Understanding the important lease terms beyond just the rent is crucial for making informed, strategic decisions about your property. While rent rolls often receive the most attention during lease abstraction, other significant elements such as termination options, renewal clauses, expansion rights, and the right of first refusal play a vital role in optimizing your lease agreements. By comprehensively summarizing and tracking these key financial and non-financial details, both tenants and landlords can ensure they are fully aware of their options and obligations, ultimately leading to better business outcomes.
Lease abstracts involve summarizing the key financial and non-financial information contained in your leases to ensure:
- You have quick access to critical information.
- You can make the right business decisions regarding the property in question.
- You have a clear understanding of even the most complex of lease terms.
Generally, when we use the term “key lease data,” the first thing that comes to mind is rent. A lot of importance is attached to the rent roll, and every lease abstractor focuses on getting that right. Tenants and landlords alike recognize the importance of summarizing the rent roll and its various elements accurately.
But there are other important lease terms that are equally significant and shouldn’t be taken lightly either. These include options related to termination, renewal, expansion, and the right of first refusal. These elements are extremely important from the tenant’s perspective because they can help you get a good deal on your existing lease. Here’s how it works:
- Termination options: These clauses deal with the choices the landlord and tenant have with respect to ending the lease contract at any time.
- Renewal options: These clauses deal with the choices the tenant has to renew the lease with the landlord upon completion of the lease term.
- Expansion or right-to-first refusal options often deal with the tenant’s right to be asked first in the event there’s a vacancy in the premises.
It is extremely important that, as a tenant, you are aware of these options in order to make timely strategic decisions for your business.
For example, if you find a cheaper or better location for your business, you may want to consider terminating your lease mid-term, even if it means paying penalties, because, in the long run, that may work out to be more profitable.
On the other hand, if your property is in a great location and you got a great deal on your rent increase terms, you may want to renew your lease after it finishes its initial term. In such a case, you certainly wouldn’t want to miss out on a chance to renew your lease just because you missed the notice period by two days!
Another example: Let’s say the premises adjacent to yours is just what you need as your business grows. It then makes sense for you to jump on the opportunity the moment it becomes vacant.
To do any of these things, there are various formalities involved, such as notifying your landlord of your intention to terminate or renew within the stipulated time frame, a formal, written expression of interest, etc.
So, when we speak of getting the key terms right in your lease abstract, it is much more than the basic rent roll. All key dates must be identified at the time of lease abstraction, and as part of your lease administration process, those dates should be tracked, along with the necessary action items related to them, so you can make the most of your leases.
For more information, please contact Mohr Partners Global Lease Service department.
