From 1 January 2026, a major shift in financial reporting will affect the way hospitality businesses account for their leases. The revised FRS 102 will bring most leases onto the balance sheet, meaning that even if nothing changes operationally, financial statements will look very different.
For a sector that relies heavily on leased properties, kitchens, vehicles and equipment, these changes will have a significant impact on reported results, financial ratios and how businesses are viewed by funders and investors.
The new lease accounting explained
Currently, many leases sit off balance sheet, with rent simply recognised in the profit and loss account. Under the revised FRS 102, nearly all leases will need to be recognised as both a right-of-use asset (reflecting access to the leased premises or equipment) and a lease liability (representing the commitment to make lease payments).
The result? Rent costs will be replaced by depreciation and interest charges, fundamentally reshaping profit and loss accounts. For many operators, EBITDA will appear stronger but gearing and finance costs may rise.
Why this matters for hospitality
Hospitality businesses are uniquely exposed to these changes because of the scale and variety of their lease commitments. Operators with multiple sites could see balance sheets grow substantially overnight. This will have knock-on effects on how stakeholders interpret financial results.
Some of the key impacts include:
- Reported profits – rent expenses replaced with depreciation and interest, boosting EBITDA but raising finance costs.
- Covenants and funding – gearing ratios may shift, affecting discussions with banks and lenders.
- Stakeholder perception – while a stronger asset base may look positive, higher liabilities could prompt tougher questions.
Preparing for the transition
Finance teams will need to invest time now in planning for the transition. That means identifying and capturing all relevant leases - from property to kitchen equipment and vehicles - and ensuring systems and processes are ready to calculate and track lease assets and liabilities.
Equally important is communication. Boards, investors and lenders will need clear explanations of the impact of the new rules to avoid misinterpretation of results. Proactive modelling can help hospitality operators demonstrate a clear understanding of how the changes will affect their financial position.
Turning change into opportunity
While the revised FRS 102 adds complexity, it also creates an opportunity to strengthen financial reporting. Businesses that embrace the transition can:
- Gain a clearer view of their total lease commitments, improving strategic decision-making.
- Enhance financial transparency, strengthening credibility with investors and landlords.
- Use the process as a springboard to open proactive conversations with funders about covenant impacts.
How we can help
At UHY, our dedicated hospitality sector team is working with clients to prepare for these changes. We’re helping operators model the impact on their financial statements, set up robust systems for lease reporting, and engage stakeholders with clarity and confidence.
If you’d like to explore what the new lease rules could mean for your business, and how to prepare well ahead of 2026, we’d be delighted to help.
