BC4 Paragraph 14 of IAS 17 Leases requires a lease of land with an indefinite economic life to be classified as an operating lease, unless title is expected to pass to the lessee by the end of the lease term. Without the provisions of IAS 40 as amended, this operating lease classification would prevent a lessee from classifying its interest in the leased asset as an investment property in accordance with IAS 40. As a result, the lessee could not remeasure its interest in the leased asset to fair value and recognise any change in fair value in profit or loss. However, in some countries, interests in property (including land) are commonly - or exclusively - held under long‑term operating leases. The effect of some of these leases differs little from buying a property outright. As a result, some contended that such leases should be accounted for as finance leases or investment property, or as both.

BC5 The Board discussed possible solutions to this issue. In particular, it considered deleting paragraph 14 of IAS 17, so that a long‑term lease of land would be classified as a finance lease (and hence could qualify as an investment property) when the conditions for finance lease classification in paragraphs 4-13 of IAS 17 are met. However, the Board noted that this would not resolve all cases encountered in practice. Some leasehold interests held for investment would remain classified as operating leases (eg leases with significant contingent rents), and hence could not be investment property in accordance with IAS 40.