What is a Short Term Lease?

A lease of 12 months or less with no option to purchase.

A lessee can elect, by class of underlying asset, not to apply the recognition requirements of Topic 842 and instead to recognize the lease payments as lease cost on a straight-line basis over the lease term. This is how operating leases were accounted for under Topic 840. The exemption permits a company to not recognize short-term leases on its balance sheet, thereby lowering its overall lease liabilities and avoiding certain judgments related to recognition and measurement (e.g. determining a discount rate).

A lessee can apply the short-term lease exemption on a class of underlying asset basis to which the right of use relates. In other words, a lessee can elect to keep short-term leases of e.g. cars off-balance sheet (and account similar to ASC 840) but elect to recognize short-term leases of properties on-balance sheet (consistent with ASC 842). 

Modification

Unexpected modifications to short term leases are considered new leases.  The new lease will begin on the modification date.  For example, if a 12 month lease is renewed in month 9 for an additional 12 months it becomes a new lease for 15 months and thus is not short term.

Expected changes in lease term (elected an option that was in the original lease) also result in a new lease.