Category: Lease abstraction

Lease Administration post: Why entrust your lease audits to experts?

 

With organizations looking to cut additional costs and curtail seemingly unwanted operating expenses, lease audit is gaining a lot of popularity as a tool that helps them accomplish this goal from the real estate perspective. In our blog this week we discuss why you should entrust the task of auditing your lease expenses to experts.

Lease audits involve a thorough perusal of the invoices raised by your Landlord in light of your lease agreement to determine if you actually owe those charges and if yes, then to ensure the amount you are being invoiced for is accurate. You will be essentially challenging your Landlord based on the information from the lease audit. Hence it is important that your lease audit is thorough and accurate. Any claims made in the lease audit also needs to be backed up with strong evidence supporting the claim. Without that, even legitimate claims may not be honored by your Landlord. 

Secondly, when you reach out to your Landlord with the findings of your lease audit, you need to be tactful and also be able to negotiate effectively. The Landlord also needs to be able to trust your lease audit firm in the sense that they will keep any information regarding a settlement confidential. Landlords may hesitate to agree with lease audit findings if they fear that the audit firm may then reach out to other tenants of the Landlord in the premises offering a lease audit service. Outsourcing your lease audits to a reputed and trusted vendor who offers lease audit services will go a long way in ensuring your lease audits and consequent negotiations happen smoothly. 

A poorly done lease audit can cost you your relationship with your Landlord. A trusted lease audit firm can help maintain your relationship with your Landlord better. Using the services of a professional lease auditor enhances your chances of getting your claims honored.

RE BackOffice is a strategic partner providing scalable, affordable and accurate lease abstraction, end-to-end lease administration, lease audit and accounting services to optimize your lease portfolio and related processes. Please contact us today to learn more. 

Lease Administration post: How well do you know your rent roll?

 

Rent rolls are one of the most important aspects of your lease. It wouldn’t be incorrect to say the rent roll is a key financial data point of your lease and forms the crux of your lease contract. But, how well do you know your rent roll? Understanding your rent structure clearly is very important as it can help you negotiate renewals better, save significant amount of money by identifying inaccuracies in rent calculations and also help you drive better real estate-related business decisions. Our blog this week discusses the key aspects of the rent roll that you should be aware of. 

What is your rent structure?

All tenants know their rent structures, no doubt, but what about the details? You should be aware of escalation clauses in your lease. What is your rent escalation tied to? Is it a direct, simple escalation by a predetermined amount or percentage, is it pegged to an economic indicator like the CPI, or is it based on your revenue, such as a percentage of your sales (most common in retail leases)? Understanding the rent escalation clause helps you analyze the feasibility of your lease.

What constitutes your Common Area Maintenance (CAM) charges?

If your lease is a net lease, then CAM charges will definitely be a core component of your rent roll. The thing about CAM charges is that it includes multiple headers and complicated calculations, which leave room for errors and even interpretation. You need to be aware of the various components of your CAM charges and how they are computed for you as per your lease. For example, what happens if you moved into a fairly empty building that’s only gradually filling up? How is the CAM divided among the existing tenants including you, until the time there’s 100% occupancy? What will be the repercussions on your CAM charges as new tenants are signed up.

When it comes to rent-roll calculations, the onus is always on the tenant to identify errors, if any, and report them to the landlord. So, it is essential that as a tenant, you pay keen attention to the core rent roll components such as rent escalation calculations and CAM charges allocation. Overlooking any errors in these calculations will cause them to become a part of the base calculations for the next lease year and as a tenant, this can cost you a lot. Plus, most leases place a timeframe within which such discrepancies should be reported to the landlord. Failing to do so on time may be construed as acceptance by the tenant to make the payments. 

You can avoid such scenarios by having clear, concise and accurate abstracts of your leases that simplify complex lease terms for you without diluting their essence. Solid lease abstracts can help you understand your rent roll and related components clearly. Two other very important elements in this regard are regular lease audits and a thorough lease administration process that will help you identify the gaps and act at the right time. 

RE BackOffice is a strategic partner providing scalable, affordable and accurate lease abstraction, end-to-end lease administration, lease audit and accounting services to optimize your lease portfolio and related processes. Please contact us today to learn more.

Mixed Lease Abstraction Model: The best of both worlds

 

Lease abstraction is a critical function of the lease portfolio management process. It is the foundation upon which the entire lease portfolio management process rests. Accurate, succinct and informative lease abstracts help you make the right financial decisions regarding your real estate investments. 

