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Covenants - Contract Module

The Covenants sub-tab allows you to record and track important information about contract covenants. If you enter key date data on a term or covenant, a key date record will be automatically created on the Key Dates page.

The End Date, Notice End Date, and Tickler Date generate email alerts and notifications in the system.

Important!

In order for a covenant to be incorporated into your ASC 842 / IFRS 16 / GASB 87 schedules, the following conditions must be met:

  1. The Effective Date must be within the date range of the lease accounting schedule being generated.

    Typically, the effective date of a cancellation, purchase, or residual value guarantee will be at the end of the lease accounting schedule.

  2. The Accounting Adjustment Type must have a value.

  3. The ASC 842 Schedule, IFRS 16 Schedule, or GASB 87 Schedule must be set to the same type as the rent schedule being generated.

  4. The Financial Amount must contain a value.

To navigate to the Covenants page:

  1. Navigate to Contract > Abstract Info > Covenants.

    Use the links in the Navigation Pane on the leftmost side of the page.

  2. Follow a procedure below.

ClosedAdd a Covenant

To add a covenant to your contract:

  1. Click Add Item.

    This displays in the Actions menu on the right side of the page.

    The Covenants page becomes editable.

  2. Follow a procedure below.

  3. Click Save Changes.

    This displays in the Actions menu on the right side of the page.

    The covenant is saved. It appears in the Contract Covenants List at the top of the Covenants page.

ClosedContract Covenants Section

To complete the Contract Covenants section:

  1. Select the covenant group from the Group field.

  2. Select the type of covenant from the Type field.

    Types of covenants could include (but are not limited to) cancellation, co-tenancy, and permitted use.

    It is our best practice recommendation to always specify the Group and Type of a covenant to simplify reporting.

  3. Select the status of the covenant from the Status field.

  4. Select the category of the covenant from the Category field.

    The category is typically used to indicate whether this is part of the original agreement or an amendment.

  5. Enter the effective date of the covenant in the Effective Date field.

    You can also click Calendar A small button with a picture of a calendar on it. to open the Date Picker and select the appropriate date.

    The effective date should automatically populate with the effective date that you entered in the Step One: Contract Summary Setup Page procedures.

    Typically, the effective date of a cancellation, purchase, or residual value guarantee will be at the end of the lease accounting schedule.

    Note:

    The Amendment is not relevant when you initially create your contract. However, if you are adding covenants to your contract and you want to associate a covenant with an amendment, you would select the amendment from this field. To learn how to create an amendment, see the Add an Amendment procedures.

ClosedAbstract Information Section

To complete the Abstract Information section:

  1. Select the Covenant Exists? check box to indicate whether the covenant currently exists in the existing lease.

    A common use case for this check box is for customers who implement standard covenants for their contracts. However, these customers may have existing leases that do not have some of these standard covenants. These standard covenants could be applied to their contracts on a global level at implementation, but the customer could indicate that the covenant does not currently exist on a specific contract by clearing the Covenant Exists? check box. Then, when it is time for the customer to renegotiate the contract, they can quickly and easily see which covenants should be negotiated in the new contract.

  2. Enter the section of the lease document that this covenant is from in the Section field.

  3. Select the Standard Language check box if the language of the covenant is standard for all of your leases.

  4. Enter the language of the covenant in the field below the Covenant Exists? check box.

  5. Enter the form or version number in the Form / Version # field.

  6. Enter the rentable area in the Rentable Area field.

  7. Select the unit of measure for the rentable area from the Area Unit field.

  8. Do one of the following:

    • If the covenant type is set to a value OTHER than Residual Value Guarantee and there is a financial amount associated with this covenant, enter the amount in the Financial Amount field.

      This amount will be pulled into your accounting assumptions and accounting schedule if the covenant has one of three accounting adjustment types: Purchase Option, Cancellation Option, or Residual Value guarantee.

