The most crucial success initially for a business is finding the perfect commercial real estate. Even though navigating the lifecycle of a commercial lease is challenging and confusing at the same time. Especially if it involves multiple leases at a time.
Commercial Lease has a method to follow and multiple functions. While the process of leasing from acquisition to operations involves several departments and functions to come across, here we will step by step guide you to navigate every step of the commercial lease cycle. It covers pointers from occupancy costs, auditing, and allowances for everyone, including new businesses or seasoned entrepreneurs.
Understanding the Different Departments Involved in Managing Commercial Leases
This lease process involves several departments like accounting, real estate, and legal teams. Each department plays a vital role in the commercial lease. The responsibility of the real estate department is to record and monitor critical dates. The accounting department should process AP, adhere to GAAP, and audit occupancy costs. The legal team is responsible for drafting and reviewing lease agreements during an acquisition/ disposition of lease.
Understanding the department’s roles is crucial for the entire process as it will help handle the agreement appropriately. This will ensure the smooth running of business.
The Acquisition or Development Process
The commercial lease’s crucial step is the acquisition or development process. It has legal, development facilities, accounting, and real estate departments. Before we proceed with the acquisition further, the essentials are the terms/conditions for the lease that need to be focused on.
Both constraints or allowances are essential to understand regarding the lease for a buyer or seller. It is better to know your portfolio before rather than later being rejected or finding out that it’s too late to know that your plans for a new location are disallowed by lease constraints while applying for purchase.
However, such nasty surprises would be alarming and heart-wrenching at the last moment. To avoid such happenings, it’s crucial. The next step is that the development team works effectively and closely, especially in targeting milestones and timelines for the construction processes. If there is a lack of management during development, the landlord would never wait for the irregularities but start charging rent before the construction process is complete.
Transitioning to Operations: Post-Closing Integration
Once the lease is acquired/existing or signed, the next step of business transitions into operations. Post-closing involves departments that need to be handled, like compliance, facilities, accounting, and real estate teams.
The facilities depart is supposed to set up utilities or change ownerships on previous utility contracts. On the other hand, the compliance team is applying for new licenses or changing the ownership of prior licenses. At the same time, the accounting team looks toward integrating new lease expenses into AP process.
There should be a proper detailed plan for the execution to transit the operations for the new lease locations to generate revenues quickly.
The Importance of a Reliable Lease Abstract
Basically, the lease abstract summarizes the lease agreement, including all the terms and conditions. This lease abstract should be reliable enough throughout the lease agreement. The contract should include the lease terms, rental amount, renewable operations, and any additional terms.
The reliable lease abstract manages the business’s efficiency, potential issues, and primary concerns. The lease should be updated promptly to account for the new amendments and other documentation.
Occupancy Cost Auditing: From Escalations to Reconciliations
This cost includes reviewing and verifying the expenses associated with the commercial lease. The process consists of reviewing, reconciling, rent escalation, and ensuring all costs are as per the lease agreement. Rent escalation is typically about the lease agreement and its rental amount over time.
It is essential to regulate the lease agreement so that the discrepancies can be avoided and any such errors or discrepancies can be controlled. The real estate and accounting teams must work together to conduct OC audits efficiently.
Maintenance and Repairs
Another step in the commercial lease is maintenance and repairs to ensure the commercial space is safe and comfortable. The facilities team is supposed to maintain the property and coordinate necessary repairs/upgrades. The facilities team should have access to the lease data to know about the maintenance items the landlord is responsible for.
The maintenance and repairs need to be done with proper planning as they will comfort the customers and avoid any particular legal issues.
Real Estate Tax Compliance and Verification
This involves compliance and verifications with the real estate tax, primarily when the tax bills are issued and due. Evaluate current tax valuation with comps and ensure costs follow federal tax laws. The entire process helps review any potential tax liabilities and assessments, and tax payment is done in a timely.
The tax payment physical copy of the bill is primarily unavailable, but still, the payment is expected, and any late fee is levied if the bill is not paid on time. There should be a proper tax payment plan to monitor due dates. It will help avoid legal issues.
Disposition: Assignment/Sublease Clauses and Security Deposits
The disposition means termination, renewal, or assignment of the lease agreement. This process includes reviewing sublease clauses and identifying issues to be addressed promptly. The organization of lease data is essential to help continue the procedures if any sublease or disposition is required.
There should be a proper accurate report of security deposits paid to ensure no money is left on the table, as this data can quickly disappear.
Conclusion
The lease agreement is a valuable asset of the business. It is overwhelming and confusing to navigate the lease cycle. A thorough understanding of the different departments involved in managing the commercial lease is essential for adequately handling the lease.
The process should be well prepared to make informed decisions; transitioning to operations, acquisition, or development of the lease process will lead to an accessible lifecycle of a commercial lease, denoting that the lease agreement is a valuable asset to their business.
