The abbreviation “PPA” stands for transfer of the right of use. In the real estate industry, the concept applies to commercial real estate leased to third parties.
A tenant who does not want to pay rent for the premises may obtain the written consent of the owner and assign the lease to another person.
If the re-tenancy clause is specified in the contract, the owner’s consent may not be obtained. The procedure is similar to a purchase and sale transaction, the only difference is that the subject of the agreement is not the object, but the right to use it.
Therefore, if the tenant knows what PPA is in real estate, he can use it to his advantage. We’ll figure out how to do this in a legal way, draw up a contract correctly, obtain the necessary documents, and when a PPA can really generate income.
Ppa what is this in real estate
PPA is the transfer of the right to use a leased commercial property to a third party, and this can be an extremely reasonable option for dealing with real estate.
We put it on the shelves. A tenant who no longer wishes to pay rent for the premises can obtain a written agreement from its owner and assign such rights to another individual (legal entity). If the possibility of rehiring was indicated in the documents initially, the owner’s permission is not required.
The procedure is similar to a purchase and sale transaction, but the subject of the agreement here is not the real estate itself, but the rights of ownership and use. The latter become an independent object with which legal transactions can be made.
The assignment of lease rights for offices, trade pavilions, warehouses/production workshops is a common practice used by the modern business community of Moscow. Moreover, if the previous tenant rented the space on preferential terms, the current one can also take advantage of them. This is beneficial for developing enterprise organizations, as well as beginning entrepreneurs who want to open a retail outlet, office, or their own production in a prestigious location, but are still limited by a small budget.
Of particular interest is the rehire of state (municipal) real estate. The rate here is usually much lower than in the case of premises rented by private owners.
Main features
PPA: what is it? This question is often asked by businessmen who choose affordable non-residential real estate, considering different options. Let us briefly list the nuances of the procedure.
Differences between rehire and sublease
A - Full gear
B - All obligations (including debts) pass to the legal successor
C - Payment to the direct owner
Sublease:
A - Partial transfer
B - The rent debt remains with the tenant (unless the parties agree otherwise)
C - Payment to the tenant, who then transfers the agreed amount to the owner of the premises
Advantages and disadvantages of PPA for a tenant
Advantages:
- Obtaining direct material benefit from an asset that requires regular expenditure.
- The owner's confidence that there will be no problems due to the refusal of the lease.
- Favorable conditions for a long term.
Disadvantages of PPA:
- Assignment becomes a separate business, which entails an increase in rental prices and unhealthy competition.
- The owner may agree to a PSA if the rent increases significantly.
- The risk of renting a problematic property with a lot of hidden shortcomings.
- The assignment is made only with the consent of the owner (most often this clause is provided for in the agreement).
- The need to pay for notary services and state fees for re-registration.
- Difficulties in preparing tax reporting and calculating taxes.
Decor
The contract, concluded in any form, contains the following information.
1 — Detailed information about the subject and participants of the transaction being concluded.
2 — Responsibility of the parties, procedure for violating the conditions (amount of fines, pre-trial resolution of conflict situations, unilateral termination mechanism).
3 — Amount of monthly (quarterly, annual) fee. Frequency, order, methods of application.
The legislative norms and rules of the PPA are explained in detail in Article 615 of the Civil Code of the Russian Federation.
Also learn about the correct classification of office space to understand better.
Did you like the article? Please share with your friends!
Rationale for answer
Accounting
Each party to the lease agreement maintains accounting records of leased objects independently in accordance with FSBU 25/2018 “Lease Accounting”, regardless of how the accounting of the other party to the same agreement is organized (information message of the Ministry of Finance of Russia dated January 25, 2019 N IS-accounting -15, clause 5.1 PBU 1/2008 “Accounting policies of the organization”).
In this case, organizations are required to follow the procedure established by FSBU 25/2018:
- Landlords apply clauses. 24-42;
- tenants apply clauses. 10-23, regardless of the presence in the agreement of conditions in accordance with which the property is accounted for on the balance sheet of the lessor or the lessee (paragraph 2 of clause 2 of FSB 25/2018).
The tenant has the right to keep simplified records of leased property subject to the conditions established by paragraphs 11, 12 of FSBU 25/2018. However, the lessee cannot apply the simplified accounting procedure provided for in clause 11 of FSBU 25/2018 in relation to leasing operations, since the leasing agreement usually contains conditions for the repurchase of the leased asset (subclause “a” of clause 12 of FSBU 25/2018, art. 11, paragraph 1, article 19 of the Federal Law of October 29, 1998 N 164-FZ “On financial lease (leasing)”).
