According to Engel & Volkers' 2025 Franchise Disclosure Document, the company determines if an arrangement is a lease at the inception of the contract. At the lease commencement date, each lease is evaluated to determine whether it will be classified as an operating or finance lease. For leases with a lease term of 12 months or less, any fixed lease payments are recognized on a straight-line basis over such term and are not recognized on the consolidated balance sheets.

This means that Engel & Volkers assesses each potential lease agreement at the beginning to decide if it qualifies as a lease under accounting standards. Then, at the start of the lease, they classify it as either an operating or finance lease, which affects how it's recorded in their financial statements. Short-term leases (12 months or less) have their payments recognized evenly over the lease term, but they aren't recorded as assets or liabilities on the balance sheet.

For a prospective Engel & Volkers franchisee, this accounting policy is relevant if they plan to lease property for their brokerage. Understanding how Engel & Volkers classifies and accounts for leases can help franchisees better manage their financial reporting and understand the impact of lease obligations on their business. It's also important to note that lease terms include the noncancelable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods, termination options, and purchase options.

Engel & Volkers also has lease agreements with lease and nonlease components, which are generally accounted for separately with amounts allocated to the lease and non-lease components based on stand-alone prices. The company uses its incremental borrowing rate based on the information available when the rate implicit in the lease is not readily determinable at the commencement date in determining the present value of lease payments.