How do I calculate my Lease Term?

The Lease Term is the non-cancellable period during which a lessee has the rights to use a leased asset

It is important to note that this also includes: options to renew/extend a lease (lessee option), options to terminate a lease (lessee option) and lessor options to extend lease (where the option is entirely controlled by the lessor).

Lessee options to renew/terminate a lease are only included in the Lease Term if they are "reasonably certain" to be exercised. This threshold is a higher threshold than something being probable.

A few examples of when an entity may be reasonably certain to exercise an extension option would be when:

1. A lessee has installed a large number of leasehold improvements in order to make the leased space suitable for use. 

2. A lessee has an option to renew/extend the lease at significantly favorable market terms.

3. The leased location is strategic in nature and relocating the premises would result in operational difficulties.

These same scenarios/concepts are to be considered when evaluating whether or not a lessee is reasonably certain to exercise a termination option.

To summarize, a depiction of the Lease Term calculation can be found below: