How retailers could be affected by FRC rent concession reporting requirements

Special conditions for reporting rent concessions in the pandemic could be extended by a year. Here’s what it means.

During the pandemic, many entities struggled to pay rent and meet lease payment commitments for their rental properties, which led to negotiations between tenants and landlords in the form of rent concessions (deductions in rent or waivers) or rent deferrals (an agreement to pay rent or lease payments under a later date).

According to the FRC, the prolonged duration of the pandemic has made it necessary to extend the existing reporting time for a further 12 months to ensure consistency and accuracy in financial records.

The latest proposals would be an extension of existing amendments to reporting standards. Extending the time period to which rent concessions can be taken into account enables businesses to present a clearer picture of their performance in year-end accounts.

In essence, the Financial Reporting Exposure Draft (FRED) 78 amendments to FRS 102 proposes that:

  • Current requirements which apply to rent concessions relating to Covid-19, are extended beyond 30 June 2021 – this would then apply to rent concessions for lease payments due on or before 30 June 2022.  
  • The proposals will only affect entities that agree temporary rent concessions due to the pandemic and will only apply providing other conditions within FRS 102 and FRS 105 are met.
  • The proposals would be effective for accounting periods beginning on or after 1 January 2021.

FRED 78 would apply to both FRS 102 and FRS 105, and are open to comments until 11 May 2021.

So, what do accountants think of these proposals?

FRED 78 will help improve accuracy of financial statements

Stuart Brown, director, Duncan & Toplis

The latest FRC proposal relate to the way rent concessions are recognised in financial statements. It allows for the disclosure of the reality of rent concessions for businesses, by recognising the concession in full for the period of the concession. So if the business doesn’t have to pay rent for a given month, no expense will be recognised for that month. Previously, this reduction in rent would have been recognised over the life of the lease.

FRED 78 proposals will therefore be useful, as they will give a clear picture to the user of the financial statements that no rent is expensed during the period of the concession.

Next steps: I would advise all entities that can utilise this to do so, as it gives a clearer picture to users of their financial statements.

Verdict: FRED 78 will help provide a clear and accurate picture to users of financial statements.

FRED 78 proposals and continued rent concessions still have merit, providing retailers return to profitability

John Bell, director, insolvency practitioners, Clarke Bell


Where there is a strong chance the retailer will return to profitability, assisting the tenant’s cash flow by rent concessions as well as providing a more accurate picture of business performance by extending the reporting period for rent concessions, then these proposals absolutely have merit.

However, many entities will not recover, and the rent liability will eventually have to be paid. Even so, the ability to accurately record rent concessions is still vitally important to provide a true and accurate picture of business performance, especially when support through rent concessions has been given.

Next steps: For retailers struggling to pay rent, the writing may already be on the wall and they could be facing insolvency, although they have options:

  • Liquidation – for those who have little chance of business turnaround. This can be done as a Creditors’ Voluntary Liquidation, whereby an insolvency practitioner liquidates a company and stops it from trading and operating. It’s a voluntary process initiated by company directors and shareholders. Alternatively, Compulsory Liquidation is a more serious form. A company is forced to stop trading by creditors who issue a winding-up petition to the court if a company owes them £750 or more and their payment demands have gone unfulfilled.
  • Company Voluntary Arrangement (CVA) – this aims to turn the business around and restore profitability, and allows an insolvent company to come to an agreement with creditors to repay its debts over a fixed period of time. While under a CVA, the director remains in control and the business can continue to operate and trade.

Verdict: Any measures to support retailers have merit but regardless, some entities may still not survive anyway, especially if they have not returned to profitability.

The proposals are appropriate and could be extended again in the near future

Carl Reader, chairman, d&t chartered accountants

The latest FRED 78 proposals will allow companies to report more of an accurate picture about the substance of their business in terms of cash management, performance and, of course, rent-related support measures. In essence, FRED 78 is an emergency change to make financial accounts look more realistic, and will help represent a truer position, so when an outside party looks at these accounts, it will reflect the businesses’ economic reality.

In my view, the FRC’s revision is therefore appropriate and it makes sense to implement these changes. The FRC may look to extend the reporting period again, at least until the end of the pandemic.

The reality is that there are a lot of unknowns right now – we can’t predict future case surges, we don’t know how or if the virus will mutate, nor accurately predict the strength of vaccines over time. So there’s an inherent risk of future lockdowns, especially during winter, and the retail sector will be in the same position as before. Therefore, extending rent concession reporting will be of huge benefit for greater reporting accuracy.

Next steps: We won’t be advising businesses to battle against these changes, as they make good economic sense. We will continue to advise and support them as we have been doing.

Verdict: FRED 78 is an appropriate revision, but further extensions may be necessary as the pandemic drags on.

Annie Makoff is a freelance journalist and editor.

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