Handling Rent Emergencies in Lucernex

The following expanding sections contain questions from Accruent customers posed to our lease subject matter experts in our COVID-19 Webinar on April 14, 2020.

• To watch the webinar, click here.

• To view the slide deck presented in the webinar, click here.

• Can Accruent open a Blog so Tenants could chat with one another?

  Working with Product to determine if a new category could be added to the Accruent Access User Portal Forum.

• Who should we reach out to If we require assistance performing bulk updates to our rent schedules? Will a statement of work be required?

  You can reach out to your Customer Success Manager, your Professional Services Champion, or you can submit a Support ticket to [email protected] and please note "PS Assistance". A statement of work will be required if the level of assistance is beyond support assistance, requiring professional services assistance.

• What happens if the landlord forgives payment for three months but we then extend the lease three months? Does that qualify for relief from FASB or does the extension require this being treated as a modification and a resulting remeasurement / recalculation?

  This sounds like a remeasurement in the 1st month of forgiveness: new discount rate, term, and so on.

• Do we need to modify our 842 schedules?

  Not initially, although you will want to make sure that your current liability balance—including the held rental payments—is your total Lease Liability, and that your ROU Asset continues to decrease. Once a firm answer is known, total deferral and re-payment terms, then you will clean up the transaction. This is a suggestion / recommendation at this point based on what we know from the FASB / IASB, and it never hurts to ping your auditor, although again it may be too early for them to say.

• How do you decrease asset and hold liability in Lucernex?

  It is not possible to do this at this time. Changing values requires recalculation, so until that time, adjustments may best be made by manual journal entries.

• You mentioned that the lease liability would remain the same without payments. Wouldn't the operating lease liability actually increase with the accretion of interest over time?

  Yes. Technically it should increase as a result of the lack of payments; however, the interest impact is likely to be small.

• In situations where we defer rent payments and extend the lease term by an identical amount - for example, if we agree to pay zero rent for April / May / June, but extend the lease by three months in order to make these payments to the landlord - do you believe that we can take advantage of the FASB's "variable lease expense" expedient? Or, would you consider this a lease modification?

  This is not a variable expense situation as it seems you would have gained an additional "asset", therefore based on the guidance I would think this will be a remeasurement or additional asset added to the contract.

• If you receive rent forgiveness and use a variable expense account to track, would you have to change the SL rent schedules? Or would you restart once the rent forgiveness ends?

  This sounds like it would be treated as if the forgiveness was always part of the lease. You would recognize negative variable rent expense and I further think you would recalculate the schedule if the rents were not flat over the term of the leases, but best to check with your auditor.

• I work for a larger retailer with 500 leased locations. In our negotiations with our landlords, many are allowing for deferral during entire closure period, but the amendments won't be finalized until the re-opening date is known. What is best practice in this situation as far as IFRS 16 schedules - wait until an amendment is signed, or begin estimating lease re-open dates?

  Plan today, try some scenarios in your Train environment, but only implement once an agreement is signed, because it might change all the way up to the last minute.

• In case we hold rent for April, IFRS 16 schedule will not tale [sic] the payment. My question is if the depreciation expense and the interest expense will appear in the IFRS 16 schedule or changed compared to the previous IFRS 16 Schedule?

  It needs to be determined whether the change is in fact a lease modification. That determination will result whether a remeasurement is needed or not.

• Have you considered making whoever changes the flag to recalculation required as a reportable field? Knowing who made the LX change that "flipped the flag" could be helpful in this situation (if a lot of changes are required) as well as others.

  This is already available to you through a report of the Audit Log.

• How will changing the timing of the payments (i.e deferrals) affect the lease liability / ROU asset balance since the PV changed as a result? Won't these affect the schedules?

  The ROU should decrease and the LL should increase due to interest and a lack of amortization.

• Will the rent sit in Accounts Payable (AP) as unpaid?

  Correct. It will be marked as PROCESSED in Lucernex, however it will have no check number assigned to it.

• How can we generate rent for multiple contracts? We only have option to select a Single Contract or All Contracts.

  This is true. You can also use Portfolio. The only other way to segregate your COVID leases might be to create a temporary portfolio and move the COVID leases there.

• You can filter generate rent by payment due date. But would need to do mass upload to segregate contracts accordingly

  This is an interesting idea. Yes you are correct, you would need to update the Expense Setup field Payment Due Date en mass to accomplish this. This can be accomplished with a template.

• Can you discuss drawbacks to using Alt Rent module? Some in our company believe it doesn't work so they've opted to change our existing schedules.

  The Alt Rent function does work and is the easiest method to adjust your existing schedules.

  Important!

  Both Alt Rent and updating your existing schedules will trigger the recalc flag. However, Alt Rent makes it much more difficult to track and summarize your deferrals and repayments.

• If we alter the rent payment in "Alternate Rent", do we have to make any adjustments in "Recurring Expenses"? Or does "Alternate Rent" override the existing rent payment amount?

  Alternate Rent will override the existing rent expense records that are tied to it. You will need an Alternate Rent record for each expense—such as Rent, CAM, RE Tax—that you want to pay a different amount for over a period of time.

• If you are making partial rent payments, is the Alternate Rent method the best method to utilize?

