Sublease
The intermediate lessor accounts for the head lease as a lessee and the sublease as a lessor. It normally classifies the sublease by reference to the right-of-use asset arising from the head lease, rather than the underlying physical asset, except where the short-term head-lease exemption applies. Assess the facts and the applicable finance- or operating-lease requirements.
Worked example
A business rents a building for eight years and subleases most of its remaining right of use to another business. As intermediate lessor it assesses classification by reference to its head-lease right-of-use asset.
Common mistake
Classifying every sublease by reference only to the building’s entire economic life, or ignoring the intermediate lessor’s continuing obligations under the head lease.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | SBR | Direct | September 2026–June 2027 |