This contract comprises a lease contract for the lease of office space, archive space, inside garage space and outside parking places. The contract consist of special and general conditions. The special conditions prevail the general conditions.
The lease contract has a lease term of 12 consecutive years (144 months), starting date is 1 March 2015, ending date is 28 February 2027. Tacit renewal of the agreement for a definite period of time, such as with six months or a year, is not possible. Renewal can only be done by agreeing a new contract.
|Summary of the contract:||€|
|Office space: 1,174 m2 at €135/m2 per annum =|
|Archive: 102 m2 at €50/m2 per annum =|
|Inside garage 29 lots at € 1,00 per annum =|
|Outside 6 parking lots at € 750 per annum =|
The lease is indexed starting the 2nd year. The cost-of-living index is annually published by the Department of Economic Affairs. The lease payment is on a quarterly basis at the beginning of the quarter.
The special conditions specify a rent free period for the complete lease contract of two months at the beginning of the contract period: 1 March 2015 to 20 April 2015. In addition the lessor has agreed to provide a reimbursement of the refurbishing of the office and archive spaces at the beginning of the lease with a maximum of € 240,000. It is presumed that these € 240,000 will be completely used.
The discount rate to be used is the interest rate implicit in the lease if that rate can be readily determined. If it cannot then the entity uses its incremental borrowing rate instead. The interest rate implicit in the lease is unlikely to be available to the lessee so the it is widely expected that the incremental borrowing rate will have to be used in practice. It is established that a loan of approximately € 2,500,000 for 12 years around 1 March 2015 would be 1.5% plus 6 month Euribor.
6 months Euribor is 0.11% on 1 March 2015. These are annual rates that have to be recalculated to quarterly rates. Total annual rate is 1.5% plus 0.11% is 1.61%.
The interest conversion is calculated using the formula:
Effective quarterly interest rate = ((1 + total annual rate))^(number of compounding periods)) minus 1.
The number of compounding periods = 0.25 (¼ quarters)
((1 + 0.0161)^0.25 ) – 1 = 0.40% is the quarterly effective interest rate.
The annual lease term is € 199,990. This is € 49,997.50 on a quarterly basis, but the first two months are free so the first lease term payment on 1 March 2015 is € 16,665,83 (€ 49,997,50 / 3).
The present value of these quarterly payments (1 of € 16,665,83 and 47 of € 49,997,50) has to be calculated. See the simple table at the end, wihich is based on the Discounted Cash Flow (DCF) calculation model:.
The net present value is therefore € 2,154,990.20. This is the amount of the lease liability at the commencement of the lease contract, which is also the amount to record the right-to-use asset.
Right-to use asset DT 2,154,990.20
Lease liability CR 2,154,990,20
The first payment of € 16,665.83 will consist of interest (0.40% of € 2,154,990,20 = €8,620,00 (rounded)). The remainder will be redemption of the lease liability (€ 8,045.83). Some rounding differences will occur during the recording of payments because the interest rate is rounded to 0.40%.