Tatum: Basically, lease payments will be shown as a liability, while the right to use the real estate will be valued and reported as the corresponding asset. Both liability and asset figures will be amortized over the term of the lease.

GlobeSt.com: How do you expect the new standards to impact how tenants think about their leases?

Tatum: The new standards will encourage many tenants to look for ways to reduce the liabilities shown on their balance sheets. Often, we expect that they will be motivated to choose net lease structures, which would keep variable costs separate from fixed payments. This would lead to tenants reporting a smaller reportable fixed rental amount.

GlobeSt.com: What kinds of costs would qualify as variable costs that would not go on a balance sheet?

Tatum: These would be any costs that are not part of a base lease payment, such as taxes, insurance or CAM expenses.

GlobeSt.com: Will the new standards apply to all corporate leases?

Tatum: Yes, all existing leases will be subject to the new standards, regardless of when they were initially executed.

MIAMI—New accounting standards coming from the Financial Accounting Standards Board (FASB) are expected to have a major impact on how commercial real estate tenants think about how best to structure their leases in coming years. The new standards will require companies that rent office, retail or industrial space to include the cost of any leases longer than 12 months on their balance sheets.

These new FASB rules take effect for 2019 for public companies and 2020 for private companies. But commercial real estate tenants should be thinking about the change now, because the standards will also require a “look-back” at lease costs for two previous years.

GlobeSt.com caught up with Nailah Tatum, a Tallahassee-based real estate lawyer with the Bryant Miller Olive law firm, about the upcoming changes and what they mean for commercial real estate tenants in part one of this exclusive interview. Stay tuned for part two, in which she will discuss the wide-ranging impacts on tenant decision-making.

GlobeSt.com: How will the new standards work in terms of companies reporting lease costs?

Tatum: Basically, lease payments will be shown as a liability, while the right to use the real estate will be valued and reported as the corresponding asset. Both liability and asset figures will be amortized over the term of the lease.

GlobeSt.com: How do you expect the new standards to impact how tenants think about their leases?

Tatum: The new standards will encourage many tenants to look for ways to reduce the liabilities shown on their balance sheets. Often, we expect that they will be motivated to choose net lease structures, which would keep variable costs separate from fixed payments. This would lead to tenants reporting a smaller reportable fixed rental amount.

GlobeSt.com: What kinds of costs would qualify as variable costs that would not go on a balance sheet?

Tatum: These would be any costs that are not part of a base lease payment, such as taxes, insurance or CAM expenses.

GlobeSt.com: Will the new standards apply to all corporate leases?

Tatum: Yes, all existing leases will be subject to the new standards, regardless of when they were initially executed.