The Group recognizes a lease liability at the date on which the underlying asset is made available for use. The lease liability is measured at the present value of lease payments to be made over the lease term.
The lease payments included in the measurement of the lease liability comprise:
Payments expected to be made to the lessor at the termination of the contract are also included (relatively rare in practice within the Group), such as:
Variable lease payments that do not depend on an index or a rate (notably, rents or fees based on revenues) continue to be recognized in operating expenses when incurred. In addition, the Group has elected to exclude, where applicable, non-lease items of contracts (for example, vehicle maintenance services) when measuring lease liabilities. Consequently, payments in relation to service components of lease contracts are recorded in operating expenses, in the same way as variable lease payments.
The lease term is assessed for each lease as the non-cancellable period of the contract, adjusted to reflect periods covered by an option to extend the lease that the Group is reasonably certain to exercise, and periods covered by an option to terminate the lease that the Group is reasonably certain not to exercise.
The legal environment and market practices specific to each country are also considered in assessing the lease term. This applies in particular to open-ended leases, for which an enforceable period is determined in light of circumstances specific to each situation. In assessing the enforceable period of each contract, the Group determines whether it would incur a penalty on termination that is more than insignificant, taking into account various relevant indicators (compensation arising from contractual obligations and economic penalties based on operational criteria, in accordance with the clarifications provided by the IFRS IC). In the specific case of French commercial property leases (also referred to as “3/6/9 leases”), assessments are made on a case-by-case basis and may lead to the recognition of an enforceable period that is beyond the residual length of the initial nine-year term.
The discount rate used is generally the lessee's incremental borrowing rate, as the rate implicit in the lease cannot be readily determined for most contracts. The incremental borrowing rate is calculated using the following parameters: risk-free rate of the relevant currency, duration of the lease, credit spread of the subsidiary concerned.
Subsequently, the lease liability is recognized at amortized cost using the effective interest method and is remeasured after the commencement date to reflect changes arising from:
