Get Ready for FRS 102 Lease Accounting Changes
In a recent episode of That Retail Property Guy, we flagged a looming change that will affect thousands of UK and Republic of Ireland businesses – whether they see it coming or not.
From 1 January 2026, changes to FRS 102 – the UK and Ireland financial reporting standard – will come into force. These changes aren’t optional. They’re mandatory. And for many retail occupiers, they will bring significant technical challenges, shifts in reporting, and some very visible new numbers on the balance sheet.
If you’re a tenant-heavy business – perhaps with multiple shops, warehouses, or other leased assets – this update could make a huge difference to how your financial position is presented to investors, shareholders, and competitors
What Is FRS 102 and Why Is It Changing?
FRS 102 governs how businesses in the UK and ROI present their accounts to ensure they give a true and fair view of their financial position.
The changes bring FRS 102 for domestic businesses in line with its international equivalent, IFRS 16 which adopted by larger international businesses several years ago. FRS 102 adopters would do well to look at the experience of IFRS16 adopters, as prompts and guidance for a smoother transition. Those early adopters learned (sometimes painfully) about the practical challenges of applying the rules: grey areas, tricky judgment calls, and the need for detailed, consistent data.
For many retail occupiers, the headline change is this:
You’ll need to show the total value of your lease liabilities on your balance sheet.
Previously, lease rents (including most retail property arrangements) were treated as a simple revenue expense, almost invisible in the statutory accounts. From 1st Jan 2026, those same leases should appear in your filed accounts as both an asset (the right to use the property) and a liability (your obligation to pay rent). This isn’t just property, either – it covers any leased asset, from trucks to refrigeration equipment.
The declarable value is arrived at by DCF (Discounted Cash Flow) calculations, which can become complicated for property leases with rent reviews. And longer leases produce bigger values.
What This Means for Retail Tenants
If your business leases multiple premises, you’ll suddenly see a much bigger set of numbers on your balance sheet – numbers that reflect the total long-term commitment you’ve made.
That has knock-on effects:
Investors will assess your ability to meet these obligations.
Shareholders will get a clearer picture of your operational leverage.
Competitors may see vulnerabilities – or strengths – they couldn’t before.
And while these liabilities should balance out against the right-of-use assets, the perception of your business’s financial resilience could change dramatically.
Key Questions to Ask Your Advisors Now
This isn’t something you can leave until the week before filing accounts. You’ll need robust systems, accurate lease data, and clear policy decisions.
Here are some discussion starters for your next meeting with your accountant or finance team:
When do we start measuring?
Do we include the full term from lease start even if that was several years ago , or just ‘transition in’ the remaining term as at 1 Jan 2026?
What counts as a lease?
Are short-term licences or concessions excluded?
How will you split rent from service charges or other costs?
What about lease length and value thresholds?
Will you exclude leases under a certain length (e.g., <12 months) or value?
How will break clauses be treated?
Does your track record demonstrate that you usually exercise your breaks, or do you need to ignore them and account to full expiry?
Do you have reversionary leases?
If you’ve already committed to a follow-on lease, it needs to be included.
What discount rates will you apply?
Will you use different discount rates for different asset types or locations?
Who advises on those rates, are they robust?
Data You’ll Need to Gather
Accurate, consistent data is key. For every lease, you’ll likely need:
Start and end dates
Rent amounts and rent review dates
Options to Break or Renew
Payment frequency
Incentives (rent-free periods, capital contributions)
Stamp Duty Land Tax or other acquisition costs
And you’ll need this in a format you can update easily – not scattered across PDFs, filing cabinets, and the back of an envelope.
Strategic Implications for Property Deals
These changes may influence how you negotiate leases going forward.
Long leases could add significant liabilities to your balance sheet – even if they bring rental security.
Shorter leases with statutory renewal rights might give you more flexibility in managing reported liabilities.
Any rent review or lease renewal will trigger recalculations that could move the needle in your reporting.
In short: your property strategy and your financial reporting strategy are now intertwined.
Why You Can’t Ignore This
By the time 2026 arrives, you’ll need more than a spreadsheet and a hurried phone call to your accountant. You’ll need:
A clear policy on how to interpret FRS 102 for your leases
A reliable system to store and update lease data
A proactive property strategy aligned with your financial reporting
The clock is ticking – and the sooner you prepare, the less disruptive (and potentially costly) the change will be.
Final Word – And a Call to Action
As That Retail Property Guy, I’m not your accountant – but I’ve supported international business through IFRS 16 adoption, and I’ve seen first-hand how much smoother it goes for those who prepare early.
📢 Here’s my advice:
Talk to your advisors now.
Audit your leases.
Decide on your approach.
Put the systems in place.
And if you want to brainstorm strategies, share lessons learned, or understand the property-side implications in detail, let’s talk.
Get in touch today – whether you’re a retailer, an advisor, or a landlord who needs to understand what this means for your tenants. You can DM me on LInkedIn, email me on contact me via the That Retail Property Guy website
Don’t wait until January 2026 to find out how exposed your business might look. The time to act is now.
Check out the related TRPG podcast episode for even more info on these critical changes!
