If your company has multiple locations in buildings of different types with different landlords, you're probably dealing with a mishmash of lease formats that are hard to use or compare. Some landlords sprinkle the lease's business terms in the document, while others put them in an addendum or special section at the beginning or end. Some are short and some are long, while others have been in force so long that you need to look at the fifth addendum to understand what the current terms are. Hiring a lease abstraction service to create standardized summaries of all of your leases can help you to organize the mess and better manage your spaces.
The Lease Abstraction Process
If you use a third party company to abstract your leases, the process starts by giving them a copy of all of your leases and all of the attachments, amendments, letters, assignments and any other supporting documentation. Their staff then reviews the lease and all of the additional material and maps out the business points of the agreement. Lease abstracts typically cover:
- Critical lease dates like inception date, expiration date, increase dates and CAM reconciliation dates.
- Option information including the number of options, their length, the terms of rent increases, and the dates for exercise.
- Basic space and property information like the location, size of space, and landlord and tenant names.
- Financial information such as the rent, terms of increases, CAM amount and calculation process, and security deposits.
- Description of building rules and requirements that impact the tenant.
- Rights to sublet or assign the lease, if any.
All of the data that you request to have abstracted gets extracted by the lease abstraction team and put into a standardized form. If you prefer, the abstractors can even enter the data right into your company's corporate real estate portfolio management softwareor give it to you in a computer-readable format for you to import.
Benefits of Lease Abstraction
When you have your leases abstracted, you eliminate the need to work with your long and non-standardized lease documents. Abstracts turn all of that disparate data into documents that have the same format and information in the same place. Choosing electronic ones lets you completely dispense with paper, if you wish, and just work with information stored in a software program. This makes it much easier to understand what your obligations will be and to compare spaces as a part of managing the efficiency of your corporate real estate portfolio.
Lease abstraction has another benefit, too. When you bring in an outside abstractor to go over your leases, you're getting a fresh set of eyes to look over your documents. It's entirely possible that the underlying nature of your leases has gradually changed over the years, especially if you have very long-term leases and haven't always used highly skilled real estate counsel for your renewal negotiations. Lease abstractors are experienced at reading and summarizing leases and may find important details in the document that you had either never noticed or forgotten were there. Furthermore, many lease abstraction teams are so sure of their accuracy that they can take liability for an inaccuracies in their work and even cover errors and omissions insurance to help pay the cost of any claim.
While lease abstraction is typically done by landlords as part of due diligence while buying commercial real estate, it's equally valuable for corporate real estate professionals managing multiple locations. If you're drowning in leases and documentation, abstracts make them manageable. Ultimately, they let you spend less time to do a better job of managing your portfolio.
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5 Tips for Effective CRE Lease Abstraction
