Importance of the lease abstraction
A lease summary is a detailed summary of the key business information in a commercial real estate lease. This lease roadmap allows a leasing manager, leasing agent, property manager, or maintenance manager to refresh frequently referenced leasing information without having to take time to examine a lease. to find the necessary information. It also enables aggregation of critical lease information, such as expiration dates and option notification, to better manage a portfolio of leases.
Commercial leases are often filled with long, wordy paragraphs written in complicated legal language, and summaries cover all of that language and condense the lease with your important information.
The content of a summary varies by type of lease, but all leases contain the following main terms: (1) tenant’s name, (2) owner’s name, (3) lease term, ( 4) number of square feet leased, (5) number of space, (6) base rent, (7) percentage of rent, and (8) list of documents that modify the terms of the lease.
Very often, an individual requires a lease summary not for their own understanding of the terms of the lease, but for financing purposes. When an individual is looking to purchase commercial property, they must perform what is called due diligence. Due diligence requires the prospective buyer to inspect all aspects of the property, including the status of the leases associated with the property. Reviewing the summary of leases rather than the lease itself makes due diligence much more cost and time efficient. A lease summary will provide the essential details of a transaction long after the negotiating parties have forgotten the terms. Therefore, it is a powerful tool to help manage and audit a lease during its term.
The most critical information to include is the finance lease information. The obvious reasons are because the financial components of each lease drive each commercial real estate transaction. While most if not all financial information should be included in the lease summary, the inclusion of non-financial information offers more discretion for abstraction than financial discretion for the extractor than financial information. The inclusion of these provisions is often dictated by what a party considers relevant in relation to the specific property or tenant in question.
The lease summary has evolved in direct proportion to the increasing complexity of commercial property transactions. A lot of data can and should be included in the lease summary. Much of this data is critical to the valuation and management of property and portfolio leases. However, it is important to recognize that the summary of the lease must be cleverly phrased to allow the landlord or tenant to achieve their goal of understanding the basic provisions of the lease without having to refer to the actual lease document.
VERGHESIS. MATHEWS
Attorney, RK DEWAN & CO.