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 liability, evidenced.
Not just estimated.
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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.
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.