---
title: What is the Difference Between a Lease Modification and a Lease Termination?
description: For lease modifications that do not meet the criteria to be accounted for as a separate contract, the remaining consideration in the contract must be remeasured and reallocated upon the effective date
---
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# What is the Difference Between a Lease Modification and a Lease Termination?
For [lease modifications](https://www.occupier.com/blog/asc-842-lease-accounting-glossary/) that do not meet the criteria to be accounted for as a [separate contract](https://www.occupier.com/blog/asc-842-lease-accounting-glossary/), the remaining consideration in the contract must be remeasured and reallocated upon the effective date of the modification. A modification that is not accounted for as a separate contract may
1. Extends or Reduces the [Lease Term](https://www.occupier.com/blog/asc-842-lease-accounting-glossary/), other than through exercise of an option
2. Grants the lessee an additional right of use
3. Only changes the [contract consideration](https://www.occupier.com/blog/asc-842-lease-accounting-glossary/)
4. [Fully or partially terminate](https://www.occupier.com/blog/asc-842-lease-accounting-glossary/) the lease
Refer to the chart below for how to treat each lease modification type:
| **Modification Type** | **Lessee Accounting** |
| --- | --- |
| Extends or reduces the Lease Term, other than through exercise of an option | - Lessee should reassess lease classification as of the effective date of the modification using the modified terms and conditions - Consideration is remeasured and reallocated using the revised lease payments and updated discount rate - The lessee would use the updated lease payments and discount rate to revise the lease liability and adjust the ROU asset on the basis of the difference. - No impact to the income statement |
| Grants lessee an additional right of use not included in original contract that is not accounted for as a separate contract | |
| Only changes the contract consideration | |
| Modification decreases scope of the lease through a full or partial termination | - Lessee should reassess lease classification as of the effective date of the modification using the modified terms and conditions - Consideration is remeasured and reallocated using the revised lease payments and updated discount rate - The lessee would use the updated lease payments and discount rate to revise the lease liability and adjust the ROU asset in a proportionate manner. - Difference between the proportionate reduction of the ROU asset and lease liability is recognized in the income statement as a gain or a loss. |
A lease termination results in a gain or loss charged to the income statement immediately. However, a modification does not result in an immediate charge to the income statement, unless the modification is a considered a partial termination.
**Accounting Guidance Referenced:**
- ASC 842-10-25-10
- ASC 842-10-25-11
- Deloitte *A Roadmap to Applying the New Leasing Standard (2020)* 8.6
- PwC *Leases October 2020* 5.5
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