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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Universities

Leases — Special Transactions
Lease-Leaseback

According to GASB 87, paragraph 87, a lease and sublease with the same party is considered a lease-leaseback transaction.

In a lease-leaseback transaction, an asset is leased by one party (first party) to another party and then leased back to the first party.

In a lease-leaseback transaction, each party is both a lessor and a lessee. Because each portion of the transaction is with the same counterparty, a right of offset exists. Both parties to a lease-leaseback transaction must disclose the amounts of the lease and the leaseback separately in the notes to financial statements. The lease liability and the lease receivable should be offset and reported as either a net lease liability or a net lease receivable. Similarly, the lease asset and the deferred inflow of resources should be offset.

On GASB’s Pronouncements page (in the Implementation Guide category), in GASB’s Implementation Guide No. 2019-3, Leases, under the Lease-Leaseback Transactions section, question 4.74 states:

  • Q—A university leases land to a contractor on which the contractor will build a new school and lease both the land and the school back to the university. The university makes advance lease payments to the contractor during construction. How should the university report the lease during the construction period?
  • A—Prior to the new building being made available to the university, the lease of the land to the contractor should be reported as a stand-alone lease. Any lease payments made to the contractor prior to the new building being made available should be reported as a prepayment. Once the new building is made available to the university, the lease and the prepayment should be accounted for as a lease-leaseback transaction.

Lease-Leaseback Example

  1. University leases land to contractor to build new building.
  2. Contractor leases land and building back to the university.