Straight-Line Rent for Stepped Rent when Options Are Exercised
Real Property / Costs / Cost Administrator
Straight-Line Rent for Stepped Rent when Options Are Exercised
If you exercise an option for renewal or early termination, the straight-line rent figure can change. For example, if you have a lease with monthly base rents for year one of $10,000, and for year two of $20,000, the cash flow report will present a consistent value of $15,000 for each of the two years. In this example, if an option to extend the lease for another year for $30,000. a month is exercised, the straight-line rent value becomes $20,000. (versus the previous value of $15,000).
In this situation:
- The lease administrator can issue an updated straight-line base rent report
- The accounting department issues an adjustment to the cash flow report.
The following shows the breakdown for this scenario.
| Year 1 | Year 2 | Year 3 | Cumulative Totals | Calculation | ||
|---|---|---|---|---|---|---|
| A | Yearly Base Rent | $10,000. | $20,000. | $30,000. | ||
| A1 | No. of Payments | 12 | 12 | 12 | 36 | |
| A2 | Base Rent Cumulative Totals | $120,000. | $240,000. | $360,000. | $720,000. |
A x A1
(varies per year) |
| B | Straight-Line Rent (monthly value) | $20,000. | $20,000. | $20,000. | A2 Cumulative / A1 Cumulative = 20,000 | |
| C | Differential | $ (10,000.) | - | $10,000. | (A - B) varies per year | |
| D | Cumulative Differential | $ (120,000) | - | $120,000. | (C x A1) varies per year |