What are Fixed Payments?
Fixed payments are the minimum level of payments of consideration (cash) in a lease contract. This definition extends to in-substance fixed payments. These are payments that appear to be variable, however, due to the nature of these payments being unavoidable, they are treated as a true lease component (an example being an index change with a cap). Fixed payments drive the calculation of the lease liability (and corresponding ROU Asset value) at lease commencement.
An example of a fixed payment typically found in a lease agreement is base rent. Base rent is essentially the minimum required payment for a lease.
How this works in LeaseGuru
Correctly filling out the payments tabs in LeaseGuru during lease entry is very important. The payment information entered directly affects the calculations of the amortization schedules.
During lease entry, the “Base Rent” tab is where you input the fixed considerations (THESE INPUTS DRIVE THE AMORTIZATION SCHEDULE):
- Once base rent payment information has been entered into the system, there are very few reasons why this information should ever change (like a modification or amendment to the actual lease) – any change made to base rent payment schedule will change the amortization schedule (and depending on whether you update or modify this data, the system may not keep track of the changes).
The “Additional Payments” tab is where we keep track of variable payments.
- CAM, Tax, Insurance can be entered on this tab to provide mechanisms through which we can track these payments over time.
- All of these options default to “Variable”.
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