Explaining Contract Conditions

Objectives

After completing this lesson, you will be able to:

  • Explain contract conditions

Condition Types

Select the play button to learn more about Contract Conditions.

Select the play button to learn more about the relationship between conditions, posting parameters and rhythm.

To understand how conditions work and how we change them, we need to first define what condition types are available in a contract. Maria has picked out the typical conditions for an apartment rental agreement for Chris. Typical conditions might be any of the following:

  • Basic rent.
  • Advanced Payments for Operating Costs.
  • Parking Lot.
  • Elevator flat rate.
  • Agreed deposit.

For a contract that depends on sales-based rent we also need these condition types:

  • Sales-based rent.
  • Minimum sales-based rent.
  • Maximum sales-based rent.
  • AP sales-based rent.

Just from the above, we can already see that condition categories depend on the type of contract. With this information, Chris knows the framework conditions surrounding the contract.

The condition purpose (periodic or one-time) determines how and whether or not a condition is included in periodic posting (statistical or to post). You can determine an external condition purpose (for example, market rent, actual rent, and so on) and assign a predefined internal condition purpose to it.

  • Posted: This condition is taken into consideration in periodic posting.
  • One-time posting: This condition is entered once in the cash flows and thus only taken into account once in periodic posting.
  • Statistical and one-time statistical: This condition is used for evaluation purposes and is not taken into account in periodic posting.

For a single point in time, you can assign several conditions of the same condition type, if they are different in relation to the assigned object and the assigned condition purpose. In this case, in the Configuration, you would specify which condition purpose is proposed for the corresponding condition (within a condition group). Furthermore, the default settings for the calculation formula and distribution formula will be defined in the configuration settings of the contract type.

Chris now knows that conditions can be posted either statistically or in real terms. This information will help him to fulfill his new tasks with regard to contract management.

Contract conditions are influenced by different contract information and parameters. You’ll assign the following data per condition:

  • Object (or object group) that the condition applies to.
  • Condition purpose (actual rent, market rent, cost rent, and so on).
  • Validity period.
  • Calculation formula for the condition amount.

Data on the frequency of posting and organizational assignments is noted on the Posting Parameters tab page. The system automatically assigns the condition to the standard terms (Postings, Frequency, or Organizational Assignment). If you want to assign a condition to a different term (not the standard term), you must assign it manually.

For each condition, you’ll define calculation formulas. For example, the condition amount can be calculated by multiplying the unit price by the values of the measurement of the assigned object, in the case of real estate objects assigned to the contract (for example, square meter price or amount per parking space). You can also define condition amounts for each object (with or without an object group).

In the Configuration settings, you can predefine calculation formulas or permit an individual entry in the contract. If you choose the calculation formula for measurements, you also must enter the measurement type and measurement unit. For correct cost and revenue account assignment, all costs and revenues which are first posted as cost accounting relevant, assignment to the contract must be posted (distributed) to the recipient objects. Furthermore, condition types can be specified, for example, as advanced payments or flat rates in the Configuration settings of the condition type.

Chris is now getting a deeper insight into contract management. To make the whole process easier to understand, Maria uses the following illustration to show the relationships between the conditions and their parameters.

Next, Chris wants to understand how the condition types relate to the condition groups.

Each contract type can have a separate condition group assigned to it. The usage of condition groups is mandatory. All conditions within the condition group of a certain contract type can be used in the contracts of this contract type. In the Configuration settings for condition groups, you define the order of the condition types and assign condition type adjustment rules. Condition groups can also be used for information system purposes, e.g., to display totals for multiple condition types in one column in reporting. To do so, define report profiles including condition profiles in Configuration. To do this, you should use special condition groups for reporting, such as net rent before service charges, advance payments for operating costs, etc.

You can maintain contract conditions either manually or via an automatic condition adjustment run. To add a new condition to a contract, you must choose the condition type, the condition purpose, validity dates, unit price, and calculation and distribution data.

Adjusting the terms of a contract is an important functionality in real estate management. Maria explains what to look out for and how the process works.

Remember that you must change the validity end date of the previous condition of the same condition type and condition purpose first before you enter a new condition. If you copy an existing condition (and change the validity begin date and the unit price of the condition), the system automatically terminates the previous condition. The calculation and distribution formulas for conditions have default values, which are defined in the corresponding Configuration settings. In complex cases, it’s suggested that, after you change a condition, you check the changes before you save the contract. To do so, simulate the partner and object cash flow, and check whether the implemented changes meet the requirements.

If you change contract conditions, you can explain the change by entering a reason for the change. You must define these reasons in the Configuration beforehand. You can use these default settings or, if necessary, change the calculation and distribution data related to your requirements. You can also define graded conditions using the Generate Grading button on the Conditions tab. In the case of graded conditions, you can define the duration of the term in months, the adjustment interval in months, the condition increase (as a percentage or as an absolute value), and the reason for the change. The system will then automatically calculate the condition amounts and the necessary time slots for the conditions.

That was a lot of information! The following illustration gives you a summary of the most important points.

Adjustment Methods

Select the play button to see how conditions are adjusted in a contract.

Select the play button to learn more about the steps of an adjustment run.

Maria now explains the rent adjustment functionality in real estate management.

The following adjustment methods are available in SAP Real Estate Management:

  • Free adjustment.
  • Adjustment with index (for example, based on customer price index (CPI)).
  • Adjustment based on a representative list of rents.
  • Adjustment based on comparative apartments.
  • Adjustment based on an adjustment measure.
  • Adjustment of advance payments during service charge settlement.
  • Adjustment using BAdI technology.
  • Adjustment in accordance with the cost efficiency analysis (special adjustment method used to adjust conditions for publicly subsidized apartments in Germany).

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