Performing Lease Modifications

Lease Administrators and Accountants can perform a lease modification to modify fields that will have a financial impact on the initial contract, such as:

  • Changing the contract rate
  • Adding a term and condition
  • Adding a new lease component

    Note: The new lease component will inherit everything from the contract (such as the contract interest rate). If the lease component requires different information, it should not be added to the current contract, and should be part of a new contract instead.

During a lease modification, a full draft copy of the contract, lease components, and activation groups is created, and all of these objects can be modified. While the draft is open, the master version of the contract is still active, and postings and unit replacements can still be performed.

Following a lease event, the Incremental Borrowing Rates (IBR) for the activation group can updated with the rates configured the in the Nakisa AdminConsole, based on the selected effective date. The default setting of the "Update IBR" checkbox depends on the lease event type, but can be overridden by users:

  • Lease Modifications: "Update IBR" is checked by default.
  • Casualty: "Update IBR" is checked by default.
  • Reassessment with "Early Buyout" or "Early Termination" Reason Code: "Update IBR" is checked by default.
  • Reassessment with "Reassessment" Reason Code: "Update IBR" is unchecked by default.

When a user opens a contract that has an open draft, the button Open Draft appears at the top of the contract. The objects that can be changed in the draft are indicated by the yellow header.

Once the contract has been modified, the following steps must be followed to merge the draft version back to the master version of the contract:

  1. The contract must be sent for approval and approved.
  2. The activation group assessment must be sent for approval and approved.
  3. The classification must be reconfirmed (but cannot be changed).
  4. At the contract level, the assessment must be completed.
  5. The draft of the contract, lease components, and activation groups will be merged back to the master version. That function will push different GL posting if the duration in terms is decreased from the original contract.

If at any point the draft is no longer needed, it can be deleted.

Note: While a draft is open, you cannot open another draft (i.e., users will be blocked from doing a contract change, reassessment, or casualty) or enter a unit replacement.

For an illustrative example of a lease modification scenario, refer to Scenario 1: Lease Modification to Perform an Early Termination.

When there is a negative ROU delta amount following a reassessment to add a Reduction term, the application uses a weighted average exchange rate. If the amount is positive, the application uses the spot rate to convert the amount to company and group currencies. See Weighted Average Exchange Rate for more information.

Note: In most cases, users cannot merge a draft when the changes have no financial impact. If you require this type of lease modification to be allowed, contact your system administrator.

If a lease modification event needs to be reversed, any postings done after the event effective date must be reversed, and a new event created to undo the changes made by the original modification. For example, a Reduction term was added during a lease modification with an effective set to June 1st, and the postings for June, July, and August were executed. To reverse this event, reverse all of the postings for June, July, and August, and then perform an activation group reassessment to unselect the Reduction term with the same effective date of June 1st. If a new lease component has been incorrectly added to the contract and contract terms have also been modified, you will have to start the contract again by reversing the postings, copying the contract, fixing the contract terms and removing the erroneous lease component.

To perform a lease modification:

  1. Open the contract.
  2. Click Context Menu > Lease Modification.
    • Set the Amendment Date to represent the date the amendment took place. Note that this field can be set to any date, and does not impact calculations or reporting.
    • In the field Reason Code, select the reason why the contract needs to be changed.

      Note: The Reason codes "Decrease Lease Term" and "Decrease Asset Value" must be used properly, because they may trigger different financial adjustment postings to the asset. See Decrease Lease Term or Asset Value for more information.

    • To change the Contract Rate for the activation group, make sure that the Modify Contract Rate checkbox is selected. You must then enter the new rate in the Contract Rate field. For lease modifications, Modify Contract Rate is checked by default.

      Note the following:

      • Setting the Contract Rate field to 0 means that the IBR value (as of the selected Effective Date for the event) will be used instead.
      • If the contract is using IBR values, then you can choose to update the IBR value or not when the activation group is sent to assessment.
      • Contract Rate cannot be set if the contract is a non-lease service contract, short term lease, or low value lease (set in the Lease Type field).
    • Enter a Description.
    • Click Submit. The draft of the contract is created and loaded automatically.
  3. Update the contract and lease components as required. Note that not all fields are editable.
    • To modify the amount of a Base Rent term, add either a Supplemental term or a Reduction term.
    • The Non Lease Amount field cannot be modified for Prepaid Rent, Initial Direct Cost, and Incentive - Cash Amount terms.
    • If you are exercising a Cash Incentive term and payments are in arrears, any other required changes with financial impact (e.g., exercising another term or changing the Contract Rate or IBR) must be performed in a separate event. 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).

    Note: You cannot delete a term that has already started.

  4. Go through the contract approval process.
  5. Maintain the activation groups, as required.
  6. Assess the activation group.
    1. After clicking Send to Assessment, you must select the Effective Date, which indicates the first day where the modifications will be implemented. The Effective Date cannot be before the Effective Date of a previous event, and can only be in a month during the lease term of the contract that does not have any payments, accruals, or asset depreciation posted. If any posting documents have been generated, all previous periods are unavailable. If you are exercising a term, the Effective Date must be before or equal to the ROU Start Date of the new term.
      • When payments are in advance, the possible Effective Dates are on the same day of the month as the base rent payment date (e.g., only the 1st of the month, or only the 10th of the month).
      • When payments are in arrears, the possible Effective Dates are one day after the base rent payments.

      Note: If you are exercising a Cash Incentive term, the Effective Date of the event and the First Payment Date of the term must be set to the first period that does not have any postings or the first valid date after an event was performed on the contract. You must also post all transactions up to the Effective Date. Additionally, the Effective Date must always be on the same day of the month as the base rent payment date (even when payments are in arrears).

    2. Modify the Posting Date or Document Date, if required. Note that by default, the Document Date is set to the Effective Date.
    3. If required, change the setting of Update IBR. If checked, the application selects a new IBR based on the Effective Date and the IBR rates configured in the Nakisa AdminConsole.
      • This checkbox appears if the contract is using IBR (i.e., no Contract Rate is set).
      • If the contract is classified as an ASC 840 Capital lease, the checkbox is always showsn (because even if a Contract Rate is defined, the lower of IBR and Contract Rate is used).
      • If the active contract has a Contract Rate defined but in the event it was changed to 0, then the checkbox appears and cannot be unchecked because the application must look up a new IBR.
    4. Click Submit.
  7. Review the adjustment postings that will be done once the reassessment is complete.
  8. The Accountant must click Confirm Classification, even though the selected classification cannot be changed.

    Note: If the suggested classification by the system changes, the Accountant can choose to do an early termination on the activation group (with a Termination Option term), and copy the contract and lease component to create a new activation group with the new classification.

  9. Return to the contract. Click Context Menu > Complete Assessment.
    • If users have posted payments, accruals, or asset depreciation in the master version of the contract past the selected Effective Date, then the draft cannot be merged back to the master, and a Sync report with the errors is generated. It can be accessed from the Notification Center, or by clicking .
    • In most cases, if there is a conflict between the draft and master versions, the draft will have to be deleted and started again.
  10. If the system is in standalone or hybrid mode, one of the following options are available to complete the posting process: 

    • Update the status from "Posted (Internal)" to "Posted" via transaction Excel imports and exports.
    • If an SAP Posting Bot is configured to run with the application, it will regularly transfer internal documents to SAP. The status changes from "Posted (Internal)" to "Posting (External)".
      • If the posting to SAP is successful, the status then changes to "Posted (External)".
      • If the posting to SAP fails, the status changes to "Failed (External)". The next time the posting bot runs, it will pick up the failed postings to reattempt the posting. If required, click Reverse to reverse the internally generated document (e.g., if the GL account configuration needs to be changed).

      Note: For details about documents posted by the SAP Posting Bot, copy the Document number and enter it in the following URL (where <hostname> is the Web server name of your current Nakisa Lease Administration instance):

      https://<hostname>/leasing/app/proxy/jebot/report/<document-number>/

To view the master version of the contract:

  1. If at any point you would like to view the master version of the contract, click Context Menu > View Master.
  2. To return to the draft version, click the button Open Draft.
  3. For information about the draft and when it was created, hover over "Version" in the header.

To delete the draft version:

  1. If the draft version needs to be deleted at any point, open the draft and navigate to the contract.
  2. Click Context Menu > Delete Draft, and click Yes to confirm the deletion.

To reverse a lease modification event:

  1. Reverse any postings made after the lease modification event effective date.
  2. Add a new event that undoes the changes made in the original lease modification, and use the same effective date. The new adjustment postings will cancel out the original postings.

    Note: If the effective date is in a closed period, change the Posting Date to be in an open period.

See also:  

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