Over the years, the lease abstraction function has evolved to match the  advancements in the commercial real estate portfolio management process. One huge leap in this regard has been the migration to the Cloud. The jump from creating and storing lease abstracts in spreadsheet format on local drives and servers to Cloud-based lease abstraction platforms that offer any-time access to important lease data along with meaningful reports that can be generated in a few minutes, has been so far, the biggest and most-widely adopted change in the lease abstraction industry. 

Another trend in the last few years is the automation of lease abstraction. Artificial intelligence (AI) based lease abstraction is growing in popularity. Are you considering AI-based lease abstraction too? Then here are a few pros and cons that you should know of. 

It may be faster

As AI based lease abstraction deploys technology to extract and summarize key data from the lease, the turnaround time for the lease abstracts may be lesser compared to those abstracted manually.

It may be more cost-effective

AI-based lease abstraction may be cheaper as it is automated and there is minimal involvement of human resource. Plus, as discussed above, AI reduces the turnaround time per abstract, allowing the vendor to enjoy the economies of scale that come with larger output capabilities, which may be passed on to you. 

You can expect a greater degree of standardization

AI-based lease abstraction may offer a greater degree of standardization when it comes to clauses as it is machine based vis-a-vis having your leases abstracted by a team of lease abstractors, where each of them may have a different way of summarizing them. 

But, what about accuracy?

When it comes to lease abstracts accuracy is key, leaving no margin for errors. One of the biggest challenges of automating lease abstraction is the inability of AI-based lease abstraction processes to guarantee 100% accuracy. AI based lease abstraction software programs cannot function like calculators, giving you the right output every time. This is because each lease is unique and there is great variation in the lease language. Plus, leases sometimes go back so many years that not all documents related to a single lease are of the same format and quality. There may be multiple addendums, amendments, handwritten correspondence (which even the best of AI tools may not be able to decipher), emails, notices, etc. 

Overcoming accuracy issues by choosing a mixed lease abstraction model

You can overcome the accuracy challenges by opting for a mixed lease abstraction model, where your vendor may pass the leases through an AI-based lease abstraction software and then have a team of experienced lease analysts verify the abstract against the original lease documents. This sort of a ‘quality analysis’ will ensure

  • No critical lease data is missed out
  • Any OCR errors are identified and rectified
  • The abstract stays true to the original lease language and interpretation

A mixed lease abstraction model brings you the best of both worlds. You benefit from the efficiency and cost-effectiveness of AI based lease abstraction and also from the expertise, experience and knowledge of a trained lease analyst. 

RE BackOffice is a strategic partner providing scalable, affordable and accurate lease abstraction, end-to-end lease administration and accounting services to optimize your lease portfolio and related processes. Please contact us today to learn more.

Lease Administration post: Get your dates right!

 

Lease abstracts involve summarizing the key financial and non-financial information contained in your leases to ensure:

  • You have quick access to critical information
  • You can make the right business decisions regarding the property in question
  • You have a clear understanding of even the most complex of lease terms

Generally, when we use the term, key lease data, the first thing that comes to mind is Rent. A lot of importance is attached to the rent roll and every lease abstractor focuses on getting that right. Tenants and landlords alike recognize the importance of getting the rent roll and its various elements summarized accurately. But there are other financial fields that are equally important and shouldn’t be taken lightly either. We are referring to options related to termination, renewal, expansion and the right of first refusal. These elements are extremely important from the tenant’s perspective because they can help you get a good deal on your existing lease. Here’s how it works-

  • Termination options: These clauses deal with the choices the landlord and tenant have with respect to ending the lease contract at any time. 
  • Renewal options: These clauses deal with the choices the tenant has to renew the lease with the landlord upon completion of the lease term.
  • Expansion or right to first refusal options often deal with the tenant’s right to being asked first in the event there’s a vacancy in the premises. 

It is extremely important that, as a tenant,  you are aware of these options in order to make timely strategic decisions for your business. 

For example, if you end up finding a cheaper or a better location for your business, you may want to consider terminating your lease mid-term, even if it means paying penalties, because, in the long run, that may work out to be more profitable. 

On the other hand, if your property is in a great location and you got a great deal on your rent increase terms, you may want to renew your lease after it finishes its initial term. In such a case, you certainly wouldn’t want to miss out on a chance to renew your lease just because you missed the notice period by 2 days! 

Another example, let’s say the premises adjacent to yours is just what you need as your business grows, it will make sense for you to jump on the opportunity the moment it becomes vacant. 

In order to do any of these things, there are various formalities involved such as notifying your landlord of your intention to terminate or renew within the stipulated time frame, a formal, written, expression of interest, etc., 

So, when we speak of getting the key terms right in your lease abstract, it is much more than the basic rent roll. All key dates must be identified at the time of lease abstraction and as a part of your lease administration process, those dates should be tracked, along with the necessary action items related to them so you can make the most of your leases. 