In accordance with clause 10 of FAS 25/2018, the lessee recognizes the leased asset on the date of its provision as the right to use the asset (as of the date of the transfer acceptance certificate) with the simultaneous recognition of the lease liability.
Initial measurement of the lease liability
In the lessee's accounting, the lease liability is initially assessed as the sum of the present value of future lease payments as of the date of this assessment (clauses 10, 14 of FSBU 25/2018).
Paragraph 15 of FSBU 25/2018 establishes the following: the present value of future lease payments is determined by discounting their nominal values. Discounting is performed using a rate that makes the present value of future lease payments and the non-guaranteed residual value of the leased item equal to the fair value of the leased item.
For the purposes of FAS 25/2018, lease payments include payments stipulated by the lease agreement (net of VAT) (clause 7 of FAS 25/2018). Moreover, these include both the amounts of periodic payments and the amounts payable in connection with redemption guarantees. That is, the redemption value, if determined by the lease agreement, is taken into account in the initial measurement of the lease liability.
The unguaranteed liquidation value of the leased asset is considered to be the estimated fair value of the leased asset that it will have by the end of the lease term, minus the amounts guaranteeing redemption, which are included in lease payments (clause 15 of FSBU 25/2018). In fact, this is the amount for which the lessor can sell the former leased asset at the end of the leasing agreement (reduced by the redemption payment if it is included in the lease payments). Given the specific nature of leasing agreements, the non-guaranteed salvage value of the leased asset will in many cases be equal to zero if the repurchase and surrender value are provided for in the leasing agreement, as in this case.
Fair value is the amount for which an asset could be exchanged or a liability settled in a transaction between knowledgeable, independent parties willing to enter into such a transaction (clause 8 of FAS 25/2018, Appendix A of IFRS 16 Leases).
We can say that under a standard leasing scheme, when the redemption is included directly in the contract, nominal lease payments are reduced by discounting to a value corresponding to the market (fair) value of the leased asset. And in the case where the leased asset was purchased by the lessor from an independent party, the lease obligation can be assessed on the basis of the purchase price under this purchase and sale agreement (minus the advance payment, since we are talking about “future” lease payments - i.e. accounts payable to lessor).
In this case, the discount rate can be determined directly (rather than by estimation). Moreover, this method allows us to minimize subjectivity, which reduces the reliability of accounting information, and therefore is even preferable.
In relation to the situation under consideration, this means that the initial assessment of the lease liability may correspond to the purchase price of the electric stacker minus VAT (there were no advances in this case), of course, provided that the purchase and sale agreement between the lessor and the seller was concluded on market terms. Note that the purchase and sale price of the leased asset may be reflected in the leasing agreement.
If the discount rate cannot be determined in the manner indicated above, the rate at which the lessee attracts or could attract borrowed funds for a period comparable to the lease term is applied (paragraph two of clause 15 of FSBU 25/2018).
Note that the international standard IFRS (IFRS) Leases (clause 26) establishes that lease payments must be discounted using the interest rate included in the lease agreement, if such a rate can be easily determined (in international practice, indicating the interest rate in the leasing agreement is widely common practice). If such a rate cannot be readily determined, the lessee shall use the lessee's incremental borrowing rate.
An illustrative example of determining the discount rate in a direct way is given in Recommendation R-65/2015-KpR.
Let’s assume that the market (fair) value of an electric stacker is RUB 2,760,000. (including VAT) and corresponds to its purchase price indicated for reference in the contract. Let’s assume that the annual interest rate based on the terms of the contract will be 8.7% per annum. For monthly lease payments, a monthly interest rate is usually used for discounting. It is defined as follows: ((1 annual rate / 100) to the power of 1/12 - 1) 100%. In this case, the monthly rate will be 0.6976%. Please note that the calculations we made are for illustrative purposes only. As a rule, such calculations are made using software or in spreadsheets; it is not possible to select the optimal discount rate within the framework of this consultation.
On the date of receipt of the equipment (transfer and acceptance certificate), it is necessary to calculate the initial cost of the lease obligation.
