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Lease Administration Tips for Commercial Real Estate Agents

Lease administration forms part of the leasing and management services offered to Property Management clients in commercial real estate today.  It is a specialised service and has major impact on the property under management.

The real estate agency staff involved in the management and leasing of a commercial or retail property, really do need to know what they are doing when it comes to lease administration.  When done well the process will help the landlord client achieve income and tenant benchmarks in the property that would otherwise fall short of expectations.

Why do things in investment properties need to be ‘administered’?   The answer is quite simple; the market is constantly changing and expectations of the tenant mix, income, and local area will change.  Top agents work ahead of the changes and they know what is going on in all comparable properties.

Here are some factors that you can merge into your lease administration system for your clients.

  1. Review all leases as a priority.  In this way you will know what is coming up with each tenant and occupancy.  When you are managing and leasing larger properties, the task is complex.  For this reason, any lease review should involve a ‘synopsis’ process where key issues from the document are extracted and noted in an appropriate document and diary system.  In this way you can be prepared for the major events well before they happen.
  2. Check out the rent reviews coming up for each tenant.  The market rent reviews will be the hardest to predict and negotiate.  Any market rent reviews should be flagged for early attention.   You will need some good comparable market rental evidence from the local area and this takes time to locate.
  3. Options for lease renewal can be a good and a bad thing, depending on the property, the tenant, and the landlord.  Leases should have an early window of time where any option that exists can be negotiated and finalised.  In high quality shopping centres, the process of giving an option for a further lease term is not desirable; it places far too many limitations on the tenant mix and how the client landlord can work their shop ‘clusters’.  As a general rule, any top quality property should not give ‘options’ as a standard offering in any lease negotiation.
  4. All leases will have factors that need action at some time during the year or the lease term.  Typically those things are insurance certificates of currency, rent reviews, options, renovation dates, and make good provisions.  Get to know your leases so the critical dates area correctly actioned well in advance.

Attention to detail in lease administration is really important.  This means that all actions and correspondence should be correctly recorded and implemented.  All of this action should be supported by a good property management and leasing fee.

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Income Management in Commercial Property Management Today

When it comes to commercial or retail property management today, the income for the property should be optimised given the particular property, the landlord, the property market, and the financiers.  In saying that, income in a commercial property is a number of things, all of which require careful strategy and planning.

Here is a list to help you understand some of that income:

  1. Rent paid by the tenants in the property and under the terms of the lease.  That rent will be for occupied premises or ‘demised premises’ as outlined in a lease document.
  2. Outgoings recovery from the tenants under the leases and given the types of rent paid in the property (gross or net).
  3. Extra rental for special factors such as car parking, antennas on the roof, storage areas, signage, or licenced areas external to the lease.
  4. Net income will be impacted by the expenditure in the property.  For this reason the income management plan of a property actually involves a close look at the property expenditure.
  5. Some of the outgoings in a property will be recoverable from the tenants. That will usually be for consumable services such as cleaning, electricity, water, or gas.  The process of recovery really depends on the property and how services are established for the tenants to use and access. Importantly you should look for the recoverable consumables in the income stream and understand what they are for.  The lease for the tenant will usually give details of that recovery.
  6. Arrears in a property will be reflected on the monthly tenant rent invoices.  Check out the rent invoices for any outstanding items.  If arrears exist, find out what they are for and how they occurred.  Some tenants conveniently ignore unusual charges in their rent statement.  After a few months it is really hard to know what the original charge was for.
  7. Rent reviews are a factor that improves rent charges for the landlord (in most cases).  Every lease is different and on that basis should be checked for upcoming rent reviews.  Understand how those rent reviews are to be implemented and when that is to occur. Time may be of the essence for that event to occur.
  8. Remittance of money to the landlord is part of income management.  Each month or even twice monthly, the landlord should receive money from the rental payments in the property and with the tenant mix.  The balance of funds become challenging when the vacancy factors in the property start to rise.

You can add to this list based on the landlord and the property.   As real estate agents, our job is to optimise the income given the prevailing factors of the property and the market.