A lease abstract is by far the most overlooked document in the history of commercial real estate. The abstract is a two-page brief of the lease document that has all the critical dates, dollars, rights, and obligations into an excel document to upload into a database in the cloud. The purpose of a lease abstract is to have a form of the lease that is easy to access and manage. Most people’s eye’s glaze over when they have to refer back to the 60-page contract to solve a problem. The lease abstract serves this purpose by being easy to reference for use in troubleshooting.
An example of having a reference guide has to do with general managers and facilities managers dealing with repairs and replacements of different building components. You’ll find your lease abstract helpful when the roof leaks and you aren’t sure if you are responsible for it or the landlord and who the vendor is to call. The same goes for HVAC, plumbing, lighting, dock equipment, etc. Another great example is with subleases. When the roof leaks and you have subleased the building, you need to know if you call your sublessor or the master lessor. Now you have three parties that have some form of responsibility.
When it comes to dates and dollars, companies miss out on the opportunity to benefit by having a lease abstract and suffer the consequences all the time. The most missed item is the option to extend your lease. The landlord may be planning a huge rent increase, finding a company with better credit than you, finding a company that will sign longer term than you, or selling the property to a user who will pay a higher price. If you exercise your option to renew and extend your lease, you have the right to be in the property for the foreseeable future and lease term. An option to extend the lease has to be exercised 6, 9, or 12 months in advance of the lease expiration. Executives just don’t have a system to remind themselves of dates like this for one lease much multiple leases.
Once you have multiple leases you’ll want to systemize how you keep track of these dates. Most people send their lease to their accounting department to pay the rent, and then they don’t look at it again, and accounting doesn’t look at it again until a problem arises. Even large and sophisticated companies miss dates for lack of oversight and attention to detail or even just by the sheer volume of minutiae that they have to tend to daily. Managing all these dates can be done simply, at low cost, what you know of its importance. The industry term for managing the lease is called lease administration.
For companies with ten locations or more, lease administration software is the best answer. Software built purposefully to house all of the real estate documents and keep track of all dates and dollars, rights and responsibilities, reconciliation, and option dates. The challenge is that most people avoid adding another of software to manage, to get approved by their IT department, to fight user adoption, and to feel like it was not worth the price and effort of implementing. I get it. There are third party firms that specialize in lease administration that do an excellent job of doing this specialized work. Some brokerage houses have lease administration departments in house as well. They will handle this for you either one a monthly flat fee or will provide the service free of charge if there are enough lease and sale transactions in your book of business to offset the cost.
Over the last ten years, we have seen the rise of software as a service mature in the commercial real estate world known as PropTech. Now we can keep track of client’s leases within user-friendly databases on a per lease basis. The rates are reasonable, and they come without a lot of the overhead or glut of features. A calendar overlays all real estate-related dates and provides teams with timely emails and alerts in advance of critical inflection points in the lease.