Scenarios in Amendment

Changes in lease fee

The most common modification in lease agreement is the change in lease fee. Lease Fee can be changed in the following ways:

1. Changing the lease fee column

This is the easiest method of changing the lease fee but it has certain limitations.

Limitations / when it can be used:

1. The revised lease fee will get reflected in the calculations from the next payment date after the Applicable Date for Changes. Thus, it may not work for cases where the negotiation for change in lease fee has been done months prior to the actual change.
   For e.g. the negotiation could be done in Apr 2020 for a change in lease fee from July 2020. The impact needs to be taken in June’20 quarter and thus, the applicable date would be 1st April 2020. However, the lease fee would be amended from April’20 itself which is not the intention.

2. The fixed % or fixed amount escalation period would be reset from the Applicable Date for Changes. In the above example, the lease commenced in July 2016 and thus, the annual escalation of 5% will happen in July of each year. If a negotiation has been done in April 2020 for change in lease fee, it is not reasonable to assume that a 5% escalation will be applicable in July 2020. Hence, the escalation will now happen in April of each year starting from April 2021.
   If that is the intention, you can adopt this method. Similarly, if there are no further escalations, you can delete the Frequency and Type of Escalation. However, this method won’t work if the escalation needs to happen as per the original schedule viz. July of each year or a different escalation pattern altogether.

2. Routing changes through user input escalation

This method ensures that all types of changes in lease fee including subsequent escalations are addressed. However, it may be cumbersome especially when there are escalations at a fixed frequency which will have to be replicated in the user input escalation table.

3. Routing changes through ad hoc payments/ receipts

This method can be used when a change in lease rental is affecting only a month or two and is not a permanent change in the lease schedule. For e.g. rent waiver for a couple of months on account of Covid-19.

4. Change in lease term

For changes in lease term, please change the “Date Till Reasonably Certain” in the Lease Details tab and the “Useful Life of Asset” in the Agreement & Asset Details tab. While the Extension Option and Termination Option tabs can be used, this is a much easier way of doing it. It also ensures that complete control over the lease can be maintained through one tab.

5. Other Changes

Any other changes in the lease such as change in Company to which the lease belongs to or the cost centre does not necessitate an amendment, if the change is being made within the period as defined in the Lease Parameter screen.

However, if these changes are being made in a subsequent period, an amendment has to be created as the Edit button is not active to prevent back-dated changes.
In such a case, add an Amendment, go to the required field and make a change. However, please do not click Run as no changes need to be made in the Lease Liability schedule on account of such change.

Do note that changing these fields has a retrospective impact. The tool will not provide report for that lease under Company A till the date of change and in Company B from the date of change.