My question is around the proper handling of lease termination payments.
In this scenario-
The lease term is extended for two years, let's say Jan 1, 2020- Dec 31, 2021. The tenant will pay monthly rent payments in the amount of $3,000. The lessor will pay the tenant three lease termination payments:
- One for $26K on Jan 1, 2020.
- One for $26K on Jan 1, 2021.
- The final one on the last day of the lease, Dec 31, 2021.
Total termination fee paid to tenant is $80k.
What is the accounting treatment of this scenario for the Lessor?