Category: Lease Administration

Lease Administration post: Lease Audit Vs. CAM Audit: What’s the difference?

 

Both, lease audit and CAM audit are important functions in the process of lease portfolio management. Though used interchangeably sometimes, they actually refer to two different lease administration services. This blog discusses the difference between the two terms. Let’s begin by defining both of them. 

Lease Audit

The term, Lease Audit refers to auditing of a lease abstract in the light of the original lease documents. Lease audits are usually performed when landlords or tenants already have the leases abstracted but wish to verify the accuracy of the lease abstracts. Some reasons for choosing to have a lease audit done could be because-

The lease abstracts are outdated. If the leases were amended or any addendums were made to them at a later date, you would want to ensure that the lease abstracts reflect the most recent information, which won’t be the case if the lease abstraction was done before the amendment/addendum was executed. In such scenarios, landlords or tenants have two choices–a) Get the Amendment/Addendum abstracted and added to their existing lease abstract or, b) Get the entire lease abstract audited and then updated to reflect the change due to the execution of the new amendment/addendum. Many opt for option b as it gives them the opportunity to confirm the accuracy of their existing lease abstracts. 

Getting an experienced and trusted lease administration services provider to audit your leases can also help by bringing to light any instances where critical lease data may have been missed out. A lease administration services vendor with enough expertise and perspective into the lease abstraction process will also be able to identify any shortcomings in your original lease abstract template. They can help you make changes to your lease abstract template so it is more comprehensive and captures the lease information that matters to you, going forward. 

CAM Audit

A CAM Audit, also known as the desktop audit is a lease administration process that involves reconciliation of account payables and receivables, mostly involving Common Area Maintenance (CAM) charges to ensure the tenant is not being undercharged or overcharged depending on who commissions the audit. Usually, CAM audits are commissioned by tenants. Here’s the reason why. 

In the case of net leases, CAM charges are a core component of the rent roll. The thing about CAM charges is that it includes multiple headers and complicated calculations, which leave room for errors and even interpretation. Tenants need to be aware of the various components of their CAM charges and how they are computed as per their lease. For example, what happens if they move into a fairly empty building that’s only gradually filling up? How is the CAM divided among the existing tenants including them, 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, tenants need to pay a lot of 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 which can prove very expensive for the tenant. 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. This is why most tenants commission regular CAM audits, usually, on an annual basis.

Whether you are a tenant or a landlord, when there is a vast lease portfolio that runs into hundreds of leases or more, CAM reconciliations figures can translate into significant cost savings. 

 

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit, and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking strategic advantage. All client projects are performed in-house.

Whether it is one clause, one amendment, or a whole lease agreement, we can do it for you. Please contact us today to learn more.

Lease Abstraction Project Management and Communications

 

A key aspect to consider before you sign on a lease abstraction partner is their project management and communications protocol. 

Lease abstraction

Familiarize yourself with your lease abstraction partner’s abstraction process. Learn more about the team that will be deployed by them to work on your project. Get more information on the team size, availability, point of contact, etc.,

Quality control

This is one of the most important parts of your lease abstraction project. Ask your lease abstraction partner about their quality check process. Find out how many tiers of quality check your lease abstraction partner will be performing as part of the SOP. Check if they offer a 100% accuracy guarantee and have errors and omissions insurance. After all, when it comes to lease abstracts, accuracy is really everything and inaccurate data can have far-reaching effects, including heavy financial losses and sometimes, even lawsuits.

Data security

Data security is a very real concern when outsourcing your lease administration and abstraction processes. Make sure you are comfortable with your lease abstraction partner’s data storage, handling, and disposal process.

Communications

Find out how many points of contact will be provided to you. You would need at least 2 so you can reach out to one, in the event the other is unavailable. Also, check their availability in terms of timing–a key factor to consider if your lease abstraction partner operates offshore. 

Lease portfolio management is an ongoing process and not a set-it-and-forget-it kind of activity. So, if you are collaborating with a lease abstraction/administration vendor, it makes sense to sign on someone who can offer quality, ongoing lease administration and support you throughout the entire lease lifecycle consistently. And, we do that!

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit, and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking strategic advantage. All client projects are performed in-house.

Whether it is one clause, one amendment, or a whole lease agreement, we can do it for you. Please contact us today to learn more.  

