The demand that should not have gone
A new tenant signs a ten-year lease with six months rent-free and a stepped rent in years two and three. The deal is celebrated. The first quarter day comes round and the tenant receives a full rent demand. Their finance director calls, the property team apologises, accounts issues a credit note. A year later, when the rent-free ends, nobody tells accounts, and the tenant goes two quarters without being billed.
Meanwhile, the capital contribution to the tenant's fit-out, also agreed in the heads of terms, was paid on an invoice nobody linked to the lease.
Why incentives go wrong in billing
- Incentives are agreed in heads of terms and written into the lease, but billing works from the rent roll.
- The rent roll holds one rent, not a schedule of rents over time.
- Side letters giving concessions are not seen by accounts.
- Conditional rent-free periods depend on events, such as completion of fit-out, that nobody records.
- Capital contributions and other incentives sit in a different part of the accounts.
Accounting for incentives is for your accountant. The problem is that the information they need is held in pieces.
What billing mistakes cost
Wrong demands annoy new tenants at the start of the relationship. Missed start dates for full rent lose income, and recovering it later is awkward. Finance cannot account for incentives properly without chasing the property team. Valuers and lenders see passing rents that do not match what tenants actually pay, and ask why.
Stepped rents create the same problem later in the lease. The step in year three is a line in a lease nobody rereads. If the rent roll still shows the year one figure, the demand goes out at the old rent and nobody complains, because the tenant has no reason to. It can run for quarters before an audit or a lender's question brings it to light.
The incentive schedules we build
- Each lease's rent is held as a schedule over time: rent-free periods, half-rent periods, stepped increases, and the date each starts and ends.
- Side letters and concessions are recorded against the lease with their dates, so billing sees them.
- Conditional incentives are linked to the event they depend on, and the property manager is prompted to confirm when it happens.
- Quarterly demands are driven from the schedule, so a rent-free quarter produces no rent demand and full rent begins on the right date.
- Ahead of each change, the owner and accounts are notified, with the next demand shown for checking.
- Capital contributions and other incentives are recorded against the lease, so finance has a complete record for accounting and reporting.
- Reports show contracted rent, rent currently payable and the incentives outstanding by lease.
| Rent figure | Why it matters | Where it comes from |
|---|---|---|
| Contracted rent | What the lease says the rent is | The lease record |
| Rent payable now | What the tenant is billed | The incentive schedule |
| Incentives outstanding | What is still to run | The schedule and incentive log |
How it looks once running
New tenants receive the right demand from the first quarter day. Full rent starts when the lease says it should, with a notification to the team beforehand. Finance has every incentive recorded against its lease. And reports to lenders and valuers show contracted and payable rent side by side, with the difference explained.
Deal teams benefit as well. When heads of terms are agreed, the incentives are entered once, and the same schedule follows the deal through the lease and into billing. Nobody retypes the terms three times, which is where most of the slips came from.
Recognise this?
- Tenants have received demands during rent-free periods.
- Full rent started late because nobody noticed the date.
- Side letter concessions are not visible to accounts.
- Capital contributions are not linked to leases.
- Passing rent and contracted rent are confused in reports.