NetLease - Allow Initial Direct Costs, Prepaids, and Lease Incentives on Modifications

Overview

NetLease now supports the ability to include initial direct costs, prepaids, and lease incentives as part of a lease modification. This new setting allows users to update the Right-of-Use (ROU) asset balance during a lease modification to reflect additional financial activity—such as costs incurred with a lease renewal—directly within the modification workflow.

Prerequisites

• The lease has already commenced and has journals posted.

• The modification type is either Standard or Complete.

• Users have permission to access NetLease settings and perform lease modifications.

• The feature must be manually enabled in NetLease Settings.

Step-by-Step Process

1. Enable the Feature

   • Navigate to NetLease > NetLease Setup > System Setup.

   • Locate and check the box labeled Allow direct, initial direct cost, prepaids, and lease incentive updates upon lease modification.

   • Click Save. View full size
     

2. Initiate a Lease Modification

   • Open a commenced lease that requires modification.

   • Click the Modify button.

   • The lease should have existing posted journals and be eligible for modification.

3. Enter New Terms and Additional Costs

   • On the Lease Modification screen, new fields will appear for:

     • Initial Direct Costs

     • Prepaids

     • Lease Incentives View full size

   • Enter the appropriate values (e.g., $2,000 for initial direct costs incurred with a renewal).

   • Update lease terms as needed (e.g., extend lease from 12 to 24 months).

4. Process the Modification

   • Click Modify Lease to apply changes.

   • The system will process the updated lease terms and incorporate the additional costs into the modification journal entry.

5. Review the Journal Entry

   • Once processed, navigate to the updated Lease Modification Journal.

   • The journal will:

     • Debit ROU Asset for both the updated liability and any new costs.

     • Credit Lease Liability for the full modified amount.

     • Post the cost additions (e.g., $2,000) to the ROU Clearing Account. View full size
       

6. Clear the ROU Clearing Entry (Post-Payment)

   • When the actual payment for the cost (e.g., initial direct cost) is made:

     • Debit: ROU Clearing Account

     • Credit: Cash

Limitations/Things to Be Aware Of

• This feature is only available for Standard and Complete lease modification types.

• The new fields will not appear unless the setting is enabled in NetLease Setup.

• Costs added during the modification do not trigger cash entries until the actual payment is made and manually posted against the ROU Clearing Account.

Troubleshooting

• New cost fields not visible:

  • Ensure the setting is enabled in NetLease Setup.

  • Refresh the Lease Modification screen after enabling.

• Unexpected journal balances:

  • Verify amounts entered in the new fields match expected incurred costs.

  • Confirm the journal is posting to the correct ROU Clearing account.