When you enter into a lease, you’re likely to pay for one or more elements of the transaction: lease components, non-lease components, and items not considered contract components. Payments for non-lease components are a part of your monthly leasing costs but aren’t accounted for in the same way as lease components.
A lease component is anything directly related to the underlying asset you’re leasing, which could be a building, a vehicle, or another property.
A non-lease component is anything that’s a part of the lease contract that isn’t directly related to the use of that leased asset. Examples of payments for non-lease components include a monthly fee for common area maintenance, management services, consumables, and maintenance of the leased asset. These payments aren’t directly related to the space you’re leasing but are required nonetheless.
Items that are not related to use of the underlying asset (e.g., reimbursement of the lessor’s payments for property taxes, interest, and insurance) are not components and are called items not considered contract components.
Example:
Suppose you entered into a lease agreement for an office space for your organization. Included in the contract are the lease components, meaning the space you’re actually renting. The agreement requires a monthly lease payment for that space. But the agreement also includes non-lease components that require payment.
For example, the office building has a community room and a garden, both of which you must pay a monthly fee for maintenance, landscaping, cleaning, etc. This payment is for a non-lease component because it isn’t directly related to securing the use of the office space you’ve rented.
When you have a lease that requires multiple payments, including those for lease components, non-lease components, and items not considered contract components, it’s easy to lump them all together. However, GASB 87 requires that these various payments and components be accounted for separately, even if they are found within the same contract. It’s important to understand how each payment is categorized and that they differ. Non-lease components and the associated costs are not considered in the calculation of the lease liability or lease receivable and are expensed or recognized as revenue as they occur.