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What are Lease Components?

What are Lease Components?


Lease components are parts of a contract that provide a party with the right to use a specified underlying asset. 

Municipalities distinguish lease components from other items

An activity within an agreement must transfer an underlying asset from one party (the lessor) to another (the lessee) to be a lease component.

The right to use an asset is treated as a separate lease component when the lessee has certain benefits and rights:

  • The lessee must be able to benefit from the right to use that asset itself or together with other readily-available resources
  • The lessee’s right to use that asset is not highly dependent on or interrelated with other rights to use other underlying assets in the same agreement

Common “lease components” for municipalities include land, buildings, and equipment. “Non-lease components” often include the operation of the leased asset for the lessee, training lessee personnel, repairing or maintaining the leased asset for the lessee, and providing management services, consumables, supplies, or security services to the lessee. Administrative services to initiate the lease and the reimbursement of the lessor’s costs for property taxes, insurance, and interest are not “components” at all, even when they are discussed in the lease.

The distinction between lease components, non-lease components, and non-components is important because lessors & lessees must report gross revenues and expenses associated with activities that do not transfer an underlying asset, such as reimbursement of real estate taxes or insurance.


A municipality leases a truck from a firm. The firm also provides a driver for the truck. The use of the truck itself is a lease component since it’s an underlying asset the lessee can use. However, the driver’s driving services are unrelated to acquiring and using the truck, so the driver’s services are a non-lease component.

What’s important here?

Lease contracts may have multiple components. Some may be non-lease components and accounted for differently. In many cases, service arrangements related to the lease component may be in a contract but will not be considered a lease component itself. Non-lease components are important to GASB 87 compliance, as these amounts represent an expense/revenue as they occur, and are excluded from the lease liability or lease receivable.