FAR and DFARS › FAR Part 31: Contract Cost Principles and Procedures › Subpart 31.2
FAR 31.205-36 Rental costs.
The codified text (eCFR, as of 2026-10-02). Under the Revolutionary FAR Overhaul ↗, agencies follow class deviations with new text for many parts while the formal rules go through the Federal Register: check the solicitation and your contract's clauses, which rule.
In plain English
This section explains when rental costs for operating leases are allowable under government contracts. It requires that rental rates be reasonable at the time the lease decision is made, and it limits costs for sale-leaseback arrangements and intercompany rentals. It matters because it tells contractors which rental costs they can charge to the government and which are restricted.
Applies to: Contractors incurring rental or lease costs for real or personal property under operating leases.
What it requires
- Ensure rental rates are reasonable at the time of the lease decision, considering comparable property, market conditions, property details, alternatives, and other agreement provisions.
- For sale and leaseback arrangements, limit rental costs to what would be allowed if the contractor retained title, based on net book value adjusted for gain or loss.
- For intercompany rentals, ensure charges do not exceed normal costs of ownership and do not duplicate any other allowed cost.
Key terms: operating leases · FASB ASC 840 · sale and leaseback · net book value · normal costs of ownership
Written by AI from this section's text. A guide, not legal advice: the text below rules.
The text
(a) This subsection is applicable to the cost of renting or leasing real or personal property acquired under “operating leases” as defined in Financial Accounting Standards Board's Accounting Standards Codification (FASB ASC) 840, Leases. (See 31.205-11 for Capital Leases.)
(b) The following costs are allowable:
(1) Rental costs under operating leases, to the extent that the rates are reasonable at the time of the lease decision, after consideration of (i) rental costs of comparable property, if any; (ii) market conditions in the area; (iii) the type, life expectancy, condition, and value of the property leased; (iv) alternatives available; and (v) other provisions of the agreement.
(2) Rental costs under a sale and leaseback arrangement only up to the amount the contractor would be allowed if the contractor retained title, computed based on the net book value of the asset on the date the contractor becomes a lessee of the property adjusted for any gain or loss recognized in accordance with 31.205-16(b).
(3) Charges in the nature of rent for property between any divisions, subsidiaries, or organization under common control, to the extent that they do not exceed the normal costs of ownership, such as depreciation, taxes, insurance, facilities capital cost of money, and maintenance (excluding interest or other unallowable costs pursuant to part 31), provided that no part of such costs shall duplicate any other allowed cost. Rental cost of personal property leased from any division, subsidiary, or affiliate of the contractor under common control, that has an established practice of leasing the same or similar property to unaffiliated lessees shall be allowed in accordance with subparagraph (b)(1) above.
(c) The allowability of rental costs under unexpired leases in connection with terminations is treated in 31.205-42(e).
Sections it refers to
← 31.205-35 Relocation costs. · 31.205-37 Royalties and other costs for use of patents. →
Rule changes for FAR Part 31
- Federal Acquisition Regulation; Technical Amendments ↗ · final rule 2024-04-22 · effective 2024-05-22
Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.