What Is the Importance of Lease Management?
Complex real estate portfolios can be difficult to manage. The real estate lifecycle has many moving parts, from site selection to construction project management, to lease administration and lease accounting to transaction management. Corporate real estate professionals need to pay attention to myriad details that can have significant impacts on the bottom line.
Lease management is a critical piece of this equation. It may not be as flashy as building a new retail store or as exciting as establishing a corporate presence in a new location, but it is a critical function that affects what is typically the second-highest expense for most companies.
Lease administrators are responsible for accurately tracking, reporting on, and optimizing property and equipment obligations. When done correctly, lease management manages and optimizes real estate and equipment leases — so you achieve compliance, mitigate risks, and lower costs.
What Basic Tasks Does Lease Management Cover?
The lease management process starts with negotiations and carries through to renewals. Common tasks include:
Once a landlord and tenant (or lessor and lessee in the case of equipment leases) have agreed upon terms, much of the “negotiation” is over. But the contract must then make its way through legal, procurement, finance, and any other department necessary for approval. The final signed lease is then stored with other leases ― ideally a centralized lease administration software platform. These leases are inventoried and often put into lease abstract formats for easy analysis.
What is the value of your lease payments? Are there any variable payments not included in the lease liability? How are you accounting for operating leases on your balance sheet? Lease accounting is how you determine the financial impacts of leases, and proper lease accounting is necessary to ensure compliance with government reporting standards like FASB ASC 842, GASB, and IFRS.
Ongoing lease tracking
Once a lease is in place, it will need ongoing lease management. Tasks like paying invoices, verifying responsibility for real estate or equipment maintenance, and identifying underperforming locations or assets must be monitored and addressed. And when a lease is nearing the end of its life, you must also consider whether to renew, renew with changes, or terminate altogether. Transaction management software gathers variables in one location so you can easily compare transaction options.
Is Lease Management the Same as Property Management?
In short, no. There is some overlap between lease management and property management, but the two operations are markedly different.
Lease management ― as the name implies — has to do with how your organization monitors your portfolio and manages your leases. Those leases may be for the actual buildings or possibly for the equipment and assets contained within those facilities. Typically (although not always) lease management is done by in-house lease administration and lease accounting teams.
In contrast, commercial property management has to do with how properties are maintained. While property management may include a few tasks related to leases — like collecting lease payments from tenants — the main focus of commercial property management tends to be on building and facility maintenance.
One area of overall that is important for CRE organizations is when it comes to obligations for repair and maintenance decisions. If that leased piece of equipment breaks, or that office space needs outdoor walkways cleared so employees can safely enter buildings, knowing exactly what your organization is responsible for as stated in the lease can save your company significant money.
Who Is in Charge of Lease Management?
The person or team responsible for lease administration varies depending upon the size of the business, the industry, and other factors.
Lease administration may sit under your real estate, legal, accounting, operations, another team, or some combination of these groups. Businesses with multiple locations or numerous real estate leases (retailers, Big Law, restaurants, etc.) often have dedicated teams. Companies that lease large volumes of assets or pieces of equipment, like healthcare organizations or distribution firms, may have equipment managers heading up their lease administration programs.
What Industries Use Lease Management?
A better question might be “What industries don’t use lease management?” Nearly all industries have some form of lease management needs. A partial list:
- Financial services
- Consumer goods
- Corporate real estate
- Convenience stores
- Oil and gas
- State, local, and federal government
See How Lease Management Software Helped Banfield Pet Hospital
Watch this short video to see how lease administration and lease accounting helped Banfield Pet Hospital better serve their customers.
What Should I Look for in Lease Management Software?
A centralized lease management software solution should do all the heavy lifting for you, automating lease processes that would be too complex to manage with a generic solution like Excel spreadsheets. When evaluating lease management software, be sure to look for a configurable platform that offers:
Lease data reporting and analytics capabilities
If you use multiple systems or manual processes, you jeopardize access to cost-savings data — not to mention the risk of failing to meet financial reporting requirements. Look for items like key date alerts, amendment tracking, center detail monitoring, covenant tracking, lease contract analytics, co-tenancy tracking, and security and authentication management.
Efficiency is top of mind for most organizations these days. Lease administration software usually includes features like mobile access, configurable dashboards, and clickable lease abstracts. In addition, consider other management improvements like workflow builders, access to insurance certifications, and management of equipment, franchise, license, security deposit, and other documents.
In our connected world, your lease management software should be able to talk to other important systems. These systems include ERPs, accounting systems, CRMs, BI tools, financial and human capital management systems, and CMMS or FM solutions. This allows for greater insight into your lease portfolio and helps make sure you are in compliance.
How Do I Get Started?
Lease management can be challenging. But with a top-tier lease management software solution, you can easily to store, manage, access, and track leases across business units and asset types. We invite you explore Accruent Lx Contracts lease administration and accounting software for your lease management needs.