Straight-Line Reporting for Leasehold Improvements and Stepped Rent
Real Property / Costs / Cost Administrator
Straight-Line Reporting for Leasehold Improvements and Stepped Rent
If a tenant renovates space that they are about to move into with project construction costs of $81,000 USD, these costs can be designated as leasehold improvements (LI) costs. In the following example, the tenant is able to offset the LI project costs over the full lease term of 36 months. The example shows how straight-line reporting accounts for the leasehold improvements when the rent is stepped.
| Year 1 | Year 2 | Year 3 | Cumulative Total | Description | ||
|---|---|---|---|---|---|---|
| A | Base Rent by Year | $10,000. | $20,000. | $30,000. | ||
| A1 | No. of Payments | 12 | 12 | 12 | 36 | |
| A2 | Base rent cumulative value | $120,000 | $240,000 | $360,000. | $720,000. | (A x A1) varies per year |
| B1 | LI Cost | ($81,000) | Total Leasehold Improvement project cost | |||
| B | LI Credit | ($2,250.) | ($2,250.) | ($2,250.) |
This is the monthly credit calculated as: B1 / A1 Cumulative Total
|
|
| C | Tenant Actual amount paid (monthly) | $7,750. | $17,750. | $27,750. |
(A + B) Base Rent + LI credit |
|
| D | Straight-Line Rent (monthly value) | $20,000 | $20,000 | $20,000 |
A2 Cumulative/ A1 Cumulative = $720,000. / 36 = $20,000. |
|
| E | Differential | ($12,250) | ($2,250) | $7,750. |
(C - D) varies per year = (Tenant Actual Amount Paid monthly- Straight-Line Rent monthly value) |
|
| F | Cumulative Difference | ($147,000) | ($27,000.) | $93,000. |
($81,000) |
(E x A1) varies per year = Differential x No. of Payments for that year |