What are Minimum Lease Payments?
Minimum lease payments are the lowest total amount that a renter can expect to pay during the term of a lease.
How Do Minimum Lease Payments Work?
When a landlord contracts a renter, the renter agrees to pay the landlord a specific periodic amount, or lease rate, for a predetermined amount of time (usually one year). The lease payments are the lease rate multiplied by the number of payment periods (usually monthly). The minimum lease payments are the lowest amount that a renter must pay once other costs (for example, utilities and insurance) have been accounted for.
Why Do Minimum Lease Payments Matter?
Minimum lease payments are an important calculation for commercial lessees and generally accepted accounting principles (GAAP) provide a framework for determining a lessee's minimum lease payments. The minimum lease payments are expressed as the present value of lease payments at the outset of a lease contract.