In our example, the lease liability can initially be assessed directly in the amount of RUB 2,300,00.00. (market value of an electric stacker excluding VAT) (clause 6 of Recommendations R-65/2015-KpR).
Accounting for the right to use an asset
According to clause 10 of FAS 25/2018, on the date of receipt of the leased asset, the lessee reflects in its accounting the right to use the asset simultaneously with the lease obligation.
PSA is recognized at actual cost, which includes, incl. (clause 13 FSBU 25/18):
- the amount of the initial measurement of the lease liability (determined in the manner set out above);
- lease payments made on the date of provision of the subject of lease or before such date (advances);
- the tenant's costs in connection with the receipt of the leased item and bringing it into a condition suitable for use for the planned purposes. In this case, such costs may include contract commission;
- the amount of the estimated obligation to be fulfilled by the lessee, if the occurrence of such an obligation by the lessee is due to receipt of the leased item.
Postings for recognizing PSA may look like this:
Debit 08, subaccount “Investments in PSA” Credit 76, subaccount “Rental liability”
— 2,300,000.00 rub. — leased property has been received, the lease liability has been determined in the initial valuation (excluding VAT). On the date of the acceptance certificate;
Debit 08, subaccount “Investments in PSA” Credit 76, subaccount “Settlements with the lessor”
— 22,500 rub. — commission costs are taken into account (excluding VAT);
Debit 01, sub-account “PSA” Credit 08, sub-account “Investments in PSA”
— RUB 2,322,500.00 — the right to use the asset is recognized at the generated actual cost. On the date of commissioning.
After recognition, PSA is depreciated. Paragraph 17 of FAS 25/2018 establishes that the useful life (SPI) of the right to use an asset should not exceed the lease term, unless the transfer of ownership of the leased item to the lessee is expected. This means that in the case where the agreement provides for the repurchase of the leased property, which is relevant for leasing, the SPI is not limited to the leasing agreement. Depreciation is calculated based on the actual period of expected use of the equipment, which can be determined, incl. according to the Classification of fixed assets included in depreciation groups (approved by Decree of the Government of the Russian Federation dated January 1, 2002 N 1).
Let's assume that the SPI is set for 128 months, depreciation is calculated using the straight-line method.
Depreciation is charged to expense accounts in the general manner, in this case, by analogy with depreciation of fixed assets (clause 10 of FAS 25/2018, clause 18 of PBU 6/01 “Accounting for fixed assets”):
Debit 20 (other cost accounts) Credit 02, subaccount “Depreciation of PSA”
— 18,144.53 rub. (2,322,500.00 / 128) - depreciation has been accrued. Monthly.
After purchasing the leased asset, the organization takes into account its own fixed asset. At the same time, we believe that the amounts of accumulated depreciation and the initial actual cost of PSA are transferred to the corresponding accounts for accounting for own fixed assets. FSBU 25/2018 does not directly speak about the need for such a transfer. But such a mechanism can be traced from the very possibility of establishing the useful life of PSA under lease with purchase, exceeding the term of the contract. Which, in our opinion, implies the continuation of depreciation on own property after its redemption.
Further accounting for lease liability
The discount rate is necessary not only for the initial measurement of the lease liability, but also for the subsequent calculation of interest on the lease liability.
During the leasing period, the amount of the lease liability increases by the amount of accrued interest and decreases by the amount of actually paid rental (leasing) payments. The amount of interest is determined as the product of the lease obligation at the beginning of the period for which interest is accrued and the discount rate (clauses 18, 19 of FSBU 25/2018).
The frequency of interest accrual is selected by the lessee depending on the frequency of lease payments and the occurrence of reporting dates (clause 19 of FSBU 25/2018).
Thus, interest accrual can be monthly, quarterly, or annual. When calculating the discount rate (see above), we proceeded from the monthly accrual of interest, taking into account the monthly payment of leasing payments. But we believe that, for example, with the quarterly formation of accounting records, the quarterly accrual of interest (even with monthly payment of lease payments) in itself does not lead to distortions in the accounting statements and complies with the principle of rationality (Part 1 of Article 13 of the Federal Law of December 6, 2011 N 402-FZ “On Accounting”, clause 6 PBU 1/2008).
