Outsourcing Lease Administration
Submitted by A. Smith
You have just spent the last 3-6 months (or maybe 2-3 years) working with your Real Estate Advisor to establish a list of office space requirements, tour potential sites, review proposals, negotiate terms, get internal approvals, finalize lease documents and coordinate the details of construction and relocation. You are now all moved into your new office space and for the time being, the space is comfortable, well maintained and functioning perfectly for your business’ needs.
The project may feel complete, but now is the time to focus-in on the lease administration process. Lease administration is the ongoing task of accurately managing and reporting on the lease terms that your company has just committed to for the next several years. It will require consistent monitoring and updating throughout the term of the lease. There are critical dates and time frames to schedule, cost calculations to document and a division of responsibilities between the tenant and the landlord that will need to be summarized. The accuracy of the information that is entered into a database right from lease commencement could dictate if all of those terms that you negotiated are being tracked and adhered to appropriately. It also sets the table for you to maintain an accurate prediction of your ongoing financial commitments.
There will be several critical dates and notification periods defined within the lease agreement. It is not only necessary to understand the required timeframes that are stated in the agreement, but it is critical that you also factor-in the internal or external factors that will have a bearing on your company’s ability to comply with these timeframes (i.e. “Let’s start thinking about the lease renewal option about a year in advance, so we can evaluate other options that are available to us in the marketplace.”). An experienced lease administration service can alert you to these factors and help you back into making informed decisions before these critical dates arrive.
There will be hundreds of transactions that take place over the course of the lease term that will need to be processed accurately. Depending on the structure of your lease agreement(s), the base rent rate, real estate taxes, common area charges, property insurance and any amortized tenant improvement costs could need to be reviewed on a monthly basis. The task of sifting through year end reconciliations requires a whole other work effort on top of that. A lease administration service can assist with reviewing these costs against the lease language and measuring them against acceptable market ranges.
Many leases will clearly call out the significant performance and cost responsibilities of each party. However, depending on the lease form, there is the potential for some grey areas within the agreement. Situations of repair and maintenance, for instance, are often circumstantial.
Example: there is water damage in the suite. The lease says “Tenant, at Tenant’s expense, is responsible for maintaining the interior walls, floors and ceilings of the Premises.” However, after further investigation, the water damage inside the suite was caused by a roof leak above the suite. The lease states that “the Landlord, at Landlord’s expense, is responsible for maintaining all structural portions of the building, including the roof.”
What the tenant originally thought was their cost to fix may actually be a cost that can be pushed back to the landlord. A lease administration service can summarize the division of responsibilities like these and help you interpret the language of the lease.
No matter how many leases you are trying to manage, the opportunity for errors is endless and the risks of missing critical dates, making inaccurate payments or not being fully aware of cost responsibilities can have a substantial impact on your company’s bottom line. Outsourcing the lease administration process to an experienced Real Estate Advisor to look out for your interests could end up saving you a significant amount of time and money.