If you're unable to complete a known Rent Review Event on schedule, you can still update your Rent and add in any required Wash-Up/Shortfall amounts without causing historical changes to your Reports. This article will guide you through creating a Variation Event, and adding in a One-off Payment once the new Rent amount becomes known.
Please note that when you update your Rent through a Variation Event rather than completing the original scheduled Review, you may need to review your future lease payments as these may not update as otherwise expected. Market, CPI, and Fixed Rent Reviews have default assumptions for IFRS 16 Reporting which do not factor in changes to the Rent processed in a Variation Event.
Record a Wash-Up or Shortfall Payment
To record a Wash-Up or Shortfall Payment on your Agreement:
- Complete the Rent Review Event that you were unable to complete on time.
- If the Event is a market or CPI rent review, and there is not a floor applied, select the option “No, the rent will not change”, then complete the Event as you usually would from there.
- If the Event is a fixed rent review, or a market or CPI rent review with a floor applied, select the option “Yes, the rent will change”. You will need to record that the rent has changed as the system expected, either based on the fixed increase amount or the floor. This is because the IFRS 16 reports assume that the minimum increase scheduled through a rent review will occur, and use that assumption to calculate balances. If you select “No, the rent will not change” for this rent review, you will see a remeasurement on this rent review date, as that differs from what the reports expected.
- After completing the Rent Review Event, proceed to creating a Variation Event. On the Agreement Timeline, click “Action”, then “Create / Edit Events”. This will take you to the Events page of the Agreement creation process.
- Scroll to the Variation section and click “Edit”. Using the calendar tool or text field, enter the date that the new rent is effective from. Click “Add”.
- Click “Done” at the top or bottom of the page to return to the Agreement Timeline.
- You'll now see a new icon on the Agreement Timeline representing the Variation Event. At Step 1, click “Start Event”.
While you can add Events on a date that is within a locked period, you cannot complete these Events on the Agreement Event Timeline. If your Variation Event is within a locked period, you'll need to ask a user with the Administrator permission in your Organisation to edit the Lock Date before you can complete the Event. Check out this article for more information.
- At Step 2, select “Yes, there are variations to the agreement”, then click “+ Add variation”.
- Navigate to the “Rent & Payment” page of the Agreement creation process. Change the "Rent (Premises)" figure to match the new rent amount, effective from the Variation date.
- If necessary, scroll down to the IFRS 16 Components section and enter a One-off Payment for the Wash-Up/Shortfall amount caused by the period of time between the rent review and the date the new rent amount became known. The “Effective Date” of this payment should match the Variation Event date. Remember to click "Add".
Please Note: You'll need to manually calculate the One-off Payment amount that you enter, as Nomos One will not calculate this for you.
Is your Payment Effective Date within a locked period? You'll need to ask a user with the Administrator permission in your Organisation to edit the Lock Date before you add the payment. Check out this article for more information.
- Click “Done” at the top or bottom of the page to return to the Agreement Timeline.
- On the Variation Event, you'll see a summary of the rent change you just processed. Click “Next”.
Please Note: You won't see a summary of the One-off Payment amount added here, however, at the end of this article we'll show you a handy way you can validate that it was correctly added.
- Upload any supporting Documentation, or select “No Documentation”, then click “Next”.
- Click “Complete”. You'll see a certification noting that Event has been completed, and the Variation Event icon will turn green.
If you'd like to see a text reference for the Wash-Up payment that you've entered, you can add an Event Note to the Variation on the Agreement Timeline summarising the details of the payments you've added. Make sure to click "Add".
Validating your Variation and One-off Payment were Added Correctly
To check that your Rent Variation has been completed correctly, check the Agreement header and see the new Rent amount displayed. Note that if your Variation Event is entered for a future date, the header won't reflect the varied amount until that event date has passed.
If you use Nomos One for IFRS 16 Reporting, you can validate that the Rent Holiday or Discount was added correctly using the Journal Report. To do this, run the Journal Report over the Variation Event date, and you should see “Increase in Fixed payments” journal lines. The One-off payment will also be visible here.
The Remeasurement of Lease Liability from the One-off Payment (wash-up/shortfall payment) is contained in the “Increase in Fixed payments” Journal line, as they fit within the same category of movement.
You can also download the Daily Calculation Report for the Agreement. In the Journal tab, you'll see the same entries for the One-off Payment and Increase in Fixed Payment entries:
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