Accrued interest is reflected as part of the lessee's expenses (in meaning, such expenses are closer to other expenses), with the exception of that part of them that is included in the cost of the asset (clause 20 of FAS 25/2018, clause 11 of PBU 10/99 "Organization's expenses", clauses 6, 7 PBU 15/2008 “Accounting for expenses on loans and credits”):
Debit 91, subaccount “Other expenses” Credit 76, subaccount “Rental liability”
— 16,044.80 rub. — interest was accrued on the leasing obligation for the first month of leasing (based on a preliminary calculation using a discount rate of 0.6976%);
Debit 76, subaccount “Rent liability” Credit 51
— 104,166.67 rub. — the transfer of the lease payment excluding VAT is reflected (RUB 125,000 excluding VAT);
Debit 76, subaccount “VAT on leasing payments” Credit 51
— 20,833.33 — payment of VAT as part of the monthly lease payment;
Debit 19 Credit 76, subaccount “VAT on lease payments” and Debit 68 Credit 19
- 20,833.33 rubles - an invoice was received, VAT presented by the lessor was allocated and accepted for deduction.
Based on clause 23 of FSBU 25/2018, the difference arising at the end of the lease agreement in the lease liability account is subject to write-off to profit (loss) as income or expense.
Tax accounting
The procedure for accounting for income and expenses accepted for profit tax purposes is carried out on the basis of tax accounting data (Article 313 of the Tax Code of the Russian Federation). In particular, for profit tax purposes, the initial cost of the property that is the subject of leasing is always (including when the balance holder under the agreement is the lessee) the amount of the lessor's expenses for its acquisition (construction, delivery, etc.) (clause 1 Article 257 of the Tax Code of the Russian Federation). That is, the initial cost of a depreciable leased asset in tax accounting is formed exclusively from the lessor’s expenses.
According to paragraph 10 of Art. 258 of the Tax Code of the Russian Federation, property received (transferred) for financial lease under a leasing agreement is included in the appropriate depreciation group (subgroup) by the party from whom this property should be accounted for in accordance with the terms of the financial lease agreement. This norm deals directly with the terms of the leasing agreement and currently no changes have been made to this norm, including those related to the adoption of FSBU 25/2018.
A reference to the terms of the agreement is also contained in sub. 1 item 2 art. 259.3 of the Tax Code of the Russian Federation, which grants the taxpayer-balance holder the right to apply an increasing coefficient in relation to depreciable fixed assets that are the subject of a leasing agreement.
Thus, today, the procedure for taxation with income tax, as before, depends on the terms of the leasing agreement, which is confirmed by the clarifications of the Ministry of Finance of Russia in letter dated January 17, 2020 N 03-05-05-01/2146.
For profit tax purposes, rental (leasing) payments for rented (leasing) property are taken into account by the lessee after accepting the property for leasing as part of other expenses on the basis of subclause. 10 p. 1 art. 264 of the Tax Code of the Russian Federation in the manner established by sub. 3 paragraph 7 art. 272 of the Tax Code of the Russian Federation. At the same time, the lessee-balance holder's rental (leasing) payments are taken into account in expenses minus the amount of depreciation on this property accrued in accordance with Articles 259-259.2 of the Tax Code of the Russian Federation.
From November 16, 2014 Art. 31 of Law No. 164-FZ has lost force. Accordingly, the choice of a balance holder in the leasing agreement is not provided for from this moment; however, as mentioned above, accounting for income tax depends on these terms of the agreement. Guided by the principle of freedom of contract (Article 421 of the Civil Code of the Russian Federation), the parties have the right to include conditions regarding the balance holder in the leasing agreement.
In this case, the parties must independently determine whether to agree in the contract a condition on recognizing the lessee as the balance holder. Of course, this condition will help avoid possible disagreements with regulatory authorities (including taking into account Article 54.1 of the Tax Code of the Russian Federation), however, unfortunately, it will not lead to the convergence of accounting and tax accounting until changes are made to the tax legislation.
We have not found any official comments on this issue. We also did not come across any judicial practice where the contractual terms on the choice of the balance holder would be challenged (for example, in the resolution of the Ninth AAS dated July 16, 2020 N 09AP-31282/20 it is noted that if the leased asset is taken into account on the balance sheet of the lessor, depreciation on this property (in force of a direct norm of the Tax Code of the Russian Federation) is also charged by the lessor). But from the above letter it follows that the Ministry of Finance also does not deny the possibility of including in the contract a condition on choosing a “balance holder”.
