Why Lease Abstraction is Important to Realize a Better Return

A lease abstract is basically the boiled down essence of a commercial lease. It oulines the basic terms contained in the lease so that all parties to the lease can see in plain language what their rights and obligations are. Lease abstracts are especially useful in analyzing property before a purchase and are used fairly often by finance companies to get a quick idea of the details of the leases in an income producing property prior to making an offer of funding.

Some of the common items found in a lease abstract:

  • Address of the property or premises
  • Lease term including start, end and possession dates
  • Tenant and landlord name(s) and contact information
  • Description of the premises, unit number, address, etc.
  • Amount of base rent for each year of the term
  • Amount of additional rent and how calculated (proportionate share, NNN, etc.)
  • Description of what expenses are paid by whom
  • Allowed uses
  • Restrictions on alterations
  • List of common areas and facilities
  • Amount of liability insurance required
  • Late payment handling and penalties if any
  • Conditions for surrender of premises (remove or leave tenant improvements)
  • Outline of tenant improvements paid for by the seller
  • Amount of any concessions or inducements
  • Detail of renewal options if any and any first rights of refusal for re-leasing space or taking over adjacent space
  • Any miscellaneous provisions
Prudent owners of commercial real estate recognize the value of these documents and prepare them in advance of offering a property for sale to ease the absorption of information by potential buyers. If the due diligence process is painless, you can get it sold more quickly. If you make the process easy and straightforward, you'll also generally realize higher net sale proceeds at the end of the day because, when comparing your investment property to another one, yours looks (and is!) better managed and therefore represents a lower risk.

For a sample of a blank Lease Abstract, just email me and I'd be happy to forward one to you for your personal use free of charge.

6 comments:

Miles Baltrusaitis December 10, 2009 at 11:58 AM  

good article. I work in abstracting as well. Isn't it amazing how many people fail to see the value in something so vital to an asset owner's bottom line?

Oh, also, is there a post button to tweet your articles? some of my friends in the industry would find your article interesting.

thanks,

Doug Lytle December 10, 2009 at 12:07 PM  

Miles, thanks for compliment! It really is the simple things that make the most difference sometimes. A little careful organization at the outset is a great way to ensure long term stability.

In terms of tweeting or posting to other social media, there is a Share/Save button at the bottom of each article on the blog. Hover your cursor over the button and many different options will drop down for you to choose from including Twitter and Facebook.

Thanks for reading; I'm glad you found it to be worthwhile!

Doug Lytle December 10, 2009 at 12:13 PM  

Edit to above:

Miles, it appears that the Share/Save button does NOT appear in older posts when you link directly to them or find them via organic search - this is my error and I'll work to fix it ASAP. Thanks for the heads-up.

Doug Lytle December 10, 2009 at 1:13 PM  

I think I have the problem solved now. The social bookmarking buttons are now at the top of the post and appear to be working on all posts whether arrived at organically or directly on the main page. Let me know if you have any further issues.

Thanks again for your question Miles, or I wouldn't have noticed this issue!

Miles January 14, 2010 at 5:22 PM  

No problem, Doug! Site looks great.

lease abstract February 18, 2010 at 3:51 AM  

Lease Abstract is a road map of the lease that allows a lease administrator, leasing agent, property or maintenance manager to renew frequently referenced lease information without having to take time perusing a lease to find the needed information. It also allows an aggregation of critical lease information such as expiration and option notice dates to better manage a portfolio of leases. So it is really important to know lease abstraction.

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