While administrative tasks frequently get viewed as necessary evils in the conduct of business, lease administration is a different animal. When a business has an optimized administration system, it can lead to thousands or millions of dollars in operating cost savings. It can also provide the potential for better strategic control of real estate assets.
1. Pay Attention to Allowed OpEx Increases
Even under a triple net lease, landlords aren't always able to pass on all of their operating expenses to tenants. Some leases cap the ability to pass on capital expenditures. Others eliminate the responsibility of tenants to pay for costs caused by the landlord's actions. For example, in California, a building's property taxes get reassessed when it changes hands. If an owner that has held onto a building for a long time turns around and sells it, it's possible that the property taxes could double.
Without knowing what your lease allows, you could end up responsible for the entire increase. However, if you have accurate lease abstracts as part of your lease administration system and your lease caps property tax increases, you'll be able to catch unreasonable increases even if your landlord passes them through.
2. Track Option Dates
While options that set rents to fair market value have relatively limited economic value, options with predefined increases can be very valuable in markets where rents undergo significant growth. They can also be valuable if a landlord undergoes a major improvement project that increases the property's rent level and doesn't have an adjustment built into the lease. In these cases, you can usually expect your landlord to conveniently forget to remind you of your lease's option dates.
The difference between taking advantage of these options and missing out on them frequently goes down to your lease administration system. With a good lease administration system, you’ll know your lease option dates and never miss one. This can save you money and protect your right to continue occupying your space.
3. Planning Capital Expenditures
Lease administration systems can help you plan capital expenditures in two ways. First, they tell you how long you have to remain in a given space, letting you calculate whether or not you will have enough time to receive a return on your investment.
Second, when you're considering expenditures that will lower your occupancy costs, like efficiency improvements, understanding how your lease works will help you calculate whether or not you will get the benefit of your work. For instance, installing low-consumption fixtures makes little sense if you just pay your pro-rata share of a building-wide water bill. Unless you occupy most or all of the building, you'll just be spending money to reduce every other tenant's water bills.
4. Greater CRE Department Efficiency
A great lease administration system also lowers internal costs for your commercial real estate department. Being able to quickly access the information you need frees you up to do other tasks that optimize operations. When your lease administration tools feed data directly into your commercial real estate software, you gain the ability to run detailed reports and benchmarks on your entire portfolio. With lease data already included, the process of running the reports is also more efficient. In the long run, you do more with less effort and with fewer labor hours, leading to lower expenses.
Learn how REoptimizer®'s Lease Administration capabilities can help you!