NetLease - Periods of Free Rent and Tenant Improvement Allowances
Overview
Nonrefundable payments for periods of rent and tenant improvement allowances (TIAs) are accounted for as lease incentives under ASC 842 or IFRS 16. These incentives reduce the ROU asset, which results in lower expense over the lease term.
When nonrefundable payments are received for specific periods of rent, those periods should have zero payment amounts entered in the payment schedule. Tenant improvement allowances should be entered as lump sum lease incentive amounts.
This article addresses how to properly record free rent periods and tenant improvement allowances in NetLease.
Step-by-Step Process
Recording Free Rent Periods
- Navigate to NetLease > Lease Management > New Lease
- Ensure the Initial Lease Payment field is set to zero
- Navigate to the Amortization Schedules subtab
- Identify the months where free rent applies (e.g., September 2025 - November 2025)
- For each applicable period, set the Payment Amount to zero
- Ensure that—once the free rent period ends (e.g., 12/1/2025)—all standard lease payment details are fully populated for the remainder of the lease term.
- Populate the remaining lease details as needed, click Save, then generate the schedule
Recording Tenant Improvement Allowances
Tenant improvement allowances should be recorded as lump sum lease incentives in the Lease Incentives field. NetLease will automatically reduce the ROU asset amount accordingly.
Note: Any other lump-sum payments from the lessor that impact the ROU calculation should be handled the same way as tenant improvement allowances—by entering the amount in the Lease Incentives field.
TIAs Received Before Lease Commencement
- Navigate to NetLease > Lease Management > New Lease
- In the Schedule Information section, locate the Lease Incentives field
- Enter the TIA amount in the Lease Incentives field
- Populate the remaining lease details as needed, click Save, then generate the schedule
TIAs Missed at Commencement (True-Up Modification)
If a tenant improvement allowance was missed at lease commencement and needs to be added mid-lease, use a true-up modification to adjust the accounting.
- Navigate to the lease record in NetLease > Lease Management > Lease List
- Click the Modify button to initiate a lease modification
- On the Lease Modification page:
- Select True-Up as the Modification Type
- Enter the TIA amount in the Lease Incentives field
- Select the Lease Version as the commencement of the lease
- Click Modify Lease
NetLease will create a true-up journal entry to adjust the balances as of the current period, then regenerate the schedule going forward so all future entries are accounted for correctly.
Note: True-up modifications can only be used to capture lease incentives that were missed at lease commencement. They cannot be used to capture incentives that were missed mid-lease. In those cases, the recommended approach is to use the Time Machine to roll the lease back to the appropriate point in time, then run a standard modification to record the lease incentive amount.
TIAs Received During the Lease Term (Standard Modification)
If a tenant improvement allowance is actually received partway through the lease term (not missed at commencement, but granted later), use a standard modification to record the incentive.
- Navigate to the lease record in NetLease > Lease Management > Lease List
- Click the Modify button to initiate a lease modification
- On the Lease Modification page:
- Select Standard Modification (LL Remeasure) as the modification type
- Enter the TIA amount in the Lease Incentives field
- Click Modify Lease
NetLease will adjust the balances as of the modification date and regenerate future schedule lines accordingly.
TIAs Received Upon Lease Renewal (Standard Modification)
If a lease is renewed and an additional tenant improvement allowance is received, use a modification to record the renewal and the incentive together.
- Navigate to the lease record in NetLease > Lease Management > Lease List
- Click the Modify button to initiate a lease modification
- On the Lease Modification page:
- Select Standard Modification (LL Remeasure) as the modification type
- Update the lease term and other renewal details
- Enter the TIA amount in the Lease Incentives field
- Click Modify Lease
NetLease will recalculate the balances to reflect both the renewed term and the additional lease incentive.
For more information on adding lease incentives through modifications, see NetLease - Allow Initial Direct Costs, Prepaids, and Lease Incentives on Modifications.
Considerations
- Free rent periods cannot be recorded using both methods simultaneously. Enter free rent periods as zero payments in the payment schedule OR enter a lump sum amount in the Lease Incentives field, not both.
- Lease incentives must be recorded in the period they are granted. If timing is uncertain, track the incentive offline until it is received, then process a true-up modification.
- True-up modifications can only be used to capture lease incentives that were missed at the commencement of the lease. True-up lease versions cannot be used to capture incentives that were missed during the middle of the lease term.
- Lease incentives that are actually received during the lease term should be added via a standard modification with the effective date when the incentive was received.
- True-up modifications are effective as of the current period only and cannot retroactively adjust balances for prior periods. A modification journal in the current period adjusts the balances to reflect what they should have been had the incentive been included at lease commencement.