IFRS 16 is set to impact the earth in 2019
No IFRS 16 isn't a new asteroid that's heading to earth, but it is certainly going to make an impact when it arrives in January 2019. This new accounting legislation will potentially expose massive liabilities in some of the UK's established well-known brands and affect business owners across the country.
If you run a business or occupier of commercial property, there will no longer be a distinction between operating and financial leases, all must be reported as "lease liabilities." What does this mean, in a nutshell most business will no longer be able to hide their property lease liabilities when reporting profits, raising capital or growing their business.
How do you prepare for IFRS 16?
For those already in a flexible solution the answer is obvious, reduce your lease liability and licence your space! It makes sense to put the liabilities on someone else's balance sheet but this will of course drive up rental fee's dramatically in the medium to long term.
Many of the major real estate owners like British Land, HB Reavis, Brompton Capital and Crown Estates to name a few, are already planning ahead to accommodate for this emerging flexible market demand. As the banks increasingly demand financial assurance during these uncertain economic times, flexibility and limited liability gives businesses the agility to adapt fast to change and grow.
According to Savills: “Serviced offices and collaborative workspaces may receive a major boost from the changes."
If you've yet to understand the impact that IFRS 16 will have your business, get in touch with the team at MBS Property to talk about your property future.