Lease Administration post: Is your lease data moving homes? Here’s how to ensure you do it right

 

Are you migrating your lease data from one lease management platform to another? Then make sure you don’t do so blindly. In fact, Data Migration from one application to another is a good opportunity to audit your lease data and lease abstract data, identify mistakes and gaps and fix them. When you are shifting to a new application anyway, why not ensure you are doing it right in every aspect? Importing inaccurate lease data from your old lease application to the new one doesn’t serve any purpose. Also, pay attention to the data structure. Even if your existing lease data is found to be accurate after an audit, you still need to ascertain the accuracy of data structure post-migration by ensuring all data fields are mapped correctly at the time of migration. If you truly want to leverage your new lease management system, you need to make sure you input the right data into it because the output will be largely based on what you feed into the system. 

Changes in technology could require you to revisit your leases. For example, migration from spreadsheets to a robust lease administration platform, or even from an existing lease administration platform to another.  Such events could be termed as catalyst events that trigger lease abstract updates. The goal is to ensure that you leverage such catalyst events to benefit your entire organization and to optimize your lease portfolio management process. And, we can help you do that!

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit, and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking strategic advantage. All client projects are performed in-house.

Whether it is one clause, one amendment, or a whole lease agreement, we can do it for you. Please contact us today to learn more.

Making the most of your Lease Abstracts with a Lease Management Application

You can leverage your lease abstract to its maximum potential by integrating with a lease management software platform. When it comes to investing in lease management software, you’re spoilt for choice. With so many lease management platforms in the market, picking one lease management software can be overwhelming. Here are a few pointers to consider before investing in a lease management platform. 

How and where the data is stored?

Get a thorough understanding of where your lease data will be stored by the lease management platform and in what format. For example, is the data stored locally, or on the cloud? What are the security concerns and how are they being addressed by the lease management software vendor? Getting answers to these questions is really the first step in evaluating a lease platform.

Reporting

Lease management software platforms can help you leverage the data in your lease abstracts through powerful reporting functionality, thus bringing more objectivity to the critical business decision-making process.

Import and export functionality 

One of the most important elements to consider before investing in a lease management platform is the import-export functionality. It dictates how your data will be shared and in what format. The information from your lease abstracts will be used across various teams in your organization such as Finance, Operations, IT, Accounting, Legal, etc. Before you purchase a lease management software, you need to make sure it is compatible with their data format requirements. 

Ease-of-use 

This is true for any new software purchase and not just lease management platforms. If you really want your investment in the platform to pay off, you want all stakeholders/users to adopt it and ease-of-use is a critical factor determining the adoption rate of any new software. From the lease management software perspective, you need to ensure that it is easy to learn and use in terms of data entry, update, management, and reporting.  Availability of onboarding and robust/effective training modules is a critical consideration for your investment.

Compliance- FASB capabilities

Your lease administration software must contribute significantly to your compliance efforts. The updated FASB, GASB, and IASB requirements involve a lot of calculations and major changes in how leases are treated. Your lease administration software must be able to take the complexities out of these computations and classifications, helping you meet your compliance requirements effectively. Some examples include supporting multiple lease types (beyond real estate, as now even equipment leases are to be accounted for), automatic identification and classification of leases as per the FASB guidelines (Financial/operating/ capital), the ability to integrate with your accounting system to ensure any relevant change in the lease data (such as a renewal) is reflected in your books of accounts accurately. 

Service and support

Investing in a lease management platform is a big decision. You will be using the platform to store critical business information and will need uninterrupted access to it at all times. Hence after-sales service and support become critical components when evaluating lease management platforms. What kind of support does your lease software vendor provide? What is their availability? Are the service and support free, or will you be charged? Getting these questions answered to your satisfaction before you sign the dotted line, is very important.

While your lease abstract will mention the key events/dates/numbers to watch out for, the lease management application offers timely access to those critical data points and also ensures you never lose sight of them by tracking these for your consistently and alerting you on time, so you don’t miss any critical timelines.

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit, and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking strategic advantage. All client projects are performed in-house.

Whether it is one clause, one amendment, or a whole lease agreement, we can do it for you. Please contact us today to learn more.  

Data Management in Lease Abstraction

 

An important aspect to consider when it comes to lease abstraction is lease data management. This has 3 key elements. First is the data type and formatting, the second, document management, and the third and final element is document audit.

Data type and formatting

Your lease abstract templates should allow for effective data searching and meaningful reporting. The data in your lease abstracts is useful only when it can be converted into meaningful pieces of information (Knowledge) that you can leverage to arrive at the right business decisions. The right lease abstract acts as a powerful lease reporting tool allowing you to engage in data-driven decision-making in a proactive manner.  Data cross-linking, reference, and document tagging are elements that can help you accomplish this goal effectively. 

