Automated Lease Management: A Critical Necessity for Modern Tenants

Guest Post by Andrew Flint, a co-founder at Occupier

Modern lease management is a nebulous field. Tenants’ jobs begin at site selection, continue through build-out, and endure through the management of payments, lease options, lease accounting, and, finally, renewal or termination.

Commercial leases are long, with terms commonly ranging from three to five years, and contain many decisions and discussion points. Understanding the key components of this field — and how to simplify them with tools like lease management software — is critical for tenants in today’s business landscape.

The Components of Lease Management

What is lease administration? The answer encompasses more than some might think. Lease management refers to the ongoing maintenance, operation, and administration of the organization’s lease portfolio — everything from pre-leasing to lease expirations. This process can involve site selection, financial management and FASB ASC 842 compliance, improvement and build-out orders, and legal needs. Lease administrators juggle hundreds of data points per lease and can easily make hundreds of decisions over a lease’s lifespan. With many proverbial balls in the air, the lease administrator must have a clean, thorough baseline to work from.

In the beginning stages of the lease, it’s also vital to secure a lease abstract. Lease abstracts boil down lengthy leases to their component parts. These outlines contain all the important components of the lease, as well as rent increase language, options, and renewal obligations. This lease abstract serves as a guiding document during the day-to-day operations of the lease. Historically, the problem with lease administration has involved document storage and retention issues. Loss of key personnel, for example, could mean losing the person keeping track of critical dates in a spreadsheet and their calendar. This problem has succumbed to the comfort of status quo. Many businesses, in fact, still rely on Excel, email, and other siloed methods to administer and manage their lease portfolios. Relying on these methods can create both small and large headaches.

Employees constantly having to track down scanned files — sometimes incomplete or missing ones — or make runs to long-term storage facilities can cause a loss of valuable staff time just to try to understand the issues. Additionally, missing essential renewal dates or options can lead to either loss of advantageous leasing terms or a renewed commitment the company would rather avoid. Managing these issues is much simpler with automated procedures and real estate lease management software.

The Key Data points to Track for Lease Management

Real estate lease expenses are usually a company’s largest expense after payroll. This high cost impacts more than just lease administrators. For example, the accounting team needs to have accurate commencement dates to comply with ASC 842. The construction team also needs precise dates for successful pre-construction projects and managing critical path projects. Once completed, the HR team needs to know anticipated move-in dates to have employees ready to fill the space. The lease’s life cycle affects and flows through the entire organization; consequently, it’s critical that there is clear and digestible information available for all those individuals. Real estate language can be complex. The amount of data, technical jargon, and the allocation of responsibility for lease points throughout the organization can cause confusion and leave important issues improperly addressed or not addressed at all. For instance, a team misinterpreting the “other costs” provision of a lease and not realizing that the company is responsible for insurance, property taxes, and maintenance costs can significantly affect the bottom line.

Commercial real estate is a relationship-oriented industry. Simply having done business in the past with a particular landlord doesn’t necessarily mean their other spaces are perfect for your business. It’s essential that organizations have clear metrics about their needs and cost-effectively maximize their real estate footprint. Analyzing clear, digestible data can help remove some emotion from a decision, ensuring the right one is made.

That being said, individual sentiments are a part of real estate. Regardless of math and contractual provisions, there will be strong feelings about selecting sites, making lease management decisions, or leaving a site. The more decision makers can point to key performance indicators as the basis for a decision and find common ground, the more likely internal stakeholders can come to an agreement.

Within these domains, there are several concrete, actionable areas where lease administration software for tenants can provide critical relief:

Financial Calculations

Real estate teams and their accounting counterparts are collaborating more closely than ever because of ASC 842 compliance standards. The manual process of passing spreadsheets back and forth is no longer a viable option for these departments.

Today, the financial data and operating expenses that the real estate team processes should feed directly into the lease accounting software the accounting team uses. Automated lease management software drastically reduces time spent communicating and the possibility of key entry errors. Ultimately, the entire lease cycle should be in one management platform — giving a single source of truth — instead of living in siloed systems.

Critical Date Notifications

Tracking critical dates is high stakes for real estate teams. Attached to each of those critical lease dates is a business decision with financial and organizational consequences.

Automated lease management software solves the pain point of critical date tracking through customizable notifications. For example, if you have a lease expiration date, you can trigger a weekly notification from six months out until your team takes action on that expiration.

Custom Reporting

Lease management software allows for real-time data reporting and insights. Leadership teams and external stakeholders need a firm grasp on lease data points. Lease management software makes it easy to export custom reports to gain unique insights into the risks and opportunities of your real estate portfolio. Lease management is a complicated world, with many traps for the unwary. Understanding the pitfalls and opportunities and then carefully documenting them will make that world seem much more manageable. And automation tools can aid tenants and businesses throughout the process.