Why Automating Lease Management Processes is Crucial
The importance of an automated Lease Management process
During challenging economic times like these, property managers need easy access to lease documents and their data. They also need that data to be accurate. Owners and managers who lack a well-defined, repeatable process and lease abstracting software take on more risk. So do those who have both but do not use them with a plan.
That process covers the legal aspects of a lease, amendments, property rent collection, common area maintenance and pass-through charges, CAM Reconciliation, tenant options and expiration dates. Without it, the risks are legal violations, lost control of operating expenses and potential tenant attrition.
A well thought out lease management workflow process, combined with lease abstracting software, will mitigate these
risks. It lets a manager or owner proactively manage the entire lease life cycle. That cycle runs from initial lease
abstracting and setup through billing, lease modifications, critical date tracking, amendments and renewals, and lease
expiration or early termination.
What is Lease Management?
The lease management process includes;
- creation of an efficient lease workflow within your organization
- allocation of the resources to manage and complete the tasks of the lease workflow
- analysis and negotiation of the lease, amendments, renewals, expansions and contractions
- abstracting, updating, storing and archiving the lease data and legal documents
- monitoring and completing tenant requirements defined in the lease
- accessing and reporting on the lease data
the most critical component of the lease management process
Each function above is vital to the successful lease management of real estate. The most critical one is probably abstracting the underlying data within the lease. That work happens during acquisition due diligence and in the ongoing management of a property.
Abstract the lease when you acquire a property. Abstract it again when any modification is executed to the lease terms, critical dates, tenant options or landlord obligations, to name a few.
A lease contains two types of information: financial and non-financial. The financial components of a lease drive every commercial real estate transaction and influence the bottom line cash flow of the asset. The non-financial provisions govern the rights and restrictions of the transaction.
Abstracting means taking the financial and non-financial information out of the legal documents and recording it in a system. The process may also involve attorneys, accountants and real estate professionals.
They ensure that the
abstract accurately summarizes the essential information in the lease. That includes added items such as insurance
and maintenance responsibilities for both the landlord and the lessee. For optimal
efficiency, lease abstracting software should be tightly integrated with your property accounting and management
software.
To reap all of the benefits of lease abstracting software, set aside time to enter the critical lease data from your contracts into the application. How long that takes depends on the length of the lease, how heavily it has been amended and how many fields your system needs. A simple lease takes a few hours, and a long or complex one can take most of a working day.
When you evaluate lease abstracting software, look for an application that is flexible and customizable for the property types you manage. The more adaptable the tool is to your business and property types, the less time the abstracting will take. Your resources can abstract the leases and enter the data more accurately and with less effort. That raises the return on investment of the software.
Lease abstracting software integrated with your property management accounting, CRM and ERP systems allows for:
- compliance auditing of all financial activities related to your lease transactions
- an increased view of tenant accounts
- automation of accounting posting requirements
Automating the lease workflow processes and standardized templates also raises overall productivity and minimizes
the risk of human error. The result is greater tenant satisfaction and lower administrative costs.
Conclusion
Lease Management has evolved in direct proportion to the increased complexity of commercial property transactions. A lot of data can and should be included in the lease abstract. Much of this data is critical to the valuation and lease administration of properties and portfolios.
Still, the lease abstract should be artfully stated. The reader's goal is to understand the basic lease provisions
without having to refer to the actual Lease document. The abstract should let them do that.
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