FRS 102 leases for restaurants: What the 2026 accounting changes mean for your hospitality business

For restaurants, cafés, pubs and quick-service operators, the 2026 FRS 102 lease accounting changes are not just a technical accounting update. They could reshape reported debt, EBITDA, banking covenant calculations and investor conversations. With many hospitality businesses operating from leased premises, now is the time to understand the impact, gather lease data and prepare before year-end pressures begin.

FRS 102 restaurant leases: What’s changing?

Under the current FRS 102 rules, most restaurant property leases are typically treated as operating leases, with rent recognised as an expense in the profit and loss account.

However, for accounting periods beginning on or after 1 January 2026, the distinction between operating leases and finance leases for lessees is largely being removed. Businesses will generally be required to recognise:

• A right-of-use (ROU) asset; and
• A corresponding lease liability

on the balance sheet for qualifying leases.

This change aligns UK GAAP more closely with IFRS 16, which many larger listed and international groups have already adopted.

Why restaurant groups are particularly affected

Restaurants are among the sectors most exposed to the changes because leasehold properties are frequently their largest long-term operational commitment.

Examples of leases we commonly see included:

• High street restaurant units
• Shopping centre locations
• Retail park premises
• Pub and bar sites
• Dark kitchens
• Drive-through locations
• Franchise-operated premises

For multi-site operators, this can significantly change the scale and presentation of the balance sheet, particularly where lease portfolios include long property commitments across several locations.

The financial statement impact

Under the new rules, lease costs will no longer simply be recognised as rental expense.

Instead, businesses will typically record depreciation on the right-of-use asset and interest expense on the lease liability through the profit and loss account.

This can affect:

1. EBITDA

For many restaurant groups, EBITDA may increase because rental costs move below EBITDA and are replaced by depreciation and finance charges.

2. Net Assets

Reported assets and liabilities will generally increase, which may affect how lenders, investors and stakeholders interpret the business.

3. Banking Covenants

Loan agreements often contain leverage, gearing or net asset tests. The introduction of lease liabilities may affect covenant calculations and should be considered well before implementation.

4. Key Performance Indicators

Restaurant operators may find that historic KPIs become less comparable with future periods following adoption.

Multi-site restaurant groups face additional complexity

The accounting can become significantly more complex where a restaurant business has large lease portfolios, frequent lease modifications, rent-free periods, turnover-based rents, lease extensions, break clauses, dilapidation provisions, and related party property arrangements.

Calculating lease liabilities requires consideration of lease terms, discount rates and payment structures. The exercise is often far more involved than businesses initially expect.

Transition challenges for restaurant businesses

One of the most important aspects of the new standard is the transition process. Comparatives will generally not be restated. Instead, the cumulative effect of adoption is recognised through opening reserves upon transition. For restaurant groups with numerous sites and leases stretching back many years, gathering complete lease data can be one of the biggest implementation challenges. Common issues include missing lease documentation, historic lease amendments, side agreements, inconsistent property records, and acquired businesses with inherited leases.

Starting early is critical because the data-gathering exercise can take longer than expected, particularly for businesses with multiple sites, historic amendments or incomplete property records.

Audit considerations for restaurants

As specialist auditors of hospitality businesses, Gravita understands how lease accounting interacts with the wider restaurant audit process. Key audit focus areas often include:

• Lease completeness
• Determination of lease terms
• Discount rate selection
• Right-of-use asset valuations
• Impairment considerations
• Going concern assessments
• Covenant compliance
• Disclosure requirements

Our audit teams regularly work with restaurant management teams, finance directors and private equity-backed hospitality groups to navigate complex lease arrangements efficiently. Unlike advisers with only technical accounting knowledge, our teams understand the commercial realities of operating hospitality businesses, including site profitability, expansion strategies, landlord negotiations and investor expectations.

Preparing now for FRS 102 leases in restaurants

The new FRS 102 lease accounting rules represent one of the most significant reporting changes affecting restaurant businesses in recent years. For groups with substantial property portfolios, early preparation can reduce implementation costs, protect covenant conversations, improve audit readiness and give management greater confidence when communicating with lenders, investors and stakeholders.

If your business needs support with FRS 102 leases for restaurants, restaurant lease accounting, FRS 102 lease changes or auditing restaurant lease portfolios, Gravita can help you assess the impact and put a practical transition plan in place.

Speak to Gravita’s restaurant audit and advisory team today to review your lease portfolio, understand the financial reporting implications and prepare for the 2026 changes with confidence. For further assistance, please contact Joseph Brewer, an audit partner in our London office.