When, there is a space, there will be an owner – when there is a space, there is a usage. The person who wish to use / rent would discuss terms and negotiate a compensation. With all the growth happening throughout and for the limited capacity of individuals – an agreement is drafted out; (more […]
When, there is a space, there will be an owner – when there is a space, there is a usage. The person who wish to use / rent would discuss terms and negotiate a compensation. With all the growth happening throughout and for the limited capacity of individuals – an agreement is drafted out; (more so in the case when one or both parties being Corporate) about the points of discussion and by capturing the dos and don’t’s / permitted and restricted details.
A lease is the start of the relationship between the parties – from then on, all major correspondence between both parties, that has a say in the form of add / edit / delete to the agreement, also forms part of the lease docs – like Confirmation of Commencement Date, Guaranty, Assignment, Memorandum, Consent to sub-lease, amendments, addendums and the like.
The demand and supply, as well as the capability / capacity of the respective party and the brokers involved – the talented legal attorney pool as made the language and the entire agreement highly complex in nature. The points in black and white, are prepared to live by it and requires a lucid form for day to day deployment – where comes the requirement of lease abstraction.
The B2B and B2C has distinguished the sector as Commercial and Residential. While, Commercial encompasses Retail, Industrial and Office, Antenna and Data Center. And when the purpose is business – space is useful to generate a profit; higher the case of misuse or a situation that cannot be really envisioned (in terms of sales, foot fall, goods movement, parking and the like); thereby the conditional provisions (clauses) have added up the heat – making abstraction a need.
While a lease could be for a day or even decades together – it is abstracted manifold. Parties that could require the abstract:
- Tenant
- Landlord
- Broker
- Prospective buyer of the Property
- Prospective buyer of the Tenant’s business
- Banker / Mortgager
- 3rd party consultants (to suggest better running model)
In all the cases, not only the clauses required in the abstract are different, but also the content to be abstract will differ. Ex: Parking – Landlord would wish to understand the # of reserved and unreserved parking slots, fee to be collected (if any). However, Tenant would wish to know the valet parking, employee parking and conversion ratio (from unreserved to reserved or vice versa). When a person / corporate decides to acquire a Property – they would still like to understand:
- If the leases in the Property was signed for a rent, which is more or less in line with FMV
- Is everything fixed or heavily variable (Percentage rent)
- Is termination of Tenant-end, requires sizeable notice period / monetary fee or at wish
- What is the vacancy % in the upcoming quarters
- How is the renewal options designed
- Is Purchase option available for the Tenant
- Prop 13, which restricts the Tenant’s tax reimbursement, if the tax was increased due to change in Ownership
- Restrictions on development of vacant land in the same land parcel / compound
When the Landlord Company require details for daily maintenance – they would like to understand:
- When is the bills due, what is the quantum of late fee and it’s applicability
- What are the financial obligations for the Landlord and those of the Tenant
- What are the reimbursable pro-rated expenses, direct expenses
- What have to be maintained and repaired by Landlord; inside the premises and that of common area
- Right of 1st Offer, Right of 1st refusal
- Exclusivity
- Radius Restrictions
- Sales Kick-out
- Early termination
Recently, we have audited a portfolio of 300 Tenants and found anomalies:
- Security deposit is not recorded for any of the existing Tenants in the new Property Management System / software
- Rent for Parking and Signage have not been set; resulting in a sizeable revenue loss
- Rent language has been slightly tricky with abatement and other conditions; wherein there is misinterpretation leading to erroneous set-up of dates
- There is monetary component towards additional charges like CAM / OpEx, INS, RETAX; which is fixed. However, there is an increase every year which is completely ignored – leading to low recovery rate of additional rent
With the growth of technology and the 10s of property management systems / softwares – tone of abstraction, preciseness and the way the language is captured has taken a 360 degree change; thereby evolved as an art by itself. Now that these services have been offshored for almost 2 decades and with the amount of transition as well as the dramatic volume handled – the contradiction between 2 sections and inconsistencies in language of a clause are all taken up in exceptionally commendable manner. The world becoming smaller in terms of connectivity, leading to foreign investments, the IFRS requisites – not only the space lease; any lease, requires to be abstracted, thereby a need for maintenance throughout the term have really fueled this service; taking various forms
What do we require, by when do we require – decides fewer the hands involved, thereby consistent abstracts, a pattern across deliverables; to bring-in the same read and ease the interpretation.
Products:
- Lease Abstract (including Multi-lingual)
- Lease data input / Set-Up in property management systems
- Dates & Dollar Audit; Clauses and Options abstract
- Equipment lease abstract
- Kiosk abstracts
- Ground lease abstracts
- Loan abstracts
- Financial projection Summary
- Recovery Set-Up
- Tape abstracts
To put it in simple terms – rent is the primary source of income in Real Estate sector; which stems from the lease.
You plan to buy – abstraction is required; to understand monetary parts & the Landlord obligations
You bought – abstraction is required; to maintain and levy the charges as agreed
You have an issue with a Tenant – abstraction is required; to understand the responsibility of either party
You have additional documentation with Tenant – abstraction is required; to update the information
You have a query / audit / legal suit by Tenant – abstraction is required; to justify the stand
Your Property occupancy has changed dramatically – abstraction is required; to understand the recovery
There is a pandemic – abstraction is required; to know the force majuere
Your Tenant’s business is sold – abstraction is required; to know the termination / expansion / renewal options
You propose to move the Tenant to different suite – abstraction is required; contents on relocation
You feel Tenant has not lived by Percentage Rent, Radius restriction – abstraction is required; to question
You plan to redevelop the Property – abstraction is required; to check Tenant consent requirement
In most occasion, Vice-versa is applicable to Tenant.
You make your revenue,
You validate whether it is legally done
You ensure that you do not lose
All based on the terms / Clauses listed in the lease and how it is interpreted.