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Dear Sir,
We have an agreement to rent the warehouse for one year. The agreement will be renewed annually with the owner, subject to price negotiation. It is virtually certain that we will continue using this warehouse, as there is no alternative option to change the location. There is also no option to purchase the warehouse at the end of the agreement. The monthly rental fee is USD 3,000.
From the lessee’s perspective, should this lease be accounted for as an Operating Lease (with expenses recognized on a straight-line basis) or as a Finance Lease (with recognition of a Right-of-Use asset and Lease liability on the balance sheet)?
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