted at the unchanged discount rate. The increase in the liability is added to the right-of-use asset and depreciated over the remaining term.

Usage and Turnover-Based Payments

A payment that depends on sales, production, mileage, hours or copies is not among the payments listed in FRS 102.20.51, so it stays out of the liability. It is recognised in profit or loss in the period in which the event or condition that triggers it occurs (20.64(b)) and the total for the period is disclosed (20.80(d)). Where a turnover rent has a guaranteed minimum, the minimum is an in-substance fixed payment inside the liability (20.52) and only the excess is expensed as it arises.

FRS 102 Reference: FRS 102.20.52, 20.64(b), 20.80(d)

Variability That Resolves Later

A payment that starts as usage-linked but becomes fixed for the rest of the term once the variability is resolved is an in-substance fixed payment from that point (20.52(a)(ii)). The liability is revised to reflect it (20.62(c)).

Retail Turnover Rent

Rent: the higher of £40,000 a year and 5% of turnover Turnover in year 1: £1,000,000 In the liability: £40,000 a year for the whole term (the minimum is unavoidable) Expensed in year 1: £10,000 (5% of £1,000,000 less £40,000)

Variable Service Charges

A service charge that is reconciled to actual cost is a variable non-lease component. It is expensed as incurred whatever policy is elected for fixed service charges. See the Service Charges topic for the fixed, variable and capped classifications.

Recording in Lease102

Lease102 holds one payment schedule per lease and applies each kind of variable payment through a different route.

Document the Split

Record in the lease notes which clause each variable payment comes from and why it is inside or outside the liability, so the reasoning sits with the lease record.

Pre-agreed fixed uplifts

A stepped rent written into the lease (for example a 3% increase every year) is a fixed payment. Enter each step as a tier in the payment schedule with its effective dates; the whole schedule enters the liability at commencement.

Index-linked rent

Enter the rent at the commencement-date index as the schedule and add no tiers for future index movements. When an uplift takes effect, record it as an Index Adjustment modification with the index type set to CPI, RPI or market rent review and the index reference noted for the audit trail. Lease102 remeasures the liability from that date at the unchanged discount rate and adjusts the right-of-use asset.

Usage and turnover-based charges

These are not entered as lease payments. On import, the review screen lists them under the obligations found in the document and does not carry them into the payment schedule. An index-linked principal rent shows the same Variable badge on that list but is entered as the periodic payment at its current level. Post the expense in your accounting system in the period the trigger occurs, and use the period total for the disclosure of variable payments outside the liability.

Turnover rent with a guaranteed minimum

Enter the minimum as the periodic payment. The excess over the minimum is a usage-based charge and follows the route above.

Model an index-linked lease

Lease102 measures the liability at the commencement-date index and remeasures it when each uplift takes effect.

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