Not the Same as Inception or Signing Date:
It's easy to confuse the lease commencement date with other important milestones:
- Lease inception date: When the lease becomes legally enforceable.
- Lease execution date: When the lease is signed by both parties.
However, the commencement date is different. It’s tied to the availability and control of the asset, not just legal or contractual steps.
Why the Commencement Date is Important:
The lease commencement date is when accounting under ASC 842 begins. On this date, the lessee must:
- Recognize the lease liability (the present value of lease payments)
- Record the right-of-use (ROU) asset on the balance sheet
This date also sets the timeline for future actions like amortization and interest expense recognition.
What About Build-Out Periods?
Even if a lessee doesn't move in right away, for example, due to build-outs or improvements, if they have access and control, the lease commencement date still applies. Control, not usage, is the key factor.
What’s important here?
The lease commencement date under ASC 842 is the day the lessee takes control of the asset, not the day the lease is signed or payments begin. It’s the starting point for recognizing the lease liability and ROU asset, and it's essential for accurate financial reporting and compliance. Misidentifying this date could lead to significant accounting errors.