    • If the covenant type is set to Residual Value Guarantee:

      1. Enter the total value of the residual value guarantee in the Total Residual Value Guarantee field.

      2. Enter the portion of the residual value guarantee which is guaranteed by a third party in the Portion Guaranteed by 3rd Party field.

      3. Enter the financial amount of your residual value guarantee in the Financial Amount (Accounting Adjustment Value) field.

        This amount will be pulled into your accounting assumptions and accounting schedule if you also have Accounting Adjustment Type set to Residual Value Guarantee.

        Note:

        To use this functionality, you must create and use a covenant type with the name Residual Value Guarantee.

  9. If your company leaves option values in the liability as a close-out liability value, select the Hold Amount in Rent Schedule Liability check box.

    This means that in the final period of the schedule, the residual value of the liability balance will not be zero but will instead be the sum of these likely or activated options.

    Important!

    This setting is ignored by Lucernex if the Effective Date of the covenant is not the last day of the schedule.

    Note:

    This functionality does not apply to Straight Line schedules.

  10. If this covenant is related to an accounting adjustment—such as a purchase option, cancellation, or residual value guarantee—select the appropriate accounting adjustment type from the Accounting Adjustment Type field.

  11. If you selected an accounting adjustment type in step 10 above, select the ASC 842 schedule that adjustment type will be associated with from the ASC 842 Schedule field.

  12. Do one of the following:

    • (IFRS firms only) If you selected an accounting adjustment type in step 10 above, select the IFRS 16 schedule that adjustment type will be associated with from the IFRS 16 Schedule field.

    • (GASB firms only) If you selected an accounting adjustment type in step 10 above, select the GASB 87 schedule that adjustment type will be associated with from the GASB 87 Schedule field.

  13. If you will be allocating a percentage of a covenant expense to a secondary schedule, enter the allocation percentage in the Secondary Schedule Allocation field.

    Learn more about Secondary Schedule Allocations.

  14. If you want to use a currency type for this covenant that is different than the contract-level currency, select the currency type from the Currency field.

ClosedKey Dates Section

Completing this section will create a key date that will appear on the Key Dates page of your contract.

Note:

If today is after the Last Notice Date but before the Coverage Period End Date, Lucernex will add one year to the following fields:

  • Earliest Notice End Date

  • Tickler Last Notice Date

  • Last Notice Date

  • Coverage Period Begin Date

If the current year is a leap year, the system will update the above fields accordingly.

To complete the Key Dates section:

  1. Select the key date group of the key date you want to associate with your covenant from the Group field.

    Create a new group or category.

    Groups are the first level of organization in Lucernex. Groups are the parents of types, and grandparents of categories. Groups, types, and categories are used to simplify reporting.

  2. Select the type of key date from the Type field.

    If you want to create a new type, follow the Add a Type procedures.

    Types are the second level of organization in Lucernex. Types are the children of groups, and parents of Categories. Groups, types, and categories are used to simplify reporting.

  3. Enter a description of the key date in the Description field.

  4. Enter the begin date in the Coverage Period Begin Date field.

    You can also click Calendar A small button with a picture of a calendar on it. to open the Date Picker and select the appropriate date.

  5. Enter the end date in the Coverage Period End Date field.

    You can also click Calendar A small button with a picture of a calendar on it. to open the Date Picker and select the appropriate date.

    Note:

    The Action fields and the Notice check boxes will be used when you decide to take action on an option, and when notice has been sent or received.

  6. Select the frequency that this option will become available from the Frequency field.

  7. If you selected Annually from the Frequency field, enter the date the first event will take place in the First Event Begin Date field.

  8. Enter the number of days, weeks, months, or years in advance that you can take action on the key date in the Earliest Notice Period fields.

    The Earliest Notice Period fields are used to calculate the value of the Earliest Notice Date field, using this formula:

    Earliest Notice Date = Coverage Period Begin Date - Earliest Notice Period - 1.

  9. Enter the number of days, weeks, months, or years you have to submit notice after the notice period begins in the Last Notice Period fields.

