Incentive Terms

Lease Administrators and Accountants can add incentive terms for reductions of rental expense over the lease term. The incentive types are:

  • Free Rent: No lease amount payments are made for the specified period within the base rent or extension term (but you still accrue interest expenses in the free rent periods). Note that non-lease payments can still be made, and the specified amount in the free rent term will be used to reduce the base rent or extension non-lease amount.
  • Cash Incentive: A non-lease amount that will reduce the asset, with no impact on the liability. Only one Cash Incentive term can be added in each period. Note that any Cash Incentive term in the first period of the lease must be added at inception (and cannot be added through an event).

To add an incentive term:

  1. Load the lease component, and click Terms & Conditions in the left-panel.
  2. Click Add New TermIncentive.
  3. In the Term Type field, select "Incentive - Free Rent" or "Incentive - Cash Amount".
  4. By default, the selected Term Type populates the Name field. Modify it if required.
  5. In the field Lease Amount/Unit:
    • Free Rent: This field does not need to be set. The base rent or extension amount for the selected period will be free.

      Note: This field is automatically set once you set the First and Last Payment Date fields. Note that if the base rent or extension lease amount is not the same throughout the free rent period, you must define multiple free rent terms.

    • Cash Incentive: This field is not used.

    Note: If the contract is a non-lease service contract (set in the Lease Type field), lease amounts cannot be entered.

  6. In the field Non-Lease Amount/Unit:
    • Free Rent: Enter the total reduction amount (per unit) related to services, maintenance, or any other kind of accommodation fee, according to the Amount Frequency. You can distribute the nonlease amount for different GL categories once the term has been submitted.
    • Cash Incentive: Enter the cash incentive, which will reduce the asset value. The amount is posted against the asset once the activation group is activated. Note that this amount cannot be greater than the NBV.

    Note: If the contract is a short term lease or low value lease (set in the Lease Type field), non-lease amounts cannot be entered.

  7. The Total Amount field displays the sum of the lease and non-lease amounts entered.
  8. The Contract Currency field shows the value that was selected for the MLA or contract.
  9. For the Amount Frequency field:
    • Free Rent: Selecting "One Time" or "Month" means that the even if there is a partial month (due to the Start Date and First Payment Date not being on the same day), the payment amount is always equal to the Total Amount. If it is set to "Day" or "Year", the Total Amount will be pro-rated based on the number of days in a partial month or year.
    • Cash Incentive: This field is automatically set to "One Time".
  10. The Payment Frequency field indicates how frequently payments will be made.
    • Free Rent: This field is automatically set to the same frequency as the base rent or extension term.
    • Cash Incentive: This field is automatically set to "One Time" because the term can only span one period.
  11. Specify the field First Payment Date as follows:
    • Free Rent: Select the first (base rent or extension) payment that will be free. It must be set to the same day of the month that was selected in the base rent term.
    • Cash Incentive: This field is automatically set to the first day of the first period that does not have any payment, accrual, or depreciation postings.

      Note: If a Cash Incentive term is added after the contract is activated and any event (such as a reassessment, lease modification, or indexation) has been previously performed, the First Payment Date is set to the first valid date after the event.

  12. Specify the field Last Payment Date as follows:
    • Free Rent: Select the last (base rent or extension) payment that will be free.
    • Cash Incentive: This field is automatically set relative to the First Payment Date.
  13. The GRV/Unit field cannot be set for an incentive term. 
  14. For the Term (months) and Term (days) fields:
    • Free Rent: This field is automatically set, based on the first and last payment dates selected.

      Note: Due to the calculations, the Term may not represent the exact number of free rent payments. The First and Last Payment Date fields determine which payments are free.

    • Cash Incentive: This field is automatically set, based on the first and last payment dates selected.
  15. The Expected T&C Start Date is automatically set to the First Payment Date.
  16. The Expected T&C End Date is automatically set to the Last Payment Date.
  17. The Lessor Notification Date cannot be set for an incentive term.
  18. If a Non-Lease Amount was entered, the non-lease amount distribution to one or more GL categories must be defined in the "Manage Non-Lease Amount Distribution" section that appears automatically at the end of the form.
    1. Select whether the distribution will be done by amount or percentage in the Portion drop-down.
    2. The GL categories (defined in the Nakisa AdminConsole) are listed under Non-Lease Amount Distribution. Click on the required category row, and enter the Non-Lease Portion.
  19. Click Submit.

See also:  

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