What is the Option to Renew?
This is an option that will allow the lessee to renew the asset. This is just an option to renew the asset, the lessee is not obligated to purchase the asset at the end of the lease term. LeaseGuru users should enter this during lease entry on the "Options" tab as pictured below.
Reasonably Certain
If your company is reasonably certain to exercise the renewal option, you are then required to include the renewal term with the initial lease term. Also note, this means you will be required to enter rent information for this renewal period. Base rent information will be entered on the "Base Rent" tab.
By selecting "reasonably certain" for the renewal option during the entry process, per the guidance, that time is included in the lease term and payments will be amortized over the entire period through the end of the renewal.
Lease Commencement
At lease commencement, the company should evaluate the arrangement and determine the lease term based on relevant economic factors. The lease term includes any renewal options for which the Company is reasonably certain to exercise. The further the lease end date (or renewal options) are from lease commencement, typically, the less likely it is that a company would meet the reasonably certain threshold to renew the lease.
Change in Assessment
The company should reassess the lease term as of the date the company is reasonably certain to no longer exercise the renewal option. When the lease term is reassessed this also leads to a remeasurement of the lease payments and by nature the remeasurement of the lease liability and ROU asset.