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FOR IMMEDIATE RELEASE 4 JANUARY 2002

‘IAS 40, INVESTMENT PROPERTY TO BE AMENDED’

At its December meeting in Paris, the International Accounting Standards Board tentatively concluded that Leasehold Investment Property should no longer be excluded from treatment under IAS 40, Investment Property. Currently, companies using IAS 40 and that adopt a fair value approach to investment property are required to revalue freehold investment properties but are not allowed to report long leasehold property investments at fair (market) value in the balance sheet.

IVSC Technical Consultant, John Rich, who observed the IASB meeting said, “once implemented, this conclusion will reverse an unsatisfactory anomaly which found its way into the current edition of IAS 40. This will come as a great relief to property investment companies in a number of major economies where leasehold tenure is a regular, and in some places the only, form of land occupation. IVSC were able to assist the IASB in revising its position by furnishing data from a wide survey of 40 countries on the impact of the issue. We were greatly supported in our research by IVSC members and correspondents around the world, Investment Property Databank and two of the world’s major property investment companies, Hongkong Land and Land Securities.”

END

NOTES TO EDITORS

1. For further details, please contact:
   John Rich - IVSC Technical Consultant
   Tel: +44 1825 790450
   Marianne Tissier - Executive Director, IVSC.
   Tel: +44 1442 879306

2. The decision summary produced by IASB following the December Board meeting reports the decision on Iong-term leases of property as follows and is reproduced with the permission of the IASB.

   Long-term leases of property
   The Board considered the treatment of long-term property leases under IAS 17 and IAS 40. IAS 17 presently requires that a lease of land must be classified as an operating lease, unless title is expected to pass to the lessee by the end of the lease term. In turn, this prevents the lessee from classifying its interest in the lease as an investment property under IAS 40. That is, the lessee does not record an investment property that it can remeasure to fair value.

   The Board tentatively decided to amend the definition of an investment property in IAS 40, paragraph 4, so that a lessee in a qualifying property lease would classify its investment as an investment property provided that:

   • the rest of the definition of an investment property is met; and
   • the lessee uses the fair value model in IAS 40, paragraphs 27–49.

   In such a case, the lessee should account for the lease as if it were a finance lease.

   The Board also decided to consider two further issues at a future meeting:

   • whether it should remove the choice in IAS 40 between using the fair value model and the cost model for investment properties; and
   • whether it should clarify that, in classifying a lease as a finance or operating lease under IAS 17, a lease of land and buildings should be split into two components – a lease of land and a lease of buildings – and each element assessed separately.

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