Commercial Lease Abstraction FAQs
What is a lease abstract?
A lease abstract is a summary of the key financial and non-financial clauses of a lease. It allows lease holders easy access to critical lease data without poring over hundreds of pages of the lease contract. Though all lease abstracts usually contain a summary of the core financial and non-financial terms of the lease, lease abstracts are flexible in the sense that the information they cover is determined by the leaseholder’s requirements in terms of managing their lease. The format/fields covered in lease abstracts may also vary slightly depending on the lease type, such as corporate, retail, office, ground, etc.,
Who benefits from lease abstracts?
Landlords, tenants and even property managers can benefit significantly from lease abstracts. Basically, anyone owning, renting, managing or leasing a property will benefit from having an abstract of the lease related to the property. This includes-
- Landlords/property owners
- Property managers
And, remember, the term property isn’t limited to real estate alone and includes all kinds of assets such as office equipment, machinery, medical equipment and more!
Are there multiple types of lease abstracts?
There are different types of leases and likewise, different kinds of lease abstracts. Some of them are-
Retail lease abstracts
Retail lease abstraction involves abstracting the essence of a retail lease. Retail properties include 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 are one of the most complex to abstract as they are very vast and have a lot of unique clauses usually not present in other lease types.
Corporate lease abstracts
Corporate lease abstraction involves abstracting corporate leases. Most of these leases pertain to offices and corporate parks. Corporate lease abstraction is fairly straightforward and the key clauses include Type of Lease, Maintenance Obligations, Improvements & Modifications, etc,.
Warehouse lease abstracts
Warehouse lease abstraction, as the name suggests, pertains to leases of warehouses and storage areas. Important areas to consider include Restricted Use, Insurance ,Environmental indemnity, Parking(Trailer Parking, Fenced Yard) , Surrender, etc,.
Cell-tower/Telecom lease abstracts
Did you know that even cell towers can be leased? This is where tower lease abstraction comes into the picture. Telecom companies rely on tower lease abstracts to help them manage their tower lease portfolios efficiently. There are very specific nuances to tower lease abstraction, which is very different from other leases. These include Tower use licenses, master agreements, SLAs, Zoning permits, etc. A thorough understanding of cell-tower Due Diligence and acquisition document management and important when it comes to tower lease abstraction projects.
What are the key benefits of getting your leases abstracted?
To begin with, there are on-going accounting compliance requirements which make lease abstracts indispensable. These include the IFRS/FASB/GASB standards which impact how leases and the various components therein are to be accounted for. Having updated lease abstracts helps you move up the compliance path faster.
Having lease abstracts of your leases presents many benefits. For starters, leases are complex legal contracts that run into hundreds of pages. Not all information contained in them is of equal importance or needs to be revisited. However, there are certain clauses that need to be constantly monitored/reviewed to ensure there are no contractual violations or missed opportunities. Having a lease abstract helps the parties to the lease quickly access and understand those clauses so they not only remain in compliance with the lease contract, but are also able to drive the right strategic business decisions.
Examples include information about critical dates in the lease, such as the date rent is due or the notice period to serve in case either party wants to terminate the lease, or details regarding the lease renewal process.
In a lay person’s term, we can say that leases include a lot of fine print and chances of missing them are very high. However, any violation of any of the terms in the lease will be treated as a breach of contract and can result in abrupt termination of the lease, penalties, or even attract lawsuits. Lease abstracts help you avoid such situations, by highlighting the key terms and clauses and bringing them to your attention.
Is outsourcing lease abstraction a good idea?
While lease abstracts are the first step to staying on top of your lease portfolio management process, getting your leases abstracted in-house can be challenging due to various reasons such as the high resource costs, lack of resources, tight timelines, etc. Here's how signing up with a lease abstraction vendor can help you overcome these challenges.
By working with a lease abstraction services vendor, you can save on costs that you would incur if you hired lease abstractors in-house, on your payroll. It helps you eliminate training, HR-related expenses and save on lease agreement interpretation and translation costs, as all of these are taken care of by the vendor.
Scale up or down easily
Signing up with a lease abstraction vendor helps you scale your lease abstraction resources up or down as per your needs, allowing tide-over temporary resource requirements. For example, at the time of major mergers and acquisitions, or renewals across multiple locations, bringing a lease abstraction vendor onboard is a more efficient way to handle your abstraction needs than hiring in-house.
Vendors who provide lease abstraction services are specialized in what they do. It is their bread and butter, so they are naturally well-versed in the latest industry trends. They have more experience in handling multiple types of leases and tend to offer better accuracy, relevance, and compliance than in-house abstractors who comparatively have lesser exposure.
Improved turnaround time
Lease abstraction service vendors have a team of lease abstractors at their disposal, which means they won’t be overwhelmed by the volume of your lease abstraction project even if it runs into thousands of leases, and will be able to deliver your lease abstracts on time. Your in-house team may struggle to meet tight deadlines especially if it is a bigger project.
Outsourcing lease abstraction
- Offers you significant cost benefits
- Ensures you stay on top of your lease portfolio, no matter how short-staffed you are on the lease portfolio management front
- Allows you to benefit from the expertise and industry experience of your lease abstraction vendor
However, in order to actually enjoy these benefits, you should pick the right lease abstraction vendor. After all, lease abstracts are the backbone of your lease portfolio management process.