May 20, 2013

5 Mistakes To Avoid in Lease Administration

By Don Catalano

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Lease Administration

Lease administration is a high-stakes business. In most companies, real estate is the third largest expense line, so the cost of even a small error can easily run into thousands or millions of dollars. In addition to the financial risk, errors can jeopardize the space that your company occupies. This doesn't just cost money -- it can also hurt your brand equity. With this in mind, there are the five key mistakes to avoid as you take care of your company's leased corporate real estate portfolio.

 

Missing Option & Termination Dates

If your lease rate is above market and your space is undesirable, your landlord probably won't care about the dates that determine when you must claim your option and when you must renew your space. However, if that isn't the case, you can be sure that your landlord's calendar is marked and that he knows exactly when he can take your space back to market. Track your dates carefully as a part of your lease administration regime, and always be a couple of weeks early, just in case there is a misunderstanding.

 

Misunderstanding Measurements

Many of your lease's provisions are tied to the size of your space. Whether you're paying CAMs or you're collecting on TI allowances, knowing how many square feet are part of the charge or credit will help you to minimize what you receive while maximizing what you spend.

 

Missing Regulatory Changes

Periodically, laws in the communities in which you occupy space change in a way that impacts your lease. One good example of this is when cities pass lighting efficiency laws that require retrofits. Having a good understanding of who will be responsible for the cost can help you to plan your cash flow needs.

 

Misallocating CAM Responsibilities

CAMs are one of the stickiest parts of lease administration. They're filled with little details and very easy to miscalculate. Read your lease carefully to understand exactly what you should be paying, and request an audit if your landlord is overcharging.

 

Capital expenditures are frequently problematic, as are management fees. If your lease only allows your landlord to collect a CAM administration fee, make sure that you aren't also being charged for your pro rata share of the management fee. Review your lease to determine whether or not you have to pay for the CAMs on vacant spaces, as well. If you don't, make sure your pro rata share is being calculated on the building's total area instead of its total occupied area.

 

Missing Market Shifts

As norms in your market shift, there probably isn't a lot that you can do with a current lease, but tracking how leases get signed in your market is a crucial part of a long-term, comprehensive lease administration strategy.  You probably know what direction rental rents are taking, but tracking landlord and tenant expense responsibilities takes additional research. However, if a market begins to move more towards a gross structure than a net structure, you'll want to know that before you start renegotiating leases.

 

Lease administration is largely about tracking small details. However, these small details add up into large sums. Doing it right can help you to positively impact your company's bottom line and help insure that you get the resources you need to do your job as well as the rewards and recognition that you deserve.

 

Commercial Lease Administration articles:

5 Features To Look For In Commercial Lease Administration Software

The Perfect Commercial Lease Administration Software

Benefits of Web-Based Commercial Lease Administration Software

 

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Topics: Lease Administration

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Don Catalano

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