Caps and Floors, or Ratchet clauses regulate the amount that Rent can change by on Rent Review dates. These are found in your contract and may impact your IFRS 16 Reporting. In this article, we'll teach you how the Cap & Floor functionality works in Nomos One.
How to add a Cap or Floor to your Rent Reviews
Adding a Cap or Floor to an Agreement can be done on the Other page of the Agreement Wizard.
You can create Cap & Floors for all three types of Rent Reviews:
- Fixed Rent Reviews
- Market Rent Reviews
- CPI Rent Reviews
Please note: Adding a Cap or Floor will apply to every scheduled Rent Review of the type you select in your Agreement (e.g. all CPI Rent Reviews). We are currently unable to customise the Caps/Floors on individual Rent Review dates, or adjust the start/end dates they apply from.
Adding a Floor
The Floor is the lowest that the rent can be decreased by for a particular lease.
To add in a Floor:
- Click Add new Floor
- Select the Event type
- Select whether it is a $ or % change
- Record the Rate (the amount of the Floor)
- Click Add
There is no need to write anything in the Floor Base section. This is a legacy feature being phased out.
A Floor added in as a percentage is done by using the principle that 100% is the rent at commencement. The floor can either be less than 100% or more than 100% depending on the provisions in the lease.
For Example:
If your lease says that Rent shall not be less than 85% of the Rent at Commencement, it would be represented as a Floor of 85%.
If your lease says that Rent shall not be less than 105% of the Rent at Commencement, it would be represented as a Floor of 105%.
Adding a Cap
The Cap is the highest that the Rent can be increased by for a particular lease.
To add in a Cap:
- Click Add new Cap
- Select the Event type
- Select whether it is a $ or % change
- Record the Rate (the amount of the Cap)
- Click Add
There is no need to write anything in the Cap Base section. This is a legacy feature being phased out.
A Cap added in as a percentage is done by using the principle that 100% is the rent at commencement and any increase will be an addition to this.
For Example:
If your lease says that Rent shall not exceed more than 20% of the Rent at Commencement, it would be represented as a Cap of 120%.
The Impact of Adding in Cap and Floors
Adding in a Cap or Floor will set up a reminder when you complete a Rent Review on the Agreement Timeline that there is an applicable Cap or Floor:
Depending on the Event type you've selected and the Rate, you may also see Cap & Floors affect your IFRS 16 Reporting. To find out more about the default treatment of Rent Reviews and how Cap & Floors can impact this, check out this article.
Nomos One does not provide or purport to provide any accounting, financial, tax, legal or any professional advice, nor does Nomos One purport to offer a financial product or service. Nomos One is not responsible or liable for any claim, loss, damage, costs or expenses resulting from your use of or reliance on these resource materials. It is your responsibility to obtain accounting, financial, legal and taxation advice to ensure your use of the Nomos One system meets your individual requirements.