Reporting Requirements for Annual Financial Reports of State Agencies and Universities
Universities
Leases — Special Transactions
Sublease
According to GASB 87, paragraphs 80-81, a sublease arrangement exists when the leased property is assigned to a third party by the original lessee and the original lease agreement remains in effect. It involves three parties, the:
- Original lessor
- Original lessee (who also is the lessor in the sublease)
- New lessee
The original lessor must continue to apply the general lessor guidance. The original lessee (who becomes the lessor in the sublease) must account for the original lease and the sublease as two separate transactions, as a lessee and a lessor, respectively. Those two separate transactions must not be offset against one another, which means there is no basis for offsetting the lease payable and receivable amounts. The new lessee must apply the general lessee guidance. For more information see, Leases — Recognitions and Measurements for Lessees or Recognitions and Measurements for Lessors.
The original lessee (now the lessor in the sublease) must include the sublease in its disclosure of the general description of lease arrangements. The lessor transactions related to subleases must be disclosed separately from its lessee transactions related to original leases. The lease and sublease, as two separate transactions, entered with different parties so there is no basis for offsetting the lease payable and receivable amounts. A lease and sublease with the same party would be a lease-leaseback. For detailed lease note disclosure requirements, see Note 8 – Leases.
Sublease Example:
- University leases a dormitory from an insurance company for 30 years, $600,000 annual payments. University is not purchasing the building.
- University subleases dorm rooms to students based on academic year.