SORP Changes: How Will It Impact Charity Real Estate?

Big changes are coming for how charities manage and report their leases.

From January 2026, new rules will mean that most leases – previously kept “off the books”– must now be included on the main financial reports.

This shift, part of updates to the Statement of Recommended Practice (SORP), aims to make charity finances more transparent and easier to compare.

What’s changing and why?

Right now, many lease commitments – such as rent for office spaces or equipment – are only mentioned in the small print of financial statements. That makes it hard for trustees, funders, and auditors to get a clear view of a charity’s true financial situation. With the new rules, all major leases will be visible, offering a fuller picture of obligations and resources.

These changes will apply to financial years starting in January 2026, with most charities seeing the effects in their 2026 or 2027 reports.

Here’s a breakdown of the most important things charities should prepare for:

1. Keep a detailed lease inventory

You’ll need a list of all your leases – things such as office spaces, storage units, or even vehicles. Each lease will be checked to see if it’s exempt (e.g., very short or low value). Big assets like properties and cars won’t qualify for exemptions, so expect a detailed review.

2. Understand your lease terms

It’s essential to document every lease’s start and end dates, break clauses, and renewal options. For example, if you miss a break clause, you could end up locked into a costly lease for years.

3. Calculate what you owe

Charities must work out how much they owe for future lease payments and show this as a liability on their balance sheet. Non-lease costs, like service charges, will need to be separated out.

4. Pick the right discount rate

The discount rate affects how liabilities are calculated. You’ll either use the rate specified in the lease or your own borrowing rate. This choice can significantly impact reported costs.

5. Treat leases as assets

Every lease will also appear as a “right of use” asset—essentially a reflection of the value you’re getting from the lease. This asset will need regular checks to ensure it’s still accurate.

6. Use better systems

Tracking all this on spreadsheets won’t cut it anymore. Specialist software will help you stay organised and ensure your financial reports are accurate.

7. Special rules for free or cheap leases

If you have leases at reduced or “peppercorn” rates, these will now be treated as donations. The value difference will need to be recorded as income, alongside the lease liability.

What this means for strategy

These changes aren’t just about bookkeeping – they could influence your charity’s entire property strategy.

For example:

• Hybrid and flexible working: Moving to shared or serviced offices might help save costs but could come with other challenges, like VAT.
• Property portfolio review: You may want to renegotiate leases or rethink whether renting or owning is better.

Time to act

With these changes fast approaching, it’s time to prepare. Start by reviewing your leases, updating your systems, and getting your team ready. Involve your auditors and advisors early to make the process smoother.

How TSP can support you

TSP is here to help. Whether you have one building or manage many, we can review your property data, calculate lease liabilities, and ensure you’re ready for the new rules. Get in touch today to see how we can make the transition simple and stress-free for you.

Contact us to get started.