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Leases are subject to specific accounting rules under ASC 840. This question applies to the lease as a freestanding agreement and should be answered ‘yes’ if you are analyzing a lease. However, you need read the agreement carefully to determine if there is any provision (or set of provisions) that is equity-linked and introduces variability to the lease terms by reference to an observable event, index or other measure, and that is separable from the lease agreement. Such provision should be evaluated as a freestanding instrument separate and apart from the lease agreement. If, on the other hand, the provision (or set of provisions) is not separable, then its should be evaluated as an equity-linked embedded feature.

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