Why is the Lease Abstraction – Summary of Key Financial, Business and Legal Information important?
Leases act as an foundation of each and every property acquired or purchased. Commercial leases, retail leases and industrial leases are very important part for real estate business as the lease agreements are the focus point of the income stream that nurtures the property. A lease agreement is a summary of key financial, business and legal information that proves helpful when a property is to be sold or acquired. An assessment of the complete lease agreement is necessary as it is a vital constituent of the entire due-diligence process. It is important that each lease agreement is reviewed carefully so that all the vital information can be abstracted. So, to define the term lease abstraction, it can be simply said that a lease abstract is a summary of key financial, business and legal information in a commercial lease agreement.
What all important information does a lease abstract contain?
An abstract of a lease agreement is a summary of key financial, business and legal information laid down in a commercial lease. A lease abstract summarizes the standard lease provisions and also captures any uncommon lease provisions, financial obligations and other important matters. The information that a lease abstract contains depends on whether it shall be reviewed for procurement, management or a merger, or for underwriting and lending purposes. The information that a standard lease abstract contains relates to basic lease information, identification of landlord and tenant; description of the premises leases along with the square footage; other lease terms and the expiration date. Some of the critical financial components that the abstract must contain include:
• The monthly Basic Rent that Tenant should pay to Landlord
• Rent Escalation Rate
• Renewal Terms
• Security Deposits
• Common Area Charges payable by the Tenant to Landlord along with the Escalation Provision
• Lease Expiration Date
• Late Fee and Interest
• Tenant’s Insurance
• Real Estate Taxes that need to be paid by Tenant
• Repairs and Replacements that are Tenant’s Obligations
All this information accounts for a summary of the commercial lease agreements.
How can a lease abstract help in evaluating a property?
Comprehensive provisions of a lease abstract can affect the income flow, as what is precisely included or excluded in the gross sales shall impact the percentage rent. Eliminations and insertions in the maintenance provision influence the operating expenses. Understanding and accounting for the number and type of options available to the tenant or landlord is of extreme importance as it significantly changes the value of the assets. There are many other aspects that interest most buyers and existing owners, like tenant’s use of the premises, landlord’s auditing rights, Landlord’s rights if tenant defaults, tenant’s obligation regarding maintenance of property and many more, all of which provide a prospective buyer with an bird’s eye view regarding the revenue generating capacity and the net acquisition value of the property.
Who are the competent resources that can chalk out a good commercial lease abstract?
Reviewing a complete lease agreement is complicated and time consuming. A reviewer must go through the contents of the lease agreement carefully. Important lease provisions are often buried in unexpected clauses. Also, at times, important lease provisions are found in documents or agreements outside the lease, such as exhibits, addendum or riders. Lease abstracting is a tedious, painstaking work, however, before taking any decisions about the acquisition, management or underwriting of an asset, a complete understanding of the underlying asset is essential as without a detailed and thorough lease abstract, this understanding is difficult to achieve. Hence, professionals having expertise in the lease abstraction field should be chosen carefully so that the abstracts can prove their worth when required.
What is the most popular process for getting commercial leases abstracted?
As the process of commercial lease abstraction has gained popularity in the past decade, many off-shore vendors have come up that provide lease abstraction services at a very economical price. These off-shore vendors support a team of professionals who are experts in the lease abstraction process and keep themselves updated with regular training. Most of the time, these off-shore vendors have a 24 X 7 working schedule that helps the client in meeting deadlines. The lease abstraction process vendors are well known for delivering quality output within a stipulated time frame.
Complete Legal Outsourcing is one such vendor, based in India that is well known in the field of commercial lease abstraction. The abstraction team at Complete Legal Outsourcing holds over seventeen plus years of experience in abstraction and has successfully catered to many clients based in US, UK and Australia regions. Complete Legal Outsourcing is also well known for delivering quality output within a stipulated time frame. Share your abstraction needs with the abstraction team at Complete Legal Outsourcing and let us take care of the rest.