Cars, Offices, Warehouses: Corporate Leasing at a Glance

Tomáš, what are the three most common assets companies lease?

By far, the most common is cars. That is standard for most companies. Next come office premises – either for headquarters or regional branches – and the third most common category is probably warehouses. A specific feature of car leasing is that a company may lease, for example, a hundred vehicles at once. That kind of volume is not typical for warehouses.

Do lease agreements differ across these asset types? For example, car leasing versus leasing a warehouse or office space?

They differ mainly in complexity. A car lease is usually agreed for a fixed term – say three years – with a fixed monthly payment, typically denominated in Czech crowns. Office and warehouse leases are in a different league altogether. Rent is often paid in euros, rent-free periods are frequent as an incentive to attract tenants, and there may be additional payments for so-called fit-out costs, where the space is customized to the tenant’s needs and the landlord reflects these costs in the rent. Overall, these are significantly more complex contracts.

Does the lease term also differ?

Yes. Car leases are typically short-term – around two to four years – due to rapid wear and regular fleet renewal. Offices and warehouses, on the other hand, are often leased for longer periods. Five-year or longer contracts are common, usually with options to extend for an additional, e.g. three years period. Relocating offices or warehouses is operationally demanding and costly, so companies seek the certainty of longer lease terms and extension options.

What accounting challenges do companies most often face with these leases?

For warehouses and offices, calculations under the international accounting standard IFRS 16 can be significantly more complex. Payments are often made in a foreign currency, such as euros, which requires currency conversion. In addition, there are often additional investments in the premises and indexation clauses that adjust rent annually based on inflation or another economic indicator. All of this makes the accounting treatment much more complicated. By contrast, car leases are generally simpler, with a single regular payment. These differences become particularly evident when leases are reported under IFRS 16.

Why is office or warehouse rent often paid in euros?

It is not a strict rule, but the explanation is straightforward. Developers who build office buildings or warehouses often finance construction with euro-denominated loans and repay them in euros. Setting rent in euros is frequently a condition of the provided funding and allows developers to create a natural hedge against foreign-exchange risk.

From an accounting perspective, what is the difference between leasing and renting? Are these terms used interchangeably?

In Czech, both terms are commonly used, which creates the impression that they refer to different concepts. From a semantic and accounting perspective, however, they are synonymous. It is common to say “I lease a car,” but “I rent an office.” In reality, you could just as well say that you live in an apartment “on a lease” – the meaning is exactly the same.

Have you seen any recent changes in the types of assets companies lease, for example due to the growth of renewable energy or IT equipment?

Rather than the assets themselves, the nature of transactions is changing. For example, a company may have a photovoltaic system installed on the roof of its production facility. The supplier designs the system, builds and operates it, the company purchases the electricity, and after a certain period may acquire ownership of the power plant. From an IFRS perspective, this arrangement is also a form of lease. The motivation may be environmental targets, but the fact that it qualifies as a lease is often an unintended consequence.