RE BackOffice is a strategic partner providing end-to-end lease administration and accounting services, including lease audits. We offer scalable, affordable and accurate lease accounting and administration services to optimize your lease portfolio and related processes. Please contact us today to learn more. 

Lease Administration post: Why outsource your lease audits?

 

Lease audits are a great tool for tenants to manage lease costs. Lease audits help you identify possible inconsistencies in the operating expenses and CAM charge amounts levied on tenants by the landlord. These include- 

  • Incorrect square footage calculations
  • Faulty base year calculations
  • Duplicate/irregular invoicing

Yet, sometimes, tenants tend to skip their annual lease audits. The reasons vary and range from lack of resources to assuming the landlord’s calculations to be accurate anyway. However, lease audits must be performed regularly and preferably via a professional lease auditor. Here are some reasons why.

Professional Lease Auditors bring expertise: Tenants that have an in-house lease administration team often think they can be utilized for the lease audit function as well, since the two are closely connected. However, to perform effective lease audits, you need very specific skills. Unlike the usual lease abstraction or administration tasks, lease audit involves scrutinizing every invoice, a perusal of the landlord’s expense reports in connection to the premises, reconciling payments and advances with bank statements and so on. It also involves interpreting the amounts invoiced in the context of the clauses in the lease. 

Lease audits are time-consuming: This task not only requires a keen eye for detail but also a lot of patience and an in-depth understanding of lease accounting and lease language. The whole process of lease auditing is time-intensive and your existing resources may be too busy to invest their undivided attention into the audit. 

Liaising with stakeholders: Lease audits entail communicating with the landlord and other stakeholders to get access to the required information, so the audit can be performed effectively. Your staff may not have the time to reach out to the landlord and other stakeholders, and they might also be more receptive to hearing from a third party than from the tenant’s office. 

Lease auditing firms can lend extra credibility to your claims: Sometimes, the tenant and landlord may not agree on the audit results and the matter may end up in litigation. However, an experienced lease auditing firm will be adept at handling such instances and may help salvage the situation by helping both parties arrive at an amicable resolution without litigation. Also, in the event of discrepancies, when you have a reputed lease audit firm advocating for you, matters are more likely to be resolved sooner and amicably as there’s more credibility. 

RE BackOffice is a strategic partner providing end-to-end lease administration and accounting services, including lease audits. We offer scalable, affordable and accurate lease accounting and administration services to optimize your lease portfolio and related processes. Please contact us today to learn more.

Lease Administration post: Did your last lease audit cover this important area?

 

Why you shouldn’t overlook the definition of leased area/premises square footage in your lease?

As a tenant, you know how important it is to manage lease costs. You also know there’s always an opportunity to cut leasing expenses (or at a minimum, keep them from growing out of control!). A lease audit is a cost-effective way to help you identify these areas and financially benefit from them. Diligent tenants conduct annual lease audits to ensure they are not being overcharged by their landlords. Unfortunately, the scope of a lease audit can sometimes be so vast that auditors overlook areas that may not be as obvious. In our blog today, we discuss one such area in particular – leased space.

Leased space or square footage plays an important role because it forms the base for most of the charges levied upon the tenant. Even a few square feet here and there can make a huge difference when base rent, CAM charges, and other operating expenses are calculated on a per-square-foot basis. In order to ensure you are being billed fairly and correctly, you need to understand the definition of leased space clearly and verify the amounts you have been billed against that.

From a tenant’s perspective, it is most advantageous if your leased area or square footage definition involves only the actual usable area. This means other common areas such as hallways, stairs, other access pathways, etc., are not included. Ideally, as a tenant, you should be looking into this right at the time of signing your lease. If this angle was overlooked, you may still be able to negotiate with your Landlord and sign an amendment to address it. If not, understanding the concept of leased square footage with respect to your lease will help ensure you are not paying more than your fair share of operating expenses and CAM charges.

If you haven’t done so already, you should consider including leased space in the scope of your next lease audit. This is extremely important given that most leases specify a limited timeframe for any corrections/objections related to the tenant charges. If not modified within the stated time period, the charges are deemed accurate and accepted. This can prove especially costly in cases where the yearly rise in expenses is based on the previous year’s charges, causing the error to repeat year-after-year.

RE BackOffice is a strategic partner providing end-to-end lease administration and accounting services. We offer scalable, affordable and accurate lease accounting and administration services to optimize your lease portfolio and related processes. Please contact us today to learn more.