Guest Post by Rouben Alchoujian, MCR, President, Praedium Consulting

Even though Lease Administration, as part of the corporate real estate (CRE) suite of services, has been around for over 30 years now, it still remains a big mystery to many.

As surprising as it may sound, the overwhelming majority of business professionals (even those in the Real Estate industry!) have little or no idea about it. Transactions / Brokerage, Facilities Management, Property Management, Investment Management, even Real Estate Finance and Accounting are relatively easy to explain – almost everyone knows what these are and what they do. But not so much for Lease Administration!

Unveiling the Mystery

Online definitions and information don’t add much clarity. According to Wikipedia, “Lease Administration is a department that usually falls under an organization’s real estate department. Lease Administration involves receiving rents from facilities they own and paying rent for the facilities they lease, and other activities.” So, it’s a department, that receives and pays the rent – were we wrong in thinking that accounting does that?

Another definition goes on to suggest that “Lease Administration involves ensuring that tenants are adhering to their contractual obligations and that the property owner and/or management are following through with their obligations.” So now it looks like an overlap with what the lawyers or paralegals should be doing.

“Lease management, sometimes referred to as lease administration, is the day-to-day execution of tasks related to a company’s lease portfolio. There’s no single approach to lease management. It involves reporting, document management, coordinating between stakeholders, and a myriad of administrative tasks.” Even though seemingly more wholesome, this definition adds more confusion, including about the term itself.

So perhaps Lease Administration is a bit of everything from the above descriptions – yet there must be a way to put it in a concise and clear manner, so that everyone could get a good general idea without completing a course on it.

Per Albert Einstein, “If you can’t explain it to a six-year-old, you don’t understand it yourself.” So, here’s our own, almost-a-six-year-old version:

“Lease Administration is an ongoing program that uses leased portfolio data to help manage the portfolio in the most efficient and risk-free way.” In other words, when occupiers have a lot of leases (say, over 20), they need to keep track of what’s happening with them over time, so that they (a) don’t run into problems, and (b) get the most out the leases they had signed.

The “What”

So, what is it exactly that the Lease Administration professionals do while delivering the program to clients? Here are some service items typically included in the Lease Administration scope:

  • Portfolio and lease setup in the system via initial Lease Abstraction (Lease Abstraction seems to be another semi-mysterious concept that is often misinterpreted and is definitely worth a separate conversation – coming soon);
  • Document management – OCR, logging, naming etc.
  • Ongoing updates of the lease records: any change that happens to a lease during its lifetime gets inputted into the system. If this is not done properly and in a timely manner, the entire program becomes pretty useless because it’s not using accurate data;
  • Portfolio reporting: a set of portfolio reports, delivered to the client at the predefined sequence, allowing the most fulsome and, at the same time, easy access to the portfolio data;
  • Critical dates management: clearly, one of the key points of Lease Administration. The cost of missing a renewal and, as a result, losing a location (or overpaying for it significantly) can be devastating; 
  • Rent management: this can take various forms depending on the chosen service delivery tier – from basic reporting to a comprehensive rent payment capability;
  • CAM and Tax reconciliation: review of Landlord’s year end Operating Expenses and Real Estate Tax statements is routinely the source of savings and cost avoidance, at times pretty sizeable. As such, it is a significant part of the program that has branched out to a separate, sometimes standalone service, often referred to as Desk Audit (similar but not the same as Lease Audit);
  • Various informational and other support: lease terms interpretation, communication with the Landlords, tracking specific items of interest (or concern), and much more.

The “Why”

When buying a service, one should have a clear answer as to what exactly they are paying for that would benefit their organization. All the above is not a good answer because it’s what the program does and not what the client gets! Here’s what companies’ executives are getting out of a Lease Administration program, and how it helps them address their goals:

  • Easy access to accurate, updated lease information – to be able to efficiently manage their portfolios;
  • Accurate data for Lease Accounting – to have everything they need for IFRS 16 or FASB compliance;
  • Critical dates information – for proactive action and risk mitigation;
  • Relevant data on their financial and non-financial obligations – to identify and leverage savings and cost avoidance opportunities.

The “How”

Lease Administration delivery can’t happen without a robust, powerful and well-designed Lease Administration system. This is where all the lease information is stored, updated, and where the reports are generated from. Interestingly, there is a lot of confusion around this as well. The key point is often being missed, which is that the system itself is not going to deliver any of the above unless it’s operated by a Lease Administration professional team in the context of the relevant business processes and with the client’s objectives in mind. This will be covered in detail in a future article.

Lastly, Lease Administration, like many other Corporate Real Estate and other services, can be delivered through a third-party outsourcing, or in-house. Without getting into the benefits and drawbacks for each scenario, outsourcing is pretty much the only solution for companies with no or very lean Real Estate departments (mostly, those with midsize portfolios of up to 100 leases).

Rouben Alchoujian, MCR is President of Praedium Consulting