Commercial real estate leases are lengthy and somewhat daunting documents. But, within each lease document lives an immense amount of valuable information, including important legal, financial, and business obligations that the lessee has agreed to with their landlord. Extracting key information within a lease portfolio is a time-consuming task, but that is where lease abstraction comes into play.
What is lease abstraction?
Lease abstraction is the process of extracting, processing, and organizing critical data from within your lease documents. The lease abstraction process enables teams to gain better visibility into their real estate portfolio.
How does lease abstraction influence the lease management process?
Lease management requires attentive execution, from document management to critical date tracking and financial reporting. Many real estate teams approach this process manually with spreadsheets, calendar notifications, and online document storage. In fact, 41% of CRE companies plan to increase their investment on data analytics this year.
Teams can unlock the data points and critical information within their business’s real estate portfolio through lease abstraction. It enables real estate teams to make better-informed decisions, save time searching lease documents, and optimize the operations behind their lease management processes. In addition, it creates an avenue in which your finance team can comply with the new lease accounting standards, ASC 842.
Why is lease abstraction necessary?
Missing critical dates, renewals, and lacking insights into your clauses is an easy way to give your landlord more money. Within every lease lives a plethora of financial data and business insights that are mission-critical to your business. A lease abstract delivers the essential information living within your lease including:
- Landlord information
- Address and square footage
- Lease Terms
- Critical Dates
- Expiration Dates
- Critical dates
- Operating expenses
- Options and rights
- Real Estate Taxes
- Termination Clauses
- Security deposits
- Rent projections
How can software enhance your lease abstracts?
Lease administration software not only analyzes your lease abstracts. But, it also allows for better time management by enabling automation, collaboration, and data insights into your entire lease portfolio.
Your team can track critical dates via lease administration software as it automates notifications of tasks or items that need the real estate team’s attention. For example, your team can receive notifications on rent renewals, rent expiration dates, and CPI increases, amongst others.
In addition, every clause in your lease agreements is now filterable and searchable across the portfolio. Seamlessly, search and identify which leases have percentage rent clauses, termination clauses and/ or tenant improvement clauses, just to name a few.
Lastly, lease administration software allows you to export financial reports. Your accounting team can review monthly rent, rent variances by space type, clause type, and term type.
Lease abstracts are beneficial for all parties involved, tenants, tenants representatives, landlords, etc. It distills the legal jargon of a lease down to a digestible and easy-to-understand document that highlights only the most critical information. For businesses managing a significant lease portfolio, both lease abstraction services and lease administration software will be a powerful and insightful combination to power your real estate decision-making. Learn about our lease abstraction services by Occupier.