Document management

Effective document management plays a crucial role in helping you stay on top of your lease portfolio. Once your team is ready to actually get started with the lease abstraction project, the first step is document organization. This involves a systematic arrangement of all lease documents including amendments, side letters, estoppels, and even relevant email communications where applicable. 

Document audit

The next step in this process is to identify the missing documents and data points that are missing as a result of that. Once the document audit is complete, the next step is to scan and upload the relevant documents onto your lease management system. At this stage, it is recommended that you perform a quality check to ensure the documents are legible and if you have used an OCR (optical character recognition) software to digitize them, then the output is accurate. Also, ensure the documents have the right tags and filters. Having the right tags and filters help by improving document accessibility, so you can find what you are looking for, right when you need it.

You can leverage your lease abstract to its maximum potential by integrating with a lease management software platform. While your lease abstract will mention the key events/dates/numbers to watch out for, the lease management application offers timely access to those critical data points and also ensures you never lose sight of them by tracking these for your consistently and alerting you on time, so you don’t miss any critical timelines.

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit, and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking strategic advantage. All client projects are performed in-house.

Whether it is one clause, one amendment, or a whole lease agreement, we can do it for you. Please contact us today to learn more.

Lease Abstraction post: Lease Abstract Template Definitions

What to extract? How to Extract? Why to Extract?   

Your lease abstract template is the backbone of your abstraction project, simplifying the complexity of your lease documents and scaling to manage the volume of leases in your lease portfolio. You need to ensure that your abstraction template captures all the relevant information. While some core fields such as rent, options, key dates, etc., are needed irrespective of what industry you belong to, there may be fields that are important for your business or industry in particular. Apart from such fields, there may be certain, less common clauses in some leases that must be captured. 

So, the first step to ensuring you are capturing the right data is 

  • Being able to identify what data matters to you 
  • Having a template that caters to your needs by capturing that information 

You can do this by defining the lease abstraction template objectives clearly. 

Defining the lease abstraction template objectives

Lease abstraction objectives can be broadly categorized into four categories. 

Financial

This involves tracking and optimizing every aspect of the company’s portfolio of leased assets that will add value to the entire leased portfolio and can also make a huge impact on the outcome of the financial report. Examples include rent and other payment obligations, Security Deposit, Tenant Improvement allowance, etc,.

Operational

This involves tracking critical lease dates and highlighting potential liabilities, which, if missed could result in serious financial implications to a company’s bottom line. For example, missing notice period, renewal options, last date of rent payment, etc., or, not understanding or accruing a potential lease liability and its obligations such as using the premises for the sale of goods or services not permitted in the lease. 

Compliance 

Whenever there’s a change in regulatory requirements that impacts how your leases and the components therein are shown in the books of accounts, it will result in some changes in your lease abstracts. The most recent example is the FASB/IASB regulations that categorized the leases as operating leases, capital leases, leases with a right to purchase, etc., thus bringing about changes in the way they are accounted for, in effect, requiring the lease abstracts to be restructured to comply with them. 

Emergencies

The COVID-19 Pandemic or Future COVID-like challenges

The COVID-19 pandemic brought to light the need to explore various clauses, which were otherwise, probably not considered important to be included in lease abstracts. An example is when, during the peak of the pandemic a lot of tenants, especially in the retail industry, had to act swiftly to exercise the options in their leases that offered them some respite as their finances hit rock-bottom due to lockdowns and shelter-in-place restrictions brought on by the pandemic. Examples include exercising the Force Majeure clause that may allow the tenant to terminate the lease before the end of the term or allow for rent abatements or suspension in exigencies such as the pandemic.

For your lease abstracts to be accurate and truly serve their purpose, the template has to reflect all information that is relevant to you. This is where a lease abstraction partner with expertise, experience, in-depth knowledge, and perspective of the process can add value by streamlining your lease abstraction process and designing optimal lease abstraction templates.

Rebolease.com, powered by RE BackOffice, Inc., is a premier provider of lease abstraction, administration, audit, and accounting services. Headquartered in Pittsburgh, PA, we are a global boutique firm, providing high-quality services to top-tier clients across industry verticals, covering every type of lease and on any lease platform. We are proud to be a trusted partner, for 15+ years, to leading retailers, REITs, property owners/managers, and corporate accounts seeking strategic advantage. All client projects are performed in-house.