Until recently, several companies chose to overlook their property and asset leases beyond paying the bills. Leases were considered to be a cost of doing business, and lease term management wasn’t a priority. However, the establishment of new lease accounting standards—coming into effect in 2021 for private companies—is set to alter this mindset. Lease management is now becoming an essential practice for companies to not only streamline financial reporting and bottom line but also to ensure that their lease portfolio is well-managed and up-to-date.
During the pandemic, the importance of lease management increased tenfold. With the closure of commercial properties during the lockdown, it became imperative to fully understand the rights and obligations of the lessor and lessee.
What is lease extraction and why is it important?
Lease management entails the extraction of key information from the lease agreement document into a lease abstract which is essentially a summary of the essential terms of a leasehold agreement of real-estate. This data must be accurate and up-to-date to ensure a simplified and easier-to-use reference point for overall lease administration and portfolio management.
Extracting key financial, (such as critical dates, renewals, terminations) and non-financial information helps you:
- Gain quick access to critical information
- Make right/informed business decisions
- Get a clear understanding of even the most complex of lease terms
Lease administration: In-house vs specialists
Real estate companies and commercial real estate brokers looking to manage leases in-house must account for the following two factors:
- Cost of resource hiring and training a new resource: Lease administration is a critical business function and you want to make sure the person you hire is qualified and capable enough to handle your lease administration process effectively. Even if you do find the right person there’s always a company/process-specific learning curve that has to be conquered before they are ‘floor-ready’.
- Increase in HR expenses: Hiring full-time lease portfolio managers or lease administrators can add to your HR expenses significantly. Adding employees means incurring additional costs related to training, medical, 401(k), and other employee costs. Due to the recurring nature of these costs, hiring in-house lease administrators may not be a scalable solution in the long-run.
Reviewing and understanding agreements can be a daunting task, which is why companies look to hire external support to manage their lease administration process. By outsourcing lease administration, you can gain access to specialists who support and manage the lease extraction on your behalf.
By partnering with Cenza, you have all the help you need to maintain and grow your commercial real estate portfolio. We operate on a hybrid model—where AI and lease analysts work together to efficiently extract key terms from lease agreements to support overall lease management. Recently, we worked with a leading Canadian law firm that specializes in handling a high volume of residential real estate transactional matters. The firm was looking to build a database for the storage and retrieval of 27000+ title documents for its clients.
Cenza assembled a review team of 10 real estate lawyers and established a security framework, operating inside the client’s firewall to maintain the highest level of data security. We not only help the client save 35-40% in project cost but also streamlined their document management system, including sequential filing, a file naming convention, and source information.
Our real estate lease management expertise spans a wide variety of documentation within the commercial real estate space, including complex leases, estoppel certificates, and lease guarantees. By using AI and machine learning tools, our scalable team of lease analysts delivers on lease extraction and management projects on a large scale efficiently, ensuring high-quality standards.