Reference no: EM132620028

On October 1, 2018 Belfast Holdings Limited ("BHL") entered into a 6-year lease contract of 900 square feet of retail space No. 2047 in a shopping centre with Almond Property Limited ("APL"). The retail space is available for use by BHL on January 1, 2019 .

The lease agreement contained the following clauses:

1. Annual lease payment of HK$117,600 payable on 1 January of each year on lease commencement

2. BHL has an option to extend the lease for another two years at the market rate. At the date of inception of the lease, BHL believes that it will need to wait until closer to the time to decide if it will exercise the extension option

3. The lease conveys exclusive use of the retail space.

4. APL can require BHL to move to another retail space as long as a similar retail space is available under the condition there is a new tenant that pays a certain rate.

5. BHL has full discretion on the usage of the retail space throughout the lease period.

Additional Information

1. BHL incurred the following expenditures related to the lease contract:

2. Legal fees associated with the writing of the lease agreement of HK$8,400.

3. Real estate agent fee for finding the retail space of HK$11,760.

4. Despite the fact that there is a possibility that APS can move BHL to another available retail space, it is unlikely that APL will be able to find another customer to rent the retail space.

5. BHL's incremental borrowing rate is 10%.

REQUIRED:

Question a) Explain whether the lease contract that BHL entered into with APL contains a lease under HKFRS 16 Leases