In the last couple of months, we’ve seen COVID-19 affect nearly every single one of our customers in some way or another. But you’re not alone – LeaseEagle has also felt the effects of such a sudden turn of events.
Even though in many ways as a Cloud Technology Provider we were prepared for remote online working and generally relish the opportunity to find ways to innovate and solve problems, this has of course been an extremely challenging situation for all of us to manage.
I am also pleased to say that the LeaseEagle Team are all safe and healthy, despite perhaps a little cabin fever after many weeks of isolation, which I am sure that many of you will relate to. Also, that the LeaseEagle application service on which you all rely hasn’t experienced any interruptions or impacts due to the COVID-19 pandemic crisis.
In fact, in many ways, we have seen businesses be able to rely even more so on LeaseEagle, through maintaining easy and immediate access to their Location Data, no matter where they have been working from.
Lease understanding and visibility is more critical than ever
With so many Customers having also adapted to a new way of working, we are now seeing some significant movements in the way that they are managing the different economic environment we’re all experiencing. Particularly for some retailers, where their ‘bricks & mortar’ outlets have experienced a near-total loss of trade or total interruption to operations. In both normal, as well as these extraordinary times, such changes could have seismic impacts on their real estate and leasehold obligations.
Even with the proactive moves being made at a legislative and regulatory level to support commercial tenants and business generally, the importance of knowing what’s “in the lease” is more critical than ever. Whilst most leases probably did not account for such situations as are currently being faced, there are also a number of typical provisions that may be able to be relied on by the Landlord or the Tenant – ask your Lawyer.
Even more so in these extraordinary times, it is essential to be able to:
- assess and understand individual lease situations quickly to determine the potential for positive or negative impacts, to allow the development of strategies to resolve them.
- ensure that, when changes are negotiated and agreed, they are documented correctly and communicated appropriately, for those managing the business to fully understand and be aware, as they navigate such challenging times and hopefully a ‘road out’.
In addition to specific clauses for lease conditions and/or obligations on either party, we are now seeing many Customers starting to negotiate financial changes within their leases, sometimes temporary and others permanent. So naturally there will be financial implications for tenants, and in a period where every dollar is more important than ever, ensuring that these are accurately recorded and managed has never been more business-critical.
Typically, the most important consideration for a Tenant will be that they are only paying the Landlord what they should be. And now with new credits, rebates, waivers and even amortized costs becoming the new normal, those monthly invoices are becoming more and more complicated.
Add to these monthly movements in invoice payments the challenge of the new IFRS16 lease accounting standards and the need for Tenants to effectively document, manage and accurately report their lease commitments has never been greater.
Using LeaseEagle to help manage changes to your lease
Since the beginning of the COVID-19 pandemic back in early March, the LeaseEagle Client Services Team has been working closely with many Customers to help ensure that they are able to use the system to their greatest advantage to manage the often significant changes that are occurring.
Our General Manager in Client Services, Julie Ricci, has witnessed many of the challenges Customers are facing, both operationally and also in negotiated adjustments to financial lease obligations. In a recent ‘virtual sit down’ with Julie I was keen to understand what kinds of solutions she had been working on with our Customers and I am pleased now to share with you some common scenarios being discussed.
Temporary Rental Reduction
Where a Tenant has negotiated a temporary reduction in the amount of rent payable for a set period of time, typically by way of a percentage amount. This can easily be done by linking a calculated charge to the existing Base Rent charge and applied for whatever the period or number of months negotiated.
Partial Rental Deferral
Under the recently announced National Cabinet Mandatory Code of Conduct for Commercial Leases it will also be quite common for Tenants to have to manage the Deferment of part of their rental payments to future lease years. If charged periodically by the Landlord as a part of rent, then this may well require the creation of a new Deferred Rent charge, not necessarily contributing to Occupancy Cost analysis but certainly requiring tracking for accounts payable purposes. It may also be the case that such a deferment could be rolled up into a new deed and thus may also require a new contract to be registered for the Site.
Lump Sum Rental Waiver
It is also possible for Tenants to negotiate a lump sum amount of COVID-19 rental relief as a rental waiver, requiring that amount to be amortized against certain charges for as long a period as is calculable. This kind of scenario can also be setup in LeaseEagle using calculated charges – just ask us.
Rent Review Cancellation
It is also the intention of the Code that the States will cancel rental increases for some Tenants during the COVID-19 crisis period, potentially requiring core lease data to be amended, even for fixed percentage reviews, if the review falls within that time. If applicable this would also likely impact all future lease years and require re-forecasting of some financials.
Taking control of finances gives you one less thing to worry about
Perhaps most importantly, although the negotiation of rental relief with Landlords will be difficult, the recording and ongoing management of whatever is negotiated will also be challenging, and is essential should a Tenant want to be one hundred per cent certain that what was negotiated is accurately being reflected, paid and reported on. Probably never before in history has there been such a broad and substantial re-write of commercial lease terms as will be seen during COVID-19, and with such scope and variability across portfolios, ensuring that the reality mirrors the intent will not be an easy task for many Tenants, and even Landlords.
Many of the conditions that will be negotiated will be temporary, and variable upon other metrics, such as base rent or sales performance, and so tracking these inputs and calculations is going to be essential, let alone the need to maintain timely workflows and processes, despite the added complications.
Without the right system for managing this information, the monthly variability being built into Landlord invoices, as waivers and deferrals, will be more extreme than ever. As our team as seen many times in these scenarios, just relying on your Landlord and Agent to issue invoices correctly will almost certainly lead to paying more than you negotiated.
Beyond just the processing of invoices, any organization also managing the requirements of IFRS16 could well have even greater challenges in managing any COVID-19 lease changes. Just last month, the IASB released this paper on COVID-19 related rent concessions that could have a very significant bearing on the approach that Tenants must take in accounting for them. The result being that how the Property Team needs to record the data could actually be different for Finance.
The LeaseEagle team is here to help
In accordance with the appropriate accounting advice, ensuring that your core LeaseEagle data is structured for best practice will be critical to both invoice processing and lease accounting. Beyond charges, the use of the Comms Log, Document Bank, Custom Reminders and other system tools will be vital in documenting and managing any interim lease changes during COVID-19.
For those Customers wanting to discuss how LeaseEagle can further assist during COVID-19, including additional training, then I would highly recommend you reaching out to your Account Manager or the Helpdesk and we will be able to assist you in determining the best way to manage any new requirements or needs. For more custom scenarios you might want to also secure some dedicated workshop or training time with one of our expert Client Services team.
Furthermore, should your team require some extra online training or assistance with updating data, as we approach June 30th, then please talk to us in preparation. It is typically a very busy period, so getting prepared early is highly recommended.