10 Ways Your Real Estate Administration and Lease Accounting Applications Interact

Many companies have an integrated workplace management system or a real estate administration application that serves as the system of record for all property leases. Much of the leasing data needed to perform real estate administration is also needed to perform proper lease accounting. Rather than manually entering data into both systems, the best approach is to establish integration between the real estate administration application and your lease accounting system. During the term of a 10-year, 20-year, or 30-year property lease, a number of changes can occur that might impact the accounting.

Below are 10 scenarios in which real estate administration and lease accounting applications need to work together:

1) New Leases

When a new property lease is established, the details of the contract should be shared between the real estate administration and lease accounting applications. Schedule-level information should be synchronized, including the landlord/lessor, property address, commencement date, payment frequency, contract length, base/variable rent, adjustment frequency, escalation cap, and end-of-term options.

2) Changes to Rent Schedule

Many real estate leases are priced with both base and variable rents. The variable component may be based upon last year’s sales performance. Alternatively, the variable rent may need to be periodically adjusted based upon changes to a market index such as the CPI. The reason for the rate change, the effective date, and the new payment amount will need to be published to the lease accounting system.

3) Changes to Employee Assigned

The employee within the corporate real estate group responsible for the property may change during the term of the lease. It is unlikely that the person who was responsible for managing the property at the start of the lease will be in the same job (or even the same company) at the end of the lease. In these scenarios, the employee assigned to manage the property should be updated in the lease accounting system. Having accurate, up-to-date employee assignments in the lease accounting application ensures that the appropriate individuals are being contacted when an attestation and audit scenario arises.

4) Changes to Property Management Firm

Your company may decide to change the property management or commercial real estate firm responsible for the building. It is unlikely that the firm who was responsible for property management at the start of a 30-year lease will have the same responsibility at the end of the lease. In these scenarios, the organization assigned to manage the property should be updated in the lease accounting system. Having accurate, up-to-date property management information in the lease accounting application ensures that the appropriate individuals are being contacted when an attestation and audit scenario arises.

5) Floor Space Expansion or Contraction

If you expand or reduce the amount of floor space being used in a particular property there may be a need to reassess and modify the accounting. Details such as the original amount of floor space leased, new amount of floor space leased, effective date of change, new payment amount, and new lease term should be synchronized between the real estate administration and lease accounting systems.

6) New Sub Leases

If you decide to sublease part or all of a building to a subtenant, then the details of the contract should be published from the real estate system to the lease accounting application. Schedule-level information should be synchronized, including the subtenant (lessee), property address, floor number, commencement date, payment frequency, contract length, base/variable rent, adjustment frequency, and end-of-term options.

7) Changes to End of Lease Plans

The initial measurement of a real estate lease under the new standards requires you to consider plans for the property at the end of term. Leases that are expected to be renewed will be accounted for differently than those that are expected to be terminated. If the long-term plans for a specific property change during the term of a lease there may be a need to reassess and modify the lease accounting. If these types of long-term changes are recorded in the real estate administration system, there should be a trigger to share the information and initiate the appropriate reassessment workflow in the lease accounting applications.

8) Changes to Sub Leases

Subtenants may want to expand, contract, renew, or terminate subleases. The subtenant name and effective dates of these events, along with the corresponding changes to payment frequency, contract length, base/variable rent, and end-of-term options, should be shared between the real estate administration and lease accounting systems.

9) Lease Renewals

When a property lease is renewed, the new terms need to be published to the lease accounting application. The real estate system should publish the property address to be renewed along with the landlord/lessor, renewal term, commencement date, payment frequency, contract length, end-of-term options, and base and variable rent payments.

10) Lease Terminations

When a property lease is terminated, the real estate system should notify the lease accounting application of the event. Details, including the property address, effective date, and known end-of-term fees, should be synchronized between the two applications. At the end of the lease and upon the fulfillment of contractual obligations, security deposits or other funds might be collected from the lessor. These details should be shared between the real estate lease administration and lease accounting systems.

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Real Estate Administration Systems and Your Lease Accounting Application