    A notice is a warning that the key date is imminent. The system will automatically calculate the value in the Last Notice Date using this formula:

    Last Notice Date = Coverage Period Begin Date - Last Notice Period - 1

  10. Enter the earliest date you can give notice in the Earliest Notice Date field.

    You can also click Calendar A small button with a picture of a calendar on it. to open the Date Picker and select the appropriate date.

  11. Enter the length of the tickler period using the Tickler Period fields.

    A Tickler is a friendly reminder that the key date is coming due.

    The system will automatically calculate the value in the Tickler Last Notice Date using this formula:

    Tickler Last Notice Date = Notice End Date - Tickler Period

    However, the Tickler Last Notice Date will not automatically update after being initially calculated unless you click Save.

    Note:

    If you set the Frequency field to Annually and the Coverage Begin Date, Coverage End Date, First Event Begin Date, and Last Notice Period fields are populated, the Key Date Event table will appear. This table allows you to see key dates over the course of the coverage period, and updates when these dates have passed.

  12. Enter any comments in the Comments field.

ClosedDocument Management Section

To complete the Document Management section:

  1. To add supporting documentation to your covenant:

    1. Click Add Documents.

    2. Upload a Document.

  2. Enter the page where the covenant is referenced in the Page field.

  3. Enter the paragraph where the covenant is referenced in the Paragraph field.

  4. Enter the line where the covenant is referenced in the Line field.

ClosedEdit a Covenant

To edit a covenant:

  1. Select the covenant you want to edit from the Contract Covenants List at the top of the Covenants page.

    The covenant’s data populates in the fields on the page.

  2. Make your changes.

  3. Click Save Changes.

    This displays in the Actions menu on the right side of the page.

    The page refreshes. Your changes are saved.

ClosedDelete a Covenant

A member must have admin privileges and have Edit access under Admin > Manage Security > Field Security > Summary Page Buttons in order to delete contracts or sections of contracts. See your Lucernex System Administrator for details.

To delete a covenant:

  1. Select the covenant you want to delete from the Contract Covenants List at the top of the Covenants page.

    The covenant’s data populates in the fields on the page.

  2. Click Delete Item.

    This displays in the Actions menu on the right side of the page.

    A dialog opens, asking you to confirm your choice.

  3. Click Save Changes.

    The covenant is deleted. It no longer appears in the Contract Covenants List.

ClosedTake Action on a Covenant's Key Date

These procedures can also be performed from the Key Dates page.

To take action on a covenant's key date:

  1. Select the covenant you want to take action on from the Contract Covenants List.

    The details of the covenant populate on the page.

  2. Select the Notice Sent check box if notice has been sent for this action.

  3. Select the Notice Received check box if the notice has been received for this action.

  4. Select the action you took from the Action field.

  5. Enter the date you took action in the Action Date field.

    You can also click Calendar A small button with a picture of a calendar on it. to open the Date Picker and select the appropriate date.

  6. Select the Action Complete check box if the action has been completed.

    Important!

    The system will continue to send email alerts and system notifications about the End Date, Notice End Date, and Tickler Date until the Action Complete check box is selected.

  7. Enter any comments in the Comments field.

  8. Click Save Changes.

    This displays in the Actions menu on the right side of the page.

    The page refreshes. Your changes are saved.

ClosedCreate a RE Transaction from a Covenant

To create a transaction:

  1. Navigate to Contract > Abstract Info > Covenants.

  2. Select the covenant that you want to use for your transaction.

  3. Click RE Transaction Wizard.

    This displays in the Actions menu on the right side of the page.

  4. Complete these fields:

    • Scenario Name

    • Deal Type

    • Use Existing RE Transaction?: Select this check box if you want to use this covenant to create a scenario on a preexisting transaction.

  5. Do one of the following:

    • If you selected the Use Existing RE Transaction check box, select the check box next to the RE transaction you want to use.

    • If you did not select the Use Existing RE Transaction check box, enter a name for the transaction in the Transaction Name field.

  6. Click Create RE Transaction.

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