Importance of the lease abstraction

A lease summary is a detailed summary of the key business information contained in a commercial real estate lease. This lease roadmap allows a lease administrator, leasing agent, property manager or maintenance manager to renew frequently referenced lease information without having to take the necessary time looking for the lease to find the necessary information. It also allows you to aggregate critical lease information, such as expiration and notice dates for options, to better manage a portfolio of leases.

Commercial leases are often filled with long verbose paragraphs written in complicated legal language, and abstracts deal with all of these terms and lead the lease to its important information.

The contents of an abstract vary depending on the type of lease, but all leases contain the following main terms: – (1) name of the tenant, (2) name of the owner, (3) lease term, (4) ) leased area, (5) space number, (6) base rent, (7) percentage rent and (8) list of documents amending lease conditions.

Most often, an individual needs a summary of the lease, not for their own understanding of the terms of the lease, but for funding purposes. When a person is looking to buy a commercial property, she must perform what is called due diligence. Due diligence requires that the prospective buyer inspects all aspects of the property, including the state of the lease contracts associated with the property. The review of the abstract of leases rather than the contract itself makes the task of due diligence much more efficient in terms of costs and time. A summary of the lease will provide the essential details of a transaction long after the terms have been forgotten by the negotiating parties. It is therefore a powerful tool to help administer and audit a lease during its term.

The most critical information to include is information on finance leases. The obvious reasons are due to the fact that the financial components of each lease agreement determine each commercial real estate transaction. Although most, if not all, financial information should appear in the summary of the lease, the inclusion of non-financial information offers more discretion to the abstraction than the financial discretion for the reviser as financial information. The inclusion of these provisions is often dictated by what one of the parties deems relevant with respect to the 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 essential for the valuation and management of property leases and portfolios. However, it is important to recognize that the summary of the lease must be cleverly stated to allow the landlord or tenant to achieve its purpose, which is to understand the basic provisions of the lease, without having to defer to the lease document.

Verghese. MATHEWS
Lawyer, RK DEWAN & CO.