On 1 March 2019, Sub Pizza, a pizza company enters into a contract with Freeman, a shopping mall operator to use a space in the mall to sell its food and beverages for a five- year period. The contract states the amount of space at the specific store, Unit 118, for the first three years. During the first three years period, Freeman will substitute the leased space with another available space at the discretion of Freeman's management on the 1stof January each year due to a New Year's event. Otherwise, the leased space can only be substituted for repairs and maintenance purposes.

During the last two years of the contract term i.e. the fourth and fifth years, the space may be located at any one of the several open areas within the mall. Freeman has the right to change the location of the space allocated to Sub Pizza at any time with minimal costs. Sub Pizza will use a kiosk, which they own, to sell its goods that can be moved easily. There are many areas in the mall that are available and which would meet the specifications for the space in the contract. The contract also states that in addition to the monthly rent, Sub Pizza would need to pay a 20% cash arising from its sales revenue. Due to the current market trend, Domi-Yous, a competitor of Sub Pizza is considering to offer Freeman a 50% increase to the rent that Sub Pizza has agreed to pay Freeman.

Required:

a) Determine whether or not a lease exists, according to AASB16.

b) Identify the term of the lease (if any), according to AASB16.

c) Explain the difference between a residual value guarantee and a purchase option in

calculating lease liability.