Required documents
What papers are needed is decided by what object is being transferred. If earth, then:
The complexity and length of documentation varies . It is one thing to assign the lease of a small store, and another thing for an enterprise where only the transfer act constitutes a multi-page document with a detailed inventory of the property.
Original documents are brought to registration; copies are certified by service employees. If you use the State Services website, electronic copies are certified with an electronic digital signature. You still have to bring papers for verification during the final registration procedure.
What should you pay attention to when signing a contract?
The terms of the contract must be carefully negotiated in advance. The discussion is recorded in correspondence, approval protocols, and is often used in court in the event of a dispute. If we talk about state or municipal property, the conditions are always strict; the subject of negotiations is either the term or the price. The price, however, is also strictly regulated.
It’s a different matter if the object is privately owned, you can agree on anything, although the rules on licensing or use of property exclusively for limited purposes are not excluded.
The assignment of rights is simply a transfer of rights and obligations from one person to another, so you need to make sure that significant adjustments are not made to the agreement:
The assignment agreement is concluded with the former tenant, so all possible options related to the results of its activities should be calculated.
Sometimes circumstances arise in which the tenant no longer needs to use the leased property, but there is still a lot of time left before the contract expires. In addition to such an undesirable option as breaking the contract, in this case there are two others that will allow you not to bother the owner again, and sometimes also make a profit: sublease and assignment of lease rights.
Answer
Having considered the issue, we came to the following conclusion.
Accounting for leased property does not depend on the terms of the leasing agreement.
In accounting, rental (leasing) transactions must be reflected in accordance with FAS 25/2018, regardless of the choice of the balance holder in the agreement. The lessee in any case recognizes the leased asset as the right to use the asset while simultaneously recognizing the lease liability.
At the time of preparing the answer, the introduction of FSBU 25/2018 did not cause changes in the Tax Code of the Russian Federation; accordingly, for tax purposes, the previous procedure for accounting for leasing transactions is in effect, which depends on the terms of the leasing agreement.
The concept of assignment of lease rights
PPA in real estate refers to the transfer of both the rights and obligations assumed under a lease agreement to another person.
The assignment has its own term, and its duration is limited to the duration of the lease itself under which it is granted. PPA differs from sublease in that with it the party assigning rights completely loses them, while with sublease they are only temporarily waived, and after the expiration of the established period they are returned.
PPA is practiced in relation to:
Let us analyze the mechanism of assignment and the nuances of legal relations that arise during its course:
Benefits from assignment
Assignment has a number of benefits. Let's describe the main ones:
- if you plan to assign a long-term contract, then payments will continue at the same price, more favorable than it was at the current moment;
- most often such agreements are concluded regarding premises located in buildings in the central areas of cities that bring the greatest benefit;
- before acquiring rights with the help of PPA, a potential tenant has the opportunity to look at the property “in operation” and check how much money it brings in, how many clients the business that is located in it has;
- the first tenant will not have problems due to breaking the agreement with the property owner, and will also be able to return part of the invested funds.
Property tenant rights
The essence of the assignment is the transfer of rights and obligations in full, after which the new tenant acquires all the capabilities that the previous one had. This means that he is endowed with the rights:
Thus, the rights to lease property themselves are considered as an object for concluding transactions and a subject of calculation, having their own value.
On the other hand, the owner of the transferred object retains rights to:
If the assignment agreement contradicts the original one, the owner will have the right to terminate it.
initial situation
LLC on the general taxation system received an electric stacker under a leasing agreement, the total cost of leasing payments is 3,000,000 rubles, the commission is 27,000 rubles, incl. VAT, redemption price 1000 rubles, incl. VAT, monthly payment is 125,000 rubles. incl. VAT, leasing term 24 months. Advances were not paid.
How can an LLC reflect in its accounting and tax records the receipt of property on lease according to the rules of FSBU 25/2018 in 2022? Does property accounting depend on whose balance sheet the equipment is accounted for?
List of documents
After the agreement is signed, an act of acceptance and transfer of documents is drawn up. They will be needed for state registration of the new tenant. To register the assignment in Rosreestr, you will need the following papers:
If the papers are available and meet the requirements, then registration will be carried out, after which the rental rights will be transferred to the new owner, and the old one will completely lose them. If any flaw is discovered, you will have to resubmit the documents. This can greatly delay the entire process, and any real estate transactions are quite complex to complete, so it is recommended to involve a professional lawyer in the matter from the very beginning.
Source
