Lease Incentives

Many leases include incentives offered in the form of free or reduced rent, or up-front cash payments for items like moving expenses or improvements needed to customize the rental space as an enticement for a lessee to sign a lease. A lease incentive is a payment made from a lessor directly to a lessee, or on behalf of a lessee to fund items that would otherwise be a Lessee’s expense. As such, a lease incentive can come in many different forms and look like a lot of different things. Common examples of lease incentives are:

A lump sum cash payment from the Lessor to the Lessee at the date of lease execution.
A payment from the Lessor to the Lessee during the lease term to reimburse for leasehold improvements.
The Lessor taking over a Lessee’s pre-existing lease to entice the Lessee to enter into a new lease agreement with the Lessor.

Lease incentives reduce the ROU Asset and lease payments used for lease classification. Additionally, the straight-lined lease expense is reduced in an operating lease or the straight-lined amortization expense for the right-of-use asset is reduced in a finance lease. This document does not apply to the accounting of leasehold improvements which should be accounted for outside LeaseAccelerator.

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Entering a Lease Incentive in the UI

Note that Lease Incentives that impact the ROU Asset cannot be added to a lease after the lease has been booked. To add a lease incentive after booking a lease, a modification must be performed. When a lease with a lease incentive is modified, the modification continues to account for the incentive consistent with the original deal.

Step	Action
1	Go to the Enter Schedule workspace from the Left NavBar.
2	Populate necessary fields in accordance with the lease agreement terms and conditions on the Participants, Details and Terms tiles.
3	Go to the Expenses tile.
4	Click plus sign to add a new Expense.
5	Select Lease Incentive from the Type drop-down.
6	Select Paid to Lessee or Paid on behalf of Lessee from the Lease Incentive Type drop-down. Note: Accounting impact on the ROU Asset is the same for both options.
7	Select a Payee from the drop-down, which is generated from the available Vendors.
8	Select aFrequency of One-time from the drop-down.
9	Enter the First Payment Date. The date entered here will drive the recognition date of the incentive and the present value calculation.
10	Enter the Payment Amount.
11	Click Add.
12	Once all other schedule details have been entered, click Save on the Details tile.

Entering a Lease Incentive in a PIW

See below for the required fields for a Lease Incentive entered through the Schedule Related Expense tab, but note there are additional fields that are rarely used for Lease Incentives. These fields are explained in the Customer Implementation Guide (CIG). When a lease with a lease incentive is modified, the modification continues to account for the incentive consistent with the original deal. Lease Incentives that are imported through the Schedule Related Expense tab during the import process are capitalized as a part of the ROU asset.

Step	Action
1	Go to the Scheduled Related Expenses tab in the latest version of the PIW.
2	Enter the Schedule Number.
3	Select a Product Category consistent with the Product Category on the Details tab of the PIW.
4	Select Expense Type as Lease Incentive from the drop-down.
5	Select an Expense SubType of either Paid to Lessee or Paid on behalf of Lessee from the drop-down. Note: Accounting impact on the ROU Asset is the same for both options.
6	Enter a Payee. Payee must be listed as the Vendor on the lease.
7	Select aFrequency of One-time from the drop-down.
8	Enter the1^st Scheduled Payment Date. The date entered here will drive the recognition date of the incentive and the present value calculation.
9	Enter the Initial Payment Amount.
10	Once the PIW has been fully populated, import the PIW through the Bulk Import workspace on the Portfolio tile.

Recording a Paid Related Expense in the UI

See below steps for recording a payment of a Lease Incentive through the User Interface. Generally, this step is used to reflect the actual timing of the payment. This does not impact the ROU Asset. The payment will debit Non-trade Receivable Clearing and credit Lease Incentive Receivable for the payment amount. If a lease has a Lease Incentive and is subsequently modified, any payment that is received on the modification needs to be recorded on the original lease, even though the original lease will have status “Terminated” on the Deal Summary. The Lease Incentive Receivable does not transfer to the modified lease.

Step	Action
1	Search for the deal using the Top Search Bar and Deal #.
2	Hover over Record Event in the Left NavBar. In the first layer of this menu, hover over Record a payment and then select Record invoiced/paid expenses from the second layer of the menu.
3	In the Capture Invoiced/Paid Expenses workspace and Invoiced tile, enter the payment details in the Enter Invoiced/Paid Expenses section.
4	Select Lease Incentive from the Type drop-down.
5	Select a Lease Incentive Type of Paid to Lessee or Paid on behalf of Lessee from drop-down. Note: Accounting impact on the ROU Asset is the same for both options.
6	Select a Payee from the drop-down.
7	Select Date Paid.
8	Enter the Payment Amount.
9	Enter the Invoice #.
10	Enter the Invoice Amount.
11	Select Applicable to.
12	Click Save.

