Overview:
Fixed increases are used when there are increases to the fixed payment amount throughout the lease life. The Initial Recognition tab is where most commonly, you will enter the fixed increases.
Essential points:
The amount entered will increase fixed payments by that amount
Repeat Increase field allows you to repeat the fixed increases at a monthly or annual frequency.
If the increases are random you can add multiple fixed increases. To do that click "+ Fixed Increase"
Here is a video to run through how to enter fixed increases in Cradle:
Video Length: 1 minutes
Alternatively, below is an example and the steps to input fixed increases.
Example
Let's say you have entered into a three-year lease. The lease commences on January 1, 2020, and expires on December 31, 2022. The fixed payments start at $1,000 and then increase 5% at the start of each year.
Under Initial Recognition
Step 1: From the Initial Recognition tab, scroll down to Lease Liability → Fixed Increases
Step 2: Enter the start date and then the adjustment method. You can enter the fixed increase amount as a $ dollar or % percentage amount. For example, the fixed payments go from $1,000 to $1,050. You can either enter $50 or 5% as a fixed increase.
When entering fixed increases, you should note:
You enter the fixed increase amount as a $ dollar or % percentage amount. For example, fixed payments go from $1,000 to $1,100. You can either enter $100 or 10%.
If the fixed increase is only for a defined period, the Repeat Increase should be set as Never.
If the fixed increase is only for a defined period and reverts to the original fixed payment, select the settings icon and uncheck "No End Date."
If the increases are random click "+ Fixed Increase" and add each increase amount:
Please note that the "Repeat Increase" is set to never.
Under Modification
If a fixed increase occurs after the lease's commencement, it should be entered in the Modification tab.
Step 1: Go to Modification → Click “+Add New Modification”
Step 2: Click Fixed Increase then click New Modification
Step 3: Enter the Effective Date, Start Date, the increase type (%/amount) and the number of $ or number of dollar amount and repeat frequency then click Create
FAQs:
If I want to key in the increase amount, should I enter the amount increase or the total amount after the increase? You should key in the amount of the increase. For example, if the original amount is $1,000 and the new payment amount is $1,050, then under the ‘Increase Fixed Payment By’ field, you should put in $50. An example is shown below:
Further Reading: