The body responsible for producing the Statement of Recommended Practice (SORP) for registered social housing providers has published the Exposure Draft: 2026 Edition on 20 October 2025. We are now in a period of consultation on the new draft SORP, and stakeholders have until 12 January 2026 to submit their comments.

In our previous article on proposed changes to the Housing SORP, we identified six areas of significant changes, one of which was lease accounting. In this article, we’ll focus on lease accounting and look in more detail at the proposed changes.

What are the proposed changes affecting lease accounting?

All leases, subject to permitted exemptions, are brought onto the balance sheet. That removes the concept of finance leases (agreements that transfer all the risks and rewards of ownership of the asset) and operating leases (all other leases).

Which exemptions are available?

The Housing SORP mandates that the exemptions offered in FRS 102 in relation to short terms leases and low value assets are taken.

Short-term leases have a term of 12 months or less at the commencement date. Low value assets are not defined but include personal computers, tablet devices, small items of office furniture and phones.

What is the impact on the financial statements of registered social housing providers?

The first step for registered social housing providers will be to determine whether or not a lease exists. The SORP provides some useful guidance and examples on how to do this, including where the agreement is a peppercorn lease.

Most registered social housing providers will see increased lease liabilities and right of use assets on their balance sheet, which will impact cash flow statements. Service charge components are outside the scope of leases and recognised in line with revenue from contracts with customers.

Non-service charge operating lease charges currently recognised in the statements of financial activities within the income statement will be replaced by the depreciation of the right of use asset and interest charges. This could have significant implications on certain metrics like KPIs, such as EBITDA MRI VFM, and debt covenants.

In the registered social housing provider’s statement of financial position, the right of use asset will be presented with the corresponding underlying assets which they own. The value and movements in right of use asset will be separately disclosed from other assets in a new note.

What else should registered social housing providers consider?

Appropriate discount rate

FRS 102 and the SORP allow a public benefit entity to use the rate of interest it gains on deposits held with financial institutions if the interest rate isn’t implicit in the lease or it isn’t possible to determine the lessee’s incremental or obtainable borrowing rate.

Arrangements below market rate of nominal value

Complexities can arise where rentals paid are below market value. Social housing landlords will need to consider the substance and terms of these arrangements to determine if they are in scope of leases. The SORP provides guidance and simple examples to help social housing landlords with these considerations.

Shared-ownership properties

The SORP Working Party believes the sales and balance sheet presentation of shared-ownership properties remains appropriate, despite there being a lease arrangement with a shared-owner.

How can we help with changes to lease accounting?

Once the consultation is complete, the finalised SORP will be published in early 2026 ready to implement for accounting periods beginning on or after 1 January 2026.

If you’d like to discuss the updated SORP, find out more about what the changes mean for you and explore ways to improve your in-house processes, get in touch with Sharon Monteith or your usual RSM contact today.

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