A sublease occurs when a lessee leases the asset to a third party (the sublessee). The original lessee acts as an intermediate lessor and continues to meet the obligations of the headlease. Also see Headlease.

Under IFRS 16 and ASC 842, if the sublease qualifies as a finance lease, the intermediate lessor derecognizes the related right-of-use asset from the headlease. The entity recognizes a net investment in the sublease, including any unguaranteed residual value.

When the sublease ends and the asset returns, the system transfers the unguaranteed residual value back to the headlease right-of-use asset.