FRED 82, FRS 102 and IFRS 16: What It All Means for Retail Property
Who Is FRED 82, What Is FRS 102 and What on Earth Is IFRS 16?
Let’s discuss accounting standards, starting with FRED. No, not a person. FRED 82 is short for Financial Reporting Exposure Draft 82 – a draft document issued for public consultation by the Financial Reporting Council (FRC), the UK’s independent regulator for corporate governance and financial reporting.
FRED 82 proposed significant changes to FRS 102, the accounting standard at the heart of UK GAAP (Generally Accepted Accounting Practice). UK GAAP underpins how UK businesses present their financial reports – similar in spirit to US GAAP, but tailored to the UK context.
The aim of FRS 102 is to ensure consistency and clarity in financial reporting for smaller and medium-sized enterprises. But with FRED 82, the FRC is shaking things up – and if you’re in the retail property world, these changes are a big deal.
Enter IFRS 16: Big-Corp Accounting Comes to the High Street
To understand what’s happening, we need to rewind a few years. Back in 2019, large global companies had to adopt IFRS 16, a new international accounting standard. IFRS 16 completely transformed how leases were handled in the accounts.
Previously, leases could be kept ‘off balance sheet’ – treated as simple rental expenses. But IFRS 16 required companies to show lease obligations as liabilities, with corresponding ‘right-of-use’ assets. The aim? Greater transparency. Investors, lenders, and analysts would now see the full picture of a business’s financial commitments.
The principle was memorably summed up by Sir David Tweedie, former chair of the International Accounting Standards Board, who once quipped that he’d like to fly on an airline where the aircraft actually appeared on the balance sheet. His point: if a company has exclusive use of a costly asset under a long-term lease, it’s not good enough to pretend it doesn’t exist.
IFRS 16 was complex and expensive to implement. But smaller businesses were spared – until now.
What’s Changing with FRS 102 (and Why It Matters to You)
The amendments to FRS 102, finalised by the FRC following FRED 82, are scheduled to take effect from 1 January 2026. And they borrow heavily from IFRS 16. In short: if your business uses property leases, those leases will now have to appear on your balance sheet as liabilities, along with a matching right-of-use asset.
For retail occupiers, this marks a major shift. You may have structured your estate around flexible leases, perhaps treating rent as just another operating cost. But come 2026, those lease commitments – particularly the longer, more expensive ones – will now appear as financial liabilities. Your business will look very different on paper.
Here’s a quick breakdown of what that means in practice:
You’ll need to calculate the present value of future lease payments, using discounted cashflow (DCF) techniques.
You’ll need to update these calculations over time, as leases shorten or change.
Rent reviews, lease renewals and break options all need to be factored in – and carefully assessed for likelihood.
If you’re holding over after lease expiry (e.g. under the 1954 Landlord and Tenant Act), you may escape liability unless you sign a renewal before the old lease ends – in which case, it’s treated as one continuous lease with extended liabilities.
Liabilities Rising: Why It Matters to Your Balance Sheet
Balance sheets aren’t just accounting formalities – they shape how your business is perceived. Debt-to-asset ratios, gearing, financial resilience – all of these depend on the balance between your obligations and your assets.
Under the new rules, retailers with large leasehold estates may suddenly appear far more highly leveraged than before. It doesn’t mean the business has changed – but the presentation of its financial health has.
This can influence:
Investor confidence
Lender decisions
Valuation metrics
Strategic planning
The days of hiding behind off-balance-sheet lease liabilities are over. The new world is about transparency, even if it’s painful.
How to Prepare
If your organisation hasn't previously had to wrestle with IFRS 16, here’s what to focus on f your organisation hasn't previously had to wrestle with IFRS 16, here’s what to focus on for FRS 102:
Identify All Leases: Property, vehicles, equipment – anything with a term over 12 months.
Run the Numbers: You’ll need software (or a very good spreadsheet) to perform DCF calculations for lease liabilities and assets.
Review Break Clauses: Be honest – are you likely to use them? If not, don’t assume they reduce your liability.
Consider Lease Renewals: Timing matters. Renew before expiry and you increase your liability footprint.
Communicate Internally: Finance, legal, operations and the C-suite all need to understand what’s coming – and plan accordingly.
Seek Advice: This isn’t just an accounting tweak – it’s a fundamental change to how you present your financial position. Get professional guidance from those who’ve been through IFRS 16 transitions before.
A Final Word: This Isn’t Just About Compliance
For many property-focused businesses – especially in retail – these changes represent more than a compliance challenge. They could prompt a rethink of estate strategy, lease negotiation tactics, and overall business structure.
For example:
Will shorter leases become more attractive?
Will retailers push harder for break clauses?
Will landlords need to rethink their offer to tenants?
The landscape is shifting – and if you’re in property, you need to be ahead of the curve, not caught off guard.
Like more information?
You can find the original podcast episode of this topic from That Retail Property Guy right here, or on your favourite podcast platform. For more information you can visit thatretailpropertyguy.com, and for direct support you can reach out to our services organisation, SmarterEstates.