Lease abstracts & Lease abstracts: Back to the Basics

lease abstraction

 

What does the term, “lease abstract”,  mean?

A lease abstract refers to a condensed overview of the essential clauses within a lease agreement, both financial and non-financial. It provides leaseholders with a convenient way to access crucial lease information without the need to scrutinize lengthy lease contracts. While lease abstracts typically include a summary of the fundamental financial and non-financial terms, they offer flexibility as the specific information included can be tailored to suit the leaseholder’s needs in effectively managing their lease. The content and fields covered in lease abstracts may also vary slightly depending on the type of lease, such as corporate, retail, office, or ground leases.

Who benefits from lease abstracts?

Lease abstracts offer valuable benefits to various parties involved in property ownership, rental, management, and leasing. This encompasses:

  1. Landlords and property owners.
  2. Tenants.
  3. Property managers.
  4. Real Estate Investment Trusts (REITs).

It’s important to note that the term “property” extends beyond real estate alone and encompasses diverse assets such as office equipment, machinery, medical equipment, and more!

Are thee multiple types of lease abstracts?

There are different types of leases and likewise, different kinds of lease abstracts. Some of them are –

  1. Retail lease abstracts:

Abstracting the essence of retail leases, which apply to properties like multi-location stores, malls, shopping complexes, grocery shops, pharmacies, eateries, etc. Key fields in retail lease abstracts include Percentage rent, Right to audit, Exclusive use, Co-tenancy, Go Dark, Use restriction, etc. Retail leases tend to be complex and encompass unique clauses not commonly found in other lease types.

  1. Corporate lease abstracts:

   Abstracting corporate leases primarily related to offices and corporate parks. Corporate lease abstraction focuses on key clauses such as Type of Lease, Maintenance Obligations, Improvements & Modifications, etc.

  1. Warehouse lease abstracts:

   Pertaining to leases of warehouses and storage areas. Important areas to consider in warehouse lease abstraction include Restricted Use, Insurance, Environmental indemnity, Parking (Trailer Parking, Fenced Yard), Surrender, etc.

  1. Cell-tower/Telecom lease abstracts:

  Involving the abstraction of leases for cell towers. Telecom companies rely on tower lease abstracts to effectively manage their tower lease portfolios. Tower lease abstraction involves specific nuances distinct from other leases, including Tower use licenses, master agreements, SLAs, Zoning permits, etc. A comprehensive understanding of cell-tower due diligence and acquisition document management is crucial for tower lease abstraction projects.

What are the key benefits of getting your leases abstracted?

Lease abstracts are essential for ongoing accounting compliance requirements, including standards like IFRS/FASB/GASB, which dictate how leases and their components should be accounted for. By having updated lease abstracts, you can expedite your compliance efforts.

Leases are intricate legal contracts that often span hundreds of pages. Not all information contained within them carries equal importance or requires frequent review. However, certain clauses demand constant monitoring to ensure compliance and seize potential opportunities. Lease abstracts enable parties involved in the lease to swiftly access and comprehend these critical clauses, facilitating compliance with the lease contract and informed strategic decision-making.

For instance, lease abstracts may include details about significant dates, such as rent payment due dates or notice periods for lease termination, as well as information about the lease renewal process.

In simpler terms, leases contain intricate details, making it easy to overlook crucial elements. However, any violation of the lease terms can be considered a breach of contract, leading to lease termination, penalties, or even lawsuits. Lease abstracts help prevent such situations by highlighting key terms and clauses, bringing them to your attention, and reducing the risk of oversight.

Some of the key data points that are included in lease abstracts are

  • Lease information
  • Tenant information
  • Landlord information
  • Property name
  • Addresses 
  • Lease Currency
  • Lease Status
  • Rentable SF
  • Usable SF
  • Space Use
  • Recovery Type
  • Term Information
  • Rent Roll
  • Common Area Maintenance (CAM) if applicable
  • Expense Recoveries: Real estate taxes
  • Expense Recoveries: Insurance
  • Renewal Options
  • Termination options

It may also include other key lease clauses such as: 

  • Tenant improvement allowances
  • Security deposit
  • Admin/Management fee
  • Tenants pro rata share
  • Alterations
  • Assign/Sublet
  • Estoppel
  • Go Dark/Continuous operation
  • Governing law
  • Guarantor
  • Holdover
  • Tenant Insurance
  • Landlord right of entry
  • Late fee
  • Parking requirements
  • Permitted use
  • Repair and maintenance by LL 
  • Repair and maintenance by TT
  • Restoration/Surrender
  • Signage
  • Utilities
  • Condemnation
  • Damage/Destruction
  • Events of default
  • Hazardous materials
  • Notice
  • Rules and regulations
  • SNDA
  • Lease year
  • Roof right