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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.

Case Study: RE BackOffice helps America’s leading mid-sized retailers of the largest communication brands to save more than $140,000 annually with effective and efficient Lease Administration Services

 

This week we share a case study that discusses how RE BackOffice helps America’s leading mid-sized retailers of largest communication brands to save more than $140,000 annually with effective and efficient Lease Administration Services. Some of the key challenges faced by our clients include-

  • High cost of hiring, training and retaining lease administration resources
  • High rate of attrition affecting lease portfolio management and timely updates
  • Financial losses due to missed opportunities and underutilization of assets resulting from decentralized, fragmented and inaccurate lease data.
  • Lack of qualified resources to conduct regular audits to identify discrepancies and possible cost savings

Find out how RE BackOffice helps these clients overcome these challenges with its efficient and effective lease administration and accounting services.

Download Case Study

About RE BackOffice
RE BackOffice is a strategic partner providing end-to-end lease administration and accounting services providing scalable, affordable and accurate lease accounting and administration services to make your lease portfolio management more efficient. Contact us today to learn how you can leverage our experience and expertise to drive revenue and cost savings by optimizing your lease portfolio management process.

Looking to increase the efficiency of your business? Lease audits are a good place to start!

Right now, businesses across the globe are facing huge challenges. The COVID-19 pandemic has resulted in an enormous loss of income to businesses and the pressure to operate efficiently is higher than ever before. Businesses are adopting various measures, including drastic pay-cuts and lay-offs to stay profitable or even just to stay afloat.  Another option that can contribute significantly towards lowering operating costs and boosting efficiency is lease audits.  

Lease auditing is the process of analyzing the key terms of the lease and related documents to ensure the landlord has billed the tenant accurately and not overcharged them in case of expenses such as tenant’s share of operating costs, taxes, utilities, CAM, rent escalations, per-square feet rent calculations, etc. Other than these key areas, lease audits also help ensure key opportunities such as renewal, expansion options are not missed out. An effective lease audit entails a thorough review of various documents apart from the lease itself, including invoices, bank statements, payment receipts, and even documents in the public domain, at times. 

Lease audits offer significant benefits to both the Landlord and the Tenant. Landlords usually perform lease audits to ensure they are not under-charging their retail tenants that have percentage rent clauses in their leases. However, lease audits are especially important from the tenant’s perspective, primarily because the onus of identifying and reporting incorrect charges lies with the tenant and not the Landlord. Moreover, most leases have a timeframe within which erroneous billing must be reported. If the timeline lapses, the tenant is deemed to have accepted the charges levied upon them. Further, if the lease has a clause wherein the charges are escalated based on the previous year’s charges, then the escalation will be applicable on the inflated amount and the cycle continues causing the tenant to lose thousands of dollars annually. There have been cases where lease audits have helped tenants cut their operating expenses by as much as 70%! 

When businesses sign a lease agreement, a lot of thought has gone into it in terms of determining the financial viability of the lease. Somewhere down the line, perhaps due to lack of resources, on-going maintenance of the lease takes a backseat and the inaccuracies creep in so silently that businesses fail to realize that the lease is no longer in line with their expected ROI projections. A lease audit can help fix this. If you are short on resources to perform yearly lease audits and related tasks, it makes sense to collaborate with an experienced lease administration vendor who can offer these services for you. Most tenants see that the ROI on their lease audits often outweighs the expense it entails by a great deal. 

About RE BackOffice

RE BackOffice, Inc. is a premier provider of strategic commercial real estate back-office functions, including lease abstraction, lease administration, and real estate marketing services. Since 2006, REBO has been a trusted partner to top-tier commercial real estate companies, retailers, and service providers seeking a strategic advantage. Whether managing a portfolio of leases or providing graphic support through stacking plans, renderings and websites, RE BackOffice’s team of professionals is dedicated to delivering high-quality services and optimal ROI to our clients. At RE BackOffice, your back office – is our front office.