Lessee vs Lessor: What Real Estate Managers Need to Know About Modern Lease Accounting

Real estate teams are being pulled in two directions. On one side, they’re negotiating new leases and subleases. On the other hand, they’re adapting to stricter reporting rules and tighter audit timelines. In the midst of it all, a deceptively simple concept emerges: the difference between a lessee and a lessor.

Thanks to updated lease accounting standards like ASC 842 and IFRS 16, the stakes have changed. Understanding these roles is no longer just an accounting detail—it’s a strategic necessity for real estate managers overseeing large portfolios. And for many organizations, the challenge isn't just knowing the difference—it's managing both roles at once.

What’s the Difference Between a Lessee and a Lessor?

At its core, a lessee is the party that leases or rents an asset from someone else, while a lessor leases or rents that asset to another party.

In commercial real estate, if your company rents office space in a downtown building, you're the lessee and the building owner is the lessor. These roles are mirror images—one party records a liability, the other records a receivable. But in practice, many real estate teams play both roles across different contracts.

A company might lease a building from a landlord and sublease unused space to another business. In this case, it becomes both a lessee and a lessor, and each role must be tracked and accounted for independently.

Wearing Both Hats: The Operational Complexity of Dual Roles

Real estate teams managing both lessee and lessor activities juggle more than just terminology. They track multiple lease types, coordinate billing schedules, manage payments in and out, and ensure that each contract complies with evolving accounting standards and regulations.

The complexity increases when accounting teams require visibility into both sides of the ledger. Under ASC 842, for instance, a lessee must recognize a right-of-use asset and lease liability, while also recording lease income and receivables as a lessor. These records must be kept separate, even if the sublease income offsets the rent expense operationally.

According to FASB's Basis for Conclusions (BC115), the head lease and sublease are generally considered separate contracts. Sublease income must be reported independently from the head lease expense—there’s no netting. KPMG also confirms that sublessors typically present head lease expenses and sublease income separately in financial statements, reinforcing the need for detailed tracking and reporting.

Lease Accounting Standards That Changed the Game

In 2016, FASB and the IASB introduced two major standards: ASC 842 and IFRS 16. These rules require companies to recognize nearly all leases on the balance sheet, eliminating the off-balance-sheet treatment allowed under previous standards.

ASC 842, which applies to U.S.-based companies, uses a dual-model approach for lessees. Leases are classified as either operating or finance, based on criteria such as ownership transfer, lease term, and present value. Regardless of classification, both result in balance sheet recognition. However, they differ in income statement treatment—finance leases split expenses into interest and amortization, while operating leases present a single straight-line expense.

IFRS 16, by contrast, introduced a single-lessee model. Under this standard, nearly all leases are treated like finance leases, requiring lessees to depreciate the right-of-use asset and record interest on the liability. This simplifies reporting but leads to front-loaded expenses, especially on long-term leases.

For lessors, both ASC 842 and IFRS 16 maintain the traditional classification of leases as operating or finance (or sales-type under U.S. GAAP). The underlying logic remains: Does the lease transfer substantially all risks and rewards of ownership? If yes, it’s a finance lease. If not, it’s operating. Although fewer changes were made on the lessor side, new disclosures and revenue recognition alignment introduced additional complexity.

Subleases and the Intermediate Lessor Challenge

Subleases add another layer of complexity, especially when the company acts as both tenant and landlord. In this situation, the organization becomes an intermediate lessor, responsible for recording both the head lease and the sublease as distinct transactions.

Under ASC 842, this means continuing to report the lease liability and right-of-use asset related to the head lease, while also recognizing lease income and, potentially, a lease receivable related to the sublease. Importantly, these items cannot be netted; both must be tracked separately and presented on a gross basis.

This treatment is confirmed by KPMG's lease accounting guide, which notes that the sublessor typically presents head lease expenses and sublease income independently, ensuring transparency and avoiding offsetting in the income statement.

Day-to-Day Challenges for Real Estate Teams

Data fragmentation

Managing both lessee and lessor data creates a significant documentation burden. From payment schedules and renewal clauses to tenant obligations and rent escalations, every detail matters. Without a centralized system, teams often end up managing separate spreadsheets or disconnected processes, leading to errors or missed deadlines.

Audit and compliance pressure

ASC 842 and IFRS 16 have brought increased scrutiny to lease reporting. Companies must disclose weighted-average lease terms, discount rates, maturity schedules, and separate roll-forward tables for both lessee and lessor activity. These disclosures are challenging to generate without accurate, structured data and clear contract separation.

Cash flow misalignment

Real estate managers must coordinate incoming and outgoing payments, forecast occupancy, and adjust for changes in tenant agreements. When systems aren’t unified, it’s easy to overlook timing mismatches that affect revenue collection, budget forecasting, or covenant reporting.

How Spacebase Helps Real Estate Teams Manage Both Roles

Spacebase is designed to help real estate teams navigate the complexity of dual-role lease portfolios. Whether you're leasing space or subleasing it, Spacebase centralizes all contracts, key dates, and payment terms in a single platform.

You can filter by role, location, or lease type, and easily switch between lessee and lessor views. Built-in accounting tools help ensure each lease is classified correctly under ASC 842 or IFRS 16, with guided workflows and automated disclosures.

Real-time alerts help you stay on top of upcoming renewals, rent escalations, or option deadlines. By integrating lease operations with accounting, Spacebase closes the gap between departments, reducing manual effort, audit risk, and delays during the financial close.

Looking Ahead: More Flexibility, More Complexity

Commercial leases are becoming shorter, more flexible, and more dynamic. As companies adapt to hybrid work models and reassess their physical space needs, the volume of lease events, such as terminations, subleases, amendments, and embedded leases, continues to increase.

The need for clear lease role tracking and audit-ready data will grow in tandem. Teams that treat leases as static contracts will fall behind; those that adopt modern workflows and centralized systems will remain agile, accurate, and audit-ready.

Final Takeaway

Understanding the distinction between lessee and lessor is foundational. But managing both roles effectively, especially under today’s accounting standards, is a real operational challenge.

With the right systems in place, real estate teams can move beyond compliance and treat lease data as a source of strategic insight. Spacebase helps simplify this process, providing the visibility and control needed to manage a dual-role portfolio with confidence.

Brooke Colglazier

Marketing Manager