Recording a Paid Related Expense using a PIW

Another method of recording a Lease Incentive payment is through the Paid Related Expense tab of the PIW. See below steps on how this is done. Generally, this step is used to reflect the actual timing of the payment. This does not impact the ROU Asset. The payment will debit Non-trade Receivable Clearing and credit Lease Incentive Receivable for the payment amount. If a lease has Lease Incentive and is subsequently modified, any payment that is received on the modification needs to be recorded on the original lease. The Lease Incentive Receivable does not transfer to the modified lease.

Step	Action
1	Go to the Paid Related Expenses tab in the latest version of the PIW.
2	Enter the Schedule Number.
3	Select a Product Category consistent with the Product Category on the Details tab of the PIW.
4	Select anExpense Type as Lease Incentive from the drop-down.
5	Select an Expense SubType of either Paid to Lessee or Paid on behalf of Lessee from the drop-down. Note: Accounting impact on the ROU Asset is the same for both options.
6	Enter a Payee. Payee must be listed as the Vendor on the lease.
7	Enter the Amount Paid.
8	Enter the Currency. This should be the same currency as the deal.
9	Enter the Payment Date.
10	Select Receipt from the drop-down in column Payment or Receipt. This will debit Non-Trade Receivable Clearing and credit Lease Incentive Receivable.
11	Import the PIW in the Bulk Import workspace using the Paid Related Expense tile.

Adding a Lease Incentive when doing a Modification

If a Lease Incentive was not present when the original deal was booked, you must Modify the deal to add the incentive. The incentive added to the modification will reduce the ROU Asset. If the Incentive was erroneously not included in the original booking, then the lease should be rolled back and then reimported.

Step	Action
1	Search for the deal using the Top Search Bar and Deal #.
2	From the Left NavBar, hover over the Record Event menu, then select Record contract modification, and then Record contract renegotiation to be taken the Modify Deal workspace.
3	Once in the Modify Deal workspace, complete all steps as necessary for the modification, including adjusting the number of payments to reflect the remaining term and adjusting any renewal options to the appropriate new Effective At month.
4	Go to the Summary tile.
5	Verify the Reasonably Certain EOT Option is correct in the After Modification column, change as necessary.
6	Enter your Reasonably Certain Holding Period in the After Modification column. Note: This should respect the remaining term for the modified deal.
7	Enter the appropriate Date of Modification. This should be the first day of a payment period and will be the new Lease Start Date of the modified deal.
8	Enter any relevant Comments.
9	Click Record Modification.
10	Click Ok on the warning box telling the user a new deal will be created.
11	You will be taken to the Accounting Classification workspace. Check the boxes for the standards to which you will be booking this lease. Note: the modified deal must be booked to the same ledgers the original deal was booked. For any circumstances where a lease is booked to a different ledger, this must be entered as a brand-new lease, not a modification.
12	In the Reclassify Effective drop-down, select the Modification Date and click Refresh Classification button.
13	Verify all information is correct. You may expand the Analysis by Category and Deal Characteristics sections for more information.
14	Click Save Accounting Classification.
15	From the Left NavBar, go to the Schedule workspace.
16	Go to the Expenses tile.
17	Click the plus sign to add a new Expense.
18	Select Lease Incentive from the Type drop-down.
19	Select Paid to Lessee or Paid on behalf of Lessee from the Lease Incentive Type drop-down. Note: Accounting impact on the ROU Asset is the same for both options.
20	Select a Payee from the drop-down. Payee drop-drown is generated from the available Vendors.
21	Select a Frequency of One-time from the drop-down.
22	Enter the First Payment Date. The date entered here will drive the recognition date of the incentive and the present value calculation.
23	Enter the Payment Amount.
24	Click Add.
25	Once all other schedule details have been entered, click Save.
26	On the Next Steps tile, select click the Book button to book the modified deal.
27	Verify the correct Ledger Date. The drop-down will include applicable dates based on the Date of Modification and open periods. Please note the Date of Modification cannot* be changed once the modification has been saved.*
28	Choose the appropriate ledgers to book the modified deal to. Please note, the modified deal must be booked to the same ledgers the original deal was booked. For any circumstances where a lease is booked to a different ledger, this must be entered as a brand-new lease, not a modification.
29	Verify the correct option is selected for Expected Disposition, change as necessary.
30	Verify the correct Expected Holding Period is entered, change as necessary.
31	Verify the correct IBR is populating. If you would like the system to use the default IBR according to remaining term, country and Lessee, click Use Default IBR.
32	Click Book.
33	You will be taken to Deal Summary. Once the booking is complete, you should click Deal Summary on the Left NavBar again to refresh/reload the page. Now you should see the ledgers and all relevant information for the modified deal.