  There is no best method, because it depends on your individual situation. That said, yes, alt rent is the least invasive way to effect your rent schedule / payment in the system.

• What are the benefits to using a negative Alt Rent schedule as opposed to setting up a new expense type for the reimbursement of the deferred rent?

  It would be potentially easier for you to calculate the rent amounts across your portfolio as you can set as a percentage of current rent and the system will calculate the dollar amount.

• If I upload 100 alternate rent records in the batch upload without using an end date, will it stay in effect until I do another batch upload with an end date?

  1. Yes, if you upload without an end date the alternate rent will not end until you tell it to.

  2. You would need to ensure you create and reference a "clientid" on the upload template so that you would be able to update the records easily at a later date.

• Does rent still get generated after checking the hold flag?

  Yes, rent will still get generated, however the HOLD flag on the Payment Transaction will be checked. Remember, only four things cause rent to not be generated: Payment Date outside the date range of Payment Begin / End date, inactive vendor, rent was already generated for the month you're choosing, or Alt Rent.

• Can you update the hold flag in bulk after the transactions have been generated?

  You can. You would first need to create a report from the payment transactions table to obtain the payment transaction RecID. You would then be able to use a Payment transaction upload template to reference that RecID and update the Hold Flag. Note that this update would flip the approved status of any approved transaction to "Review" and would need to be approved again.

• Does holding rent affect ASC / IFRS schedules?

  It does not.

• Is there a report that indicates what contract has the Recalc flag set to Yes?

  Yes, there is a Global Report called FASB/IASB Re-Measurement Report.

• When you unclick the hold flag - will that send the formerly held rent transaction 'out'?

  It will not. You would need to re-run your AP Export integration, this time with the HOLD flag off. Then they would be sent to your ERP.

• Selecting hold changes the status to review so it wouldn't be able to go through the integration

  You would want to ensure your integration has that filter set correctly on Step 4, but most clients do elect to have that set in their integrations.

• With hold flag on and assuming it doesn't export to AP, how do you go back and pick those payments up?

  You would need to uncheck the HOLD field on each payment. We've provided a template in the HELP file that can help you do that for your entire portfolio.

• What is the advantage of using variable rent schedules versus the Alternate Rent functionality?

  The biggest advantage is that you could set up a new expense type that is not tied to your 842 schedules so that it would not trip / want to recalculate your 842. Furthermore, a separate rent schedule will allow you to easily defer and repay and ultimately quantify the expense issues around COVID-19.

• Do we have the template ready to do a mass upload to recurring expense schedule?

  See the Update the Hold Flag in the User Interface section below for the import template.

• If we manually change the rent schedule to reduce rent, does it impact ASC 842 / IFRS 16 schedules?

  Yes, changes to existing schedules will flip the flag to recalculate your ASC 842 / IFRS 16 schedules.

• What about scheduled offsets?

• Are there any pros or cons of generating rent as usual and then applying an offset for deferred rent? Also, what are the potential accounting consequences for using this method?

  Scheduled Offsets will NOT trigger the remeasurement / recalc flag in ASC 842 / IFRS 16. In addition, schedule offsets hit the transactions as a net number not as a separate line item in transactions (alt rent gives a separate line item), so tracking the offset is a bit more difficult then inputting it in Alt Rent or as a separate Expense Set up with a separate Expense Schedule. You will reduce your rent but visibility is reduced along with no recalc trigger. At this time, based on the FASB pronouncement, you get a one-time election on recalc or not. You may be treating this as a cash flow adjustment not a true expense adjustment with changes to the ASC 842 / IFRS 16 schedule. So you will want visibility to your reductions.

To put an expense setup, schedule, or transaction on hold, you must select the Hold check box. See the links below to access the appropriate procedures.

• Expense Setup

  The Hold flag is in the Payment Flags / Indicators section of the global page layout. If you cannot find the Hold flag, contact your System Administrator.

• Expense Schedule

  The Hold flag is in the Edit Expense Schedule window.

• Transaction

  The Hold flag is in the Approvals / Additional Comments section of the global page layout. If you cannot find the Hold flag, contact your System Administrator.

Then, you must approve the expense schedules and transactions. To learn how to approve schedules and transactions, see the Approve Payments procedures.

There are four options for holding rent:

• Option 1: Do not generate rent.

• Option 2: Put the expense setup on hold and generate rent. Any payment transaction generated after this action has been performed will have the Hold flag. Click here to download the report.

• Option 3: Put the expense schedule on hold and generate rent. Any payment transaction generated after this action has been performed will have the Hold flag. Click here to download the report.

• Option 4: Put individual payment transactions on hold. Click here to download the report.

To use the above reports to put records on hold:

1. Import the report.

2. Run the report.

   The report is returned as a spreadsheet file.

3. Save the file in a place where you will be easily be able to find it, with an easy-to-understand name.

4. Open the completed report in a spreadsheet editor.

5. Delete rows for any contracts where you do not want to update the Hold flag.

6. Change the value of Column A, the UpdateOnly column, to True.

7. Change the value of the Hold? column to True.

   The Hold? column is the last column of the report.

8. Save the spreadsheet.

9. Import the spreadsheet.

   The Hold? flag is updated on the contracts where you entered Truein the Hold? column.