NetLease - Complete Lease Modification
Use Case: The Complete Modification is the best way to modify your lease if you need to update both your lease payments and your non-lease payments in one modification. The Complete Modification similar to the Standard Modification in NetLease -- with the difference being that a standard modification can only modify lease payments but is unable to adjust non-lease payments. The Complete Modification can adjust fields such as lease payments, non-lease payments, discount rates, and lease terms.
Prerequisites: Lease modifications must be entered in NetLease within the month and prior to month-end amortization and reclass entries. Additionally, because a lease modification cannot be undone without significant effort, before running a lease modification, it is best practice to review the lease entries and confirm the changes you intend to make to the term, discount rate, lease payments, and non-leas payments
Effective Date: Note that the effective date is the date when both parties agree to the lease modifications. Therefore, the month in which the agreement is obtained is most likely the date that it should be recorded within NetLease.
Step By Step Process:
- Navigate to the lease record where the modification is to be recorded and select the Modify Lease button by going to NetLease > Lease Management > Lease List and then select View on the lease that is being modified
- After selecting Modify, the Modification Type will default to Standard Modification (LL Remeasure)
- From the Modification Type dropdown, select Complete Modification (LL Remeasure + Non-Lease Payment)
- Note that the fields are prepopulated with the current lease attributes, including the payment schedule
- Update the following as necessary for the lease modification (refer to the guidance for appropriate adjustments per your modification type)
| Field | Description | Example |
| Effective Modification Date | Defaults to the first period without amortization recorded. To update to a later period, monthly journals will have to be run up to that point – please consider carefully before skipping ahead. | 03/01/2023 |
| Remaining Lease Term/Lease Term | Adjust the remaining or total lease term for any extensions or reductions in the lease term | 10 or 24 |
| Lease End Date | Adjust to the updated lease end date for any extensions or reductions in the lease term | 12/31/2023 |
| Discount Rate | Update the incremental borrowing rate to present value the lease liability going forward | 5.0% |
| Modification Note | Provide a brief description of the basis and adjustments made with the modification for subsequent support and reference | Exercised option for 1 year extension |
| Next Uplift Date | Adjust the date in which any payment uplifts will occur | 5/31/2023 |
| Uplift Frequency | Adjust the frequency in which a payment uplift will occur | Monthly |
| Uplift Percentage | Adjust the uplift percentage for the modified payment increase | 6.0% |
| Adjusted Payment Schedule | Update the payment schedule for any changes to the expected lease payments and non-lease payments causing the modification | 6,000 |
Here is an example of how a payment schedule is modified to account for an increase in lease payment amounts as of a certain date:
- After double-checking updates and inputs for the modification and remeasurement, click Modify Lease
- You will be navigated back to the lease record and you can refresh and monitor the Processing Modification… notification until the modification is complete and you can see the modification and subsequent adjustment to the go-forward schedule entries
- The Effective Modification Date Period will be split into two entries, one to record the GL impact of the modification and one to record the normally scheduled amortization
- Click on the hyperlink to the NetLease Modification entry to see the adjustment to the lease liability and offset to the ROU Asset
- A historical record of the modification will be saved to the Modifications subtab of the NetLease Lease record with details from before and after the modification
- Clicking into the ID number link will reveal the lease information both before and after the modification