Understanding Escalation Billings

In the real estate management industry, commercial leases are often set up with terms to regularly increase the rent or other charges according to an index such as the Consumer Price Index (CPI) or Porter's Wage. The process that you run to calculate and increase the tenant's rent amount is called escalation.

This table describes the tasks in the escalation billing process:

Tasks	Description
Set up escalation indices.	The escalation index that you set up, such as the CPI, Porter Wage, or some other user-defined index, provides the current rate that the system uses to determine the amount of escalation to bill.
Set up escalation information.	The escalation information includes the base index, which the system compares against the current index to determine the escalation amount, the date and bill code to use to retrieve estimated escalation billings, the bill code to assign to recurring billing records that the system generates, and the calculation method to use. You can also set up maximum and minimum escalation limits, as well as adjustments to the escalation rate before the system calculates the escalation amount. (Release 9.2 Update) The Escalation Revisions form has been updated to enable users to set up escalation information for leased assets on lessee leases.
Generate the escalation billings.	The system compares the current index to the base index to calculate the gross percent escalation using this formula: (current index − base index) ÷ base index Note: If you use the Porter's Wage index, the system might use a different formula, depending on the computation method. The system then multiplies the gross percent escalation by the recurring billing amounts to determine the amount of the escalation to bill. Processing options enable you to specify whether to prorate amounts based on a partial year and whether to perform catch-up billings. The system updates the Lease Billings Master table (F1511B) and the Tenant Escalation Master table (F15016B). (Release 9.2 Update) This program has been updated to process escalations for leased assets on lessee leases. Note that all billing records generated by this program for leased assets that are processed using balance sheet lessee accounting are created with the Effect on Lease Liability value set to No. These new billing lines have no impact on the amortization schedules for the leased assets.
Generate new recurring billing amounts.	You run the Escalation Update Without Post program (R15152) to generate the recurring billing record for the escalation amount. Depending on processing option settings, you can either combine the escalation amount with the rent amount or generate a separate recurring billing record for the escalation amount. If you generated catch-up escalation billing amounts, you can run the R15152 program when you post the catch-up billing records, instead of as a separate step. The system updates the Recurring Billings Master table (F1502B) and the Tenant Escalation Master table (F15016B). (Release 9.2 Update) This program has been updated to process escalations for leased assets on lessee leases. Note that all billing records generated by this program for leased assets that are processed using balance sheet lessee accounting are created with the Effect on Lease Liability value set to No. These new billing lines have no impact on the amortization schedules for the leased assets.
Post the escalation billings.	If you generated catch-up escalation billing amounts, you must post them to generate the invoice (or voucher) records and update the appropriate general ledger accounts.