Financial
Rent-free months: average monthly rent and discounted payment schedule
Model a 36-month rent schedule with its first three months free, and discount the actual remaining payments rather than an unabated annuity.
Use the same payment schedule in both calculations
The schedule has 36 months, with the first three free and 33 payments of 5,000. Its average contractual cash rent is 165,000/36 = 4,583.33 per month.
Payments are due at the beginning of each paid month: t=3,4,...,35 months from commencement. With a nominal annual rate of 6%, monthly rate is 0.5%. Discount the 33-payment annuity due back another three months.
This is a payment-timing example, not a complete ASC 842 or IFRS 16 accounting schedule. Lease classification, eligible payments, discount rates, incentives, initial costs and right-of-use assets require separate treatment. The two standards do not prescribe an identical expense pattern.
If no months are free, the cash-flow PV includes a payment at t=0. A payment already made at commencement is not an unpaid lease liability; separate it before using the result for liability measurement.
| Payment-schedule measure | Calculation | Result |
|---|---|---|
| Total cash payments | 5,000 × 33 | 165,000 |
| Average cash rent per month | 165,000 / 36 | 4,583.33 |
| PV of payments at months 3 through 35 | =ROUND(PV(D2/12,B2-C2,-A2,0,1)/(1+D2/12)^C2,2) | 150,251.36 |
Average contractual cash rent per month
Spreads total contractual cash payments evenly across the entire lease term including rent-holiday months.
=ROUND((A2 * (B2 - C2)) / B2, 2)PV of the scheduled payments including the initial rent-free period
Requires whole months with 0 <= free months < term, positive term, and a monthly discount rate greater than -1. Payments start at month C2.
=ROUND(PV(D2/12,B2-C2,-A2,0,1)/(1+D2/12)^C2,2)Try the example
Use the original values or change them to test your understanding.