IFRS 16 · Hospitality

IFRS 16 Lease Calculator
for Hospitality

Pre-configured for hospitality entities with hotel property leases, restaurant premises, and the distinction between management contracts, franchise agreements, and traditional leases in the hotel industry.

Lease Terms

If checked, ROU asset depreciates over useful life instead of lease term (IFRS 16.32)

IFRS 16 Lease Audit Working Paper Template & Checklist — free PDF

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IFRS 16.26 — At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date.

IFRS 16.23–24 — At the commencement date, a lessee shall measure the right-of-use asset at cost.

ISA 500 — Sufficient appropriate audit evidence for the lease liability as independent audit evidence.

ISA 540 — Auditing accounting estimates — applies to the IBR determination and lease term judgment.

IFRS 16 for Hospitality — Practical Guidance

Hospitality entities — hotel groups, restaurant chains, pub companies, and leisure operators — were among the most significantly affected industries by IFRS 16, alongside airlines and retail. Long-term property leases for hotel buildings, restaurant premises, and leisure facilities create substantial lease liabilities. For large hotel groups, aggregate lease liabilities under IFRS 16 can represent billions in newly recognised obligations, fundamentally changing gearing ratios and return on capital metrics. The distinction between management contracts, franchise agreements, and traditional property leases is critical for determining which arrangements fall within IFRS 16 scope.

Measurement Considerations for Hospitality

Hotel property leases frequently include variable rent components tied to room revenue, occupancy rates, or total hotel revenue (turnover rent). Under IFRS 16.27, only fixed payments and payments linked to an index or rate are included in the lease liability. Variable rent based on hotel performance is excluded and recognised as an expense as incurred. For hotels with a base-plus-turnover rent structure, only the base rent is capitalised. CPI-linked escalation on the base rent is included at the current rate and remeasured when the index changes.

ROU Asset Depreciation for Hospitality

For restaurant and pub leases, the lease term assessment often involves break clauses that the lessee may or may not exercise. A pub company with a 25-year lease and a break clause at year 10 must assess whether it is reasonably certain to exercise the break or continue to year 25. Factors include the location's profitability, the availability of alternative sites, remaining leasehold improvement depreciation, and the strategic importance of the site. The assessment directly determines whether the lease is measured as a 10-year or 25-year commitment.

Industry-Specific Considerations

The hotel industry's operating model distinction is fundamental to IFRS 16 application. A hotel operator that leases the property has a lease (IFRS 16 applies). A hotel management company that manages someone else's hotel does not have a lease — it provides management services. A franchise arrangement where the brand is licensed is not a lease (IFRS 16.3(e) excludes IP licences). For hybrid structures (where the operator both leases the property and provides management services to a separate owner), careful analysis is required to identify all lease components.

Worked Example: 15-Year Hotel Property Lease

A hotel group leases a 120-room hotel property for 15 years commencing 1 January 2025. Monthly base rent is €35,000 payable in arrears (variable turnover rent of 5% of revenue above €5M excluded from IFRS 16 calculation). The group's IBR is 5.5%. Restoration obligation estimated at €200,000 to reinstate the property. Initial fit-out costs treated as separate assets under IAS 16, not as part of the ROU asset.

Initial Liability
€4,260,447
Initial ROU Asset
€4,460,447
Total Interest
€2,039,553
Total Payments
€6,300,000

Audit Considerations

Hospitality sector auditors should consider the impact of IFRS 16 on debt covenants, which frequently reference EBITDA and gearing ratios. Hotel groups with significant lease portfolios may have negotiated covenant adjustments post-IFRS 16. ISA 570 going concern assessments for hospitality entities should consider the entity's ability to meet lease obligations during seasonal troughs and economic downturns.

Frequently Asked Questions — Hospitality

How do I handle turnover-based rent for a hotel lease under IFRS 16?
Variable rent based on hotel revenue, occupancy, or RevPAR is excluded from the lease liability (IFRS 16.38(b)). Only the fixed base rent component is included. Turnover rent is recognised as an expense when the triggering condition (revenue threshold) is met. For hotels with heavily performance-linked rent, the lease liability may represent only a fraction of total rent cost, which should be clearly disclosed.
Is a hotel management agreement a lease under IFRS 16?
Generally no. A hotel management agreement where the management company operates the hotel on behalf of the owner, receiving a management fee (base + incentive), is a service contract. The management company does not have the right to control the use of the property — it provides services using the owner's asset. However, if the management company has exclusive use of specific space within the hotel (dedicated offices, back-of-house areas), those specific spaces may contain embedded leases.
How do seasonal revenue patterns affect IFRS 16 for hospitality?
IFRS 16 accounting is not affected by seasonal revenue patterns — depreciation of the ROU asset and interest on the lease liability are recognised regardless of occupancy levels. However, for management reporting and performance analysis, the mismatch between seasonal revenue and evenly spread IFRS 16 costs can distort monthly or quarterly performance metrics. Consider presenting pre-IFRS 16 metrics alongside reported figures for management purposes.
Should a pub company include the wet rent (beer tie) in the IFRS 16 lease calculation?
Beer tie arrangements (exclusive purchasing obligations) are not lease payments under IFRS 16 — they are separate purchasing commitments. Only the property rent component is included in the lease liability. If the lease agreement bundles property rent with purchasing obligations, separate the components and include only the property element in the IFRS 16 calculation.
How do I handle lease concessions negotiated during economic downturns?
Lease concessions that reduce lease payments are treated as lease modifications under IFRS 16.44 unless the IASB practical expedient applies. For COVID-19 and similar crisis-period concessions, assess whether the practical expedient (amended per IASB) is available. If applied, recognise the concession directly in profit or loss without remeasuring the lease liability. For ongoing concessions, remeasure the lease liability at the modification date using a revised discount rate.

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