In recent years, there has been a growing demand for scalable lease administration solutions. This accelerated demand can be attributed to poorly managed lease data and resource constraints in the lease administration department. But not many companies understand the critical role played by the lease administration team in strengthening the financial position of the company.
In this blog, we discuss why it is important to have a streamlined lease administration process and how it will help improve a company’s bottom line.
What is lease administration:
The lease administration process involves meeting all real estate financial and non-financial obligations on time and ensuring the accuracy of data at all levels. Companies having large real estate portfolios have to deal with a high volume of lease transactions that need to be abstracted and tracked to ensure important data are not missed.
However, lease administration is more complex than it seems and companies usually don’t realize their lease administration process is broken or out of hand until it’s too late.
Consequences of a poor lease administration process:
Many companies continue to see their expenses increasing, either by way of not invoicing the tenants on time or by overpaying the landlord. Other common oversights include missing critical dates and options and miscalculating CAM charges. The financial losses start small but if remained unchecked can run into thousands of dollars.
Repercussions of a mismanaged real estate portfolio also have led to conflict between landlords and tenants. And with the new accounting standards, many companies are clueless about its implementation and recourse. To salvage the situation, companies are hiring and training additional staff and investing in lease management software without first analyzing their requirements. This may further waste resources.
To fix and avoid these challenges, companies need to analyze their requirements and establish proper lease administration procedures.
How can these challenges be fixed?
Lease administration team – Is the current staff experienced in lease abstraction and lease administration with an understanding of common leasing practices and its terminologies, latest accounting standards, and procedures? Are they proactive with a high attention to detail? Are they able to manage their time efficiently? An affirmative answer to all these questions is important for any company to successfully implement the lease administration process. Determine whether the existing staff needs to be trained or people with more expertise need to be hired.
Lease administration software – Are all the lease data secured in a centralized lease management software? Is the software new accounting standard friendly? Companies need to invest in an efficient lease administration software to automate notifications, reporting, invoicing, quick access to important lease data, track and update changes. Here are some tips to choose the right lease administration software.
Lease abstraction – Are all the leases accurately abstracted? Are there any documents that are missing? Was the abstraction carried out as per the data requirements of FASB ASC 842? Accurately abstracted lease data is the backbone of a successful lease administration process. Leases should be abstracted and a proper quality review process needs to be implemented. However, the data gap caused by unaccounted lease information and missing data can have extensive financial implications. Taking an inventory of all the leases and additional documents should precede lease abstraction. Here are some best practices to get leases abstracted and FASB ready.
Hiring vs Outsourcing – Is it difficult to maintain the fixed cost of in-house labor in addition to the recruitment and training costs? Is it challenging to find the right expertise to handle growing real estate portfolios? Lacking someone with technical skills to deliver exceptional lease administration services including lease abstraction, reporting, correspondence, lease data management and more? Many companies are leaning towards the convenience of outsourcing since it considerably reduces the amount of time and money required to implement the lease administration process effectively. The service provider comes with a team of unparalleled expertise that makes it possible for companies to improve their bottom line. However, the increasing demand for service providers might make it difficult to find the right one when needed. Thorough research will help find the right service provider who ticks all the lease administration requirement boxes.