Real Estate: Managing Contracts

This C-Business Map outlines the main steps involved in managing contracts with SAP Real Estate Management. You use this business process to find suitable vacant rental objects for prospective tenants or vice versa, process contract offers and create and manage real estate contracts. It shows the interaction between the prospect or tenant and the real estate manager, and demonstrates how the prospect’s property requirements can be mapped in the system and how the real estate manager can offer vacant properties to the prospect, concluding with the creation of a real estate contract. The real estate manager negotiates all contractual details with the tenant. He is then able to perform contract-related activities that occur during the lease lifecycle.

The real estate manager first has to manage his offered objects. This is a rental object that is available for rent. It is converted into an offered objects to enable a concordance search to match the offered object to suitable RE search requests. The prospect submits a search request. The RE search request describes a real estate object from the viewpoint of the person looking for the object (prospect). He enters generic data about the rental object that he is looking for, as well as all relevant data concerning his person or organization. This data includes requirements regarding rental, such as price, location, usage, measurements, fixtures and fittings and rental start date. The data is not limited to the data directly on the rental object, but can also include data on the business entity or the building. This information is relevant for matching vacant rental objects with the RE search request. The real estate manager searches for offered objects. The system generates a list of proposals that meet the RE search request requirements. He can select suitable objects from a hit list for the prospect. He can then create a contract offer or a real estate contract (lease-out) directly from the RE search request. It is also possible to search for offered objects without having a stored RE search request. In this case, you use a fast entry function and the same Customizing data as for entering an RE search request. The real estate manager creates the contract offer to propose vacant rental objects (offered objects) to the prospect.

When creating the contract offer, the system automatically copies all data relevant to the prospect and the rental object to be rented. The real estate manager maintains the contract type, such as commercial lease-out, the contract offer description, tenancy law, terms, conditions, posting parameters, and so on for the contract offer. He can monitor the history and status of contract offers created for rental objects in the RE search request. When a prospect has decided on a particular rental object, the contract offer can be converted to a lease-out contract. The contractual details are transferred from the contract offer to the lease-out. The business partner prospect is copied to the lease-out contract in the business partner role Master tenant with customer account. It is also possible to create real estate contracts directly in the system, without using the RE search request and contract offer processese.

The real estate manager negotiates all contract terms and conditions with the tenant and creates a real estate contract in the SAP system. He assigns all relevant business partners to the contract, maintains key contractual dates, object assignments, conditions, posting parameters, adjustment rules, and so on. It is also possible to map internal usage of your rental objects by the departments in your organization. In this case, you assign a cost center, a project or an order to the contract, rather than a business partner with customer account. In addition to lease-in, lease-out and internal contracts, you can create security deposit agreements for your contracts.

The offer and rental processes are supported by extensive correspondence functionality, enabling the real estate manager to send all relevant documents to his prospects and tenants. This includes exposés, covering letters as well as offers and contracts. The tenant signs the real estate contract and the contract is activated in the SAP system.

After activating, the real estate manager can trigger a number of follow-on activities for the contract, such as periodic postings. Conditions have been defined on the real estate contract. The cash flow can be displayed directly in the contract. Accounting for Flexible Real Estate Management interfaces with the Financial Accounting (FI) component, where all postings and financial transactions with contractual partners are executed. Postings are made at the lowest level for each rental object and real estate contract. The real estate manager performs periodic posting for real estate contracts to post the accounting flows resulting from the conditions, while taking the contract type (lease-out/lease-in) into account. The system posts the condition amounts automatically as credits to the landlord/vendor accounts, or debits to the tenant/customer accounts. Open items are generated on these vendor and customer accounts for landlords and tenants. For controlling purposes it is possible to transfer these costs and revenue postings to the rental objects they belong to. You first assign costs or revenue to the contract as displayed in the partner cash flow. A document is created for this posting. If the costs or revenue are to be assigned to real estate objects (rental object, building, property, etc), then a corresponding distribution formula has to be defined in the contract. The distribution formula specifies how the amount posted initially to the contract is to be distributed when there are multiple objects, e.g distribution by area, equal distribtion. If the condition only refers to one object, you enter a distribution rule in order to completely post the costs or revenue to this object. A document is created to distribute the costs or revenue from the contract to the real estate object. For internal usage, periodic posting for vacant rental objects posts imputed vacancy costs (lost revenues) to the object or a vacancy cost center. Costs related to vacancies can be entered on vacancy cost centers. You also assign costs and revenues to the usage objects they belong to. You can maintain a vacancy reason for each vacancy period. The real estate manager is then able to process open items and incoming payments for the real estate contracts.

In addition to performing periodic postings and processing open items, the real estate manager can perform a number of other contract-related activities. All key dates are maintained against the contract. These include the contract start and end dates, contract term, renewal and notice dates, and other dates for contract tracking purposes, such as location check, conditions reviews etc. The real estate manager can process and monitor these key dates. Should a tenant wish to renew the real estate contract, the real estate manager can review the renewal clauses maintained in the contract and process them accordingly. Renewal options and automatic renewals can be applied separately or in combination with each other.

The contract lifecycle ends when the real estate manager receives notice from the tenant, who wishes to terminate the contract. Notice rules maintained in the contract are checked. When notice is given, the notice rule calculates the contract end date automatically. The real estate manager can simulate, create, activate and reverse notices for real estate contracts, as well as create the necessary correspondence. The real estate manager has a number of reports available to support him in his role.

After contracts have been created, he can analyze occupancy and vacancies in the real estate portfolio, and the real estate contracts in SAP Real Estate Management Information System. After periodic postings have been made for real estate contracts and vacant real estate objects, he can also analyze financial and controlling reports in SAP Real Estate Management Information System. In SAP Business Information Warehouse, the real estate manager is able to call up and process a number of workbooks for his real estate portfolio using reports for contracts, occupancy, vacancies, costs and revenues in SAP Business Information Warehouse (SAP BW).