If you and the lessor agree to terminate a lease before its planned ending date (including any renewals that are considered part of the lease term as described in Lease Term), the process is called early termination of the lease.
This is done by specifying an Early Term Type of Early and entering the date of termination in the Early Termination Date field on the Terms/Options tab. Any penalty or other consideration paid to terminate the lease should be accounted for separately from EZLease (although you can enter a note of it in the memo field). If only a portion of the lease is terminated early, please see: Partial Terminations.
When a lease early terminates:
- Normal income statement activity (rent, depreciation, and interest) is processed up to the termination.
- The lease is not shown in the future minimum lease payments on or after that date.
- The lease is excluded from all reports that start after that.
- For capital/finance leases and operating leases with leveled rents, a termination gain or loss is recognized when removing the asset and liability.
Note: Early terminations cannot be backdated in EZLease. They appear in reporting on the early termination date specified in the UI.
Early terminations can be performed one of two ways: manually in the user-interface (UI) or uploaded in bulk.
Early terminating a single lease
To manually add an early termination, follow the steps below:
|From the lease record, go to the Terms/Options tab.
Note: Any penalty or other consideration paid to terminate the lease should be accounted for separately from EZLease (although you might want to enter a note of it in the memo field). If only a portion of the lease is terminated early, please see Partial Termination.
Click Save Lease
Early terminating leases in bulk
To enter an early termination in bulk, use the lessee bulk import template and follow the steps below:
|In column B (Change) add "Yes"
|In column D add the early termination date
|In column E add the early termination type
|In EZLease, upload your import template to My Files.
|From the File menu at the top, select Lease Upload.
|Select your import file and update any necessary settings, then click Load.
Early terminating a Finance lease or ASC 842 Operating lease
“A termination of a capital lease shall be accounted for by removing the asset and obligation, with gain or loss recognized for the difference.” [¶14c] Since the liability is amortized using the interest method during the life of the lease (which means less is paid off in the first months than in the last months), whereas the asset is normally depreciated on a straight-line or accelerated basis, most leases at time of early termination have a larger liability than asset, which results in a termination gain. This can vary if you have a salvage value or if the asset is depreciated over its economic life.
EZLease shows the amount of termination gain or loss in the income statement activity.
Terminating an operating lease with leveled rent
An operating lease with leveled rent also has a termination gain or loss if early terminated, due to the removal of the deferred asset or liability. In most cases, the rent at the beginning of the lease is less than later, which creates a deferred liability. An early termination of a lease with a deferred liability results in a termination gain, which EZLease shows in the income statement activity.