Tenant Lease Administration

What is Lease Administration?

After you sign a lease, do you file it in the bottom drawer along with all those other forgotten remains of papers you signed… or do you treat it as a “live” document?

If you are in the “file and forget” camp, then the good news is… you have plenty of company. Most tenants don’t actively manage their leases, and only consider lease issues if a rent review or lease expiry is pending. The bad news is that when you fail to manage your biggest fixed cost by taking a passive approach to managing your leases, it will most likely cost your business dearly in the long run – by leaving potential value unrealised, and substantially increasing your costs.

Leases are often long-term agreements, so it’s not uncommon for important factors to change significantly during that time. Perhaps your business is growing faster than anticipated… or you need to downsize? Or has the building owner made changes to the property that affect your operations?

Whatever the reason, even seemingly minor changes to your lease can have major financial implications.

“Tenant lease administration” is a broad term that encompasses tracking, managing and optimising your leases to minimise your costs and mitigate your risks. Taking this proactive approach enables you to make better property decisions, reduce property expenses, avoid surprises, and neutralise extra costs.

Tenant lease administration differs from traditional property management (which is landlord focused). Property management includes activities such as tenant management, rent collection, payment of OPEX, and property maintenance.  Good landlords should also contemplate asset management within their general property management.

Why you should take a proactive approach to lease administration

Here are the 5 big reasons why tenants should take a proactive approach to managing their leases…

1. Organised and accessible lease data = More effective property decision-making

Efficient lease data management enables you to abstract, store, manage and use your lease information to make better and more timely property decisions on current and future leases. Quite simply, it means you are able to confidently answer the following questions (and many more!);

• What is my guarantee exposure?
• What are my lease expiry risks?
• What is my average rent cost?
• Why is the insurance so high for that premise?
• When is my next lease event?

2. Clear understanding of obligations = Reduced risk

In addition to being a legal document, your lease contains a list of tasks you need to manage. Having the wrong OPEX information, misinterpreting lease data, misunderstanding maintenance obligations, or missing critical dates, payments or recoveries – these all increase your business risk. And many of these risks will have lasting effects.

Would you really want to lose is the right to occupy your premises, simply because you were late giving notice to renew your lease? Or because you didn’t realise you needed to ask for further lease renewals?

Why create unnecessary risk?

Lease administration enables you to meet all your lease obligations… on time, and per your lease terms.

3. Clear understanding of obligations = Reduced costs

A solid understanding of your lease obligations along with managing your rent reviews and maintenance obligations will significantly reduce your property costs.

Taking care of your maintenance obligations throughout your lease will avoid expensive reinstatement costs. And recognising who is responsible for the different aspects of the property’s maintenance is critical to ensuring staff comfort and safety, while avoiding expensive repairs downstream.

Additionally, proactively managing and negotiating your rent reviews can suppress or minimise rental increases.

4. Timely OPEX reconciliations = Reduced spend

Operating expenses (OPEX) are a significant business cost in addition to the base rental; this area requires detailed management as it is open to “interpretation”… which can often lead to dispute. You need to avoid being charged for the wrong items and quantum.

The key OPEX issues to manage are:

• Are you being charged for the OPEX items you agreed to under your lease only?
• Are you being charged the right portion or share of the OPEX?
• Is the OPEX quantum reasonable, and are there timely reconciliations of the budgeted vs the actual costs with any overcharging refunded?

My rule of thumb is this… if there is no annual OPEX reconciliation, you are due a refund.

5. Better lease cost forecasting = Fewer unwelcome surprises and cashflow headaches

Forecasting lease costs for one or two leases may not be an issue for your accounting team – but any more, and you’ll probably start sweating once you realise you still need to be across every detail of your 5-year lease cost profile.

We believe that efficient tenant lease administration provides measurable strategic value to your business, especially when it can include accurate forecasting.

This table below summarises the benefits, value and lease administration functions.