Lease management encompasses the array of activities organizations undertake to handle their lease agreements effectively.

When companies face decisions on renewing, relocating, or renovating their premises, ensuring compliance with updated accounting standards, or monitoring lease terms to prevent overpayments, the lease management team plays a crucial role.

Lease Management Essentials

• Essential tips for negotiating your lease
• Insights into the daily operations of lease management and accounting
• Updated compliance standards
• Essential reports for lease administrators
• The critical role of lease management software in optimizing efficiency

Mastering lease management is crucial for organizations, as real estate ranks as the second-largest expense, and overlooking opportunities can lead to significant time and financial losses.

Lease Negotiation Essentials: Setting Terms for Long-Term Success

Negotiating a lease that aligns with your organization’s goals from the outset is crucial. Here are key aspects to consider:

Co-tenancy Clauses

These clauses provide tenants with options for rent relief or other remedies if specified co-tenants depart or occupancy levels decrease below a defined threshold. It’s essential to include this clause initially to safeguard against potential disruptions in customer traffic and business dynamics caused by tenant changes.

Lease Negotiation Tips: Maximizing Incentives

Lease incentives are perks offered to tenants to encourage lease agreements. Landlords may be open to adjusting terms to accommodate tenant needs and preferences. To ensure you don’t miss out on significant incentives, consider discussing the following during negotiations:

• Reimbursement for fees associated with breaking a previous lease commitment.
• Coverage of relocation expenses when moving between properties.
• Periods of rent-free or reduced rent, which landlords may offer to facilitate lease negotiations. Ensure proper accounting for these concessions, though deferred rent is no longer recognized under ASC 842.
• Purchase of leasehold improvements, such as allowances for tenant improvements or build-outs, which enhance the leased space’s functionality or appeal.

These incentives can play a crucial role in securing favorable lease terms and optimizing your occupancy costs.

Understanding Common Area Maintenance (CAM)

Common area maintenance (CAM) fees are what tenants pay landlords to maintain shared spaces like lobbies, parking lots, landscaping, and restrooms. It’s important to negotiate fair CAM terms in your lease so you pay the right amount for necessary services. Here are some key terms to consider:

• Pro rata share: This is how much you pay based on the size of the space you’re renting. Make sure you understand how they measure the space, and watch out for increases if other tenants move out.
• Capital costs: These are expenses for repairs or improvements that landlords may pass on to tenants. You can negotiate to limit which costs you have to pay or keep an eye on these costs during your lease.
• Exclusions: Negotiate to exclude specific costs from CAM charges, like land purchase expenses or penalties the landlord incurs.
• Caps: Set limits on how much you can be charged for CAM overall or for specific items. This helps prevent unexpected increases in what you have to pay for maintenance.

Make sure to check your CAM charges carefully at the end of each year to make sure you’re not paying too much. These negotiations are important when you’re getting a new lease to make sure you understand and control your costs.

Daily Tasks in Lease Management

After negotiating and signing your lease for a new location, it’s important to create a lease summary—a brief overview of your lease terms. This helps employees quickly find important information without searching through paperwork.

Next, focus on monthly tasks to manage costs:

• Consumer Price Index (CPI): Calculate how CPI affects your recurring lease costs.
• Subleases: Manage subleases regularly to avoid problems that could harm your business.
• Additional Charges: Check bills from landlords for things like maintenance or other costs to make sure you’re not paying too much.
• Percent Rent: Handle percent rent, which is based on a percentage of your sales, for each location every month.

Lease renewals are also important. When it’s time to renew a lease, you can decide whether to stay, find a new location, or negotiate better terms.

These tasks are crucial for managing your lease effectively. Automating some of these tasks can save time and money, which we’ll discuss more soon.

Lease Accounting and Rules

Lease accounting is crucial for managing leases and following financial rules like FASB ASC 842, IFRS 16, and GASB 87. These rules make sure companies handle their lease responsibilities correctly.

• FASB ASC 842: This rule from the Financial Accounting Standards Board means companies must show lease assets and debts on their financial reports. It makes leases clearer than before.
• IFRS 16: From the International Accounting Standards Board, this rule changes how leases show up on financial reports, treating most as finance leases.
• GASB 87: This rule by the Governmental Accounting Standards Board helps government groups show lease duties on financial reports.

Lease Basics

Understanding lease accounting means knowing key parts like types of leases:

• Operating Leases: The landlord keeps most of the risk, but under ASC 842, the renter must show these on their balance sheet.
• Finance Leases: These pass more risks to the renter, often letting them buy the asset later, much like capital leases before.
• Types of Leases: Real estate leases cover land or buildings, equipment leases include many tools, and embedded leases are in contracts with assets.

Finding leases needs four things: knowing the asset, controlling it, knowing the lease time, and trading something for it. This helps companies follow lease rules well.

With effective lease management software and robust reporting features, everyone can easily access necessary reports and documents.

For instance, a lease abstraction report consolidates lease details such as dates, expenses, terms, contacts, options, obligations, documents, insurance details, and more.

A reconciliation summary provides an overview of specific lease reconciliation expenses year by year, enabling comparisons of historical CAM charges, identification of potential overcharges, and identification of trends.

Additionally, an accounting schedule detail report automatically creates lease-specific accounting schedules following FASB 842 and IFRS standards for both operating and finance leases.

Why You Need Lease Management Software & How to Choose the Right One

All the things we talked about earlier are super important for managing leases well. It can be a lot to handle, and mistakes can cost you a lot of time. But don’t worry! Lease management software makes everything much easier.

It tracks, reminds you of important dates, keeps everything organized, and it’s easy to use. Whether your company is big or small, lease management software can make a huge difference.

Companies all over the world use lease management software because it helps in these ways:

• Keeps you following lease rules and laws
• Reduces mistakes and losses
• Lowers the costs of renting space
• Helps out when you don’t have enough people to handle everything
• Gives you a clear view of all your leases

First, you need to see that you need it. Then, you have to pick the right software for your company.

3 Steps to Finding the Right Lease Management Solution

Choosing the right software takes planning and thinking carefully before you decide. Here’s a simple way to do it:

Step One: Setting Goals & Needs

To find the best software, you need to know what you need. Start by answering these questions:

• How many leases for buildings and equipment does your company have now?
• Do you think this number will go up or down a lot in the next 3-5 years?
• How are you handling lease payments and other issues now?
• Who takes care of lease money and knows the lease rules?
• Can your team handle lease work inside, or should you hire someone else to help?

After you see how your company handles leases now, you can set goals for what you want from lease management software. Talk with the people who deal with leases and write down your top goals for this project.

Step Two: Figuring Out What You Need

With your goals in mind, think about which software tools match what you need and put the most important things first. Start with basics like collecting lease info, keeping track of important dates, managing costs, and following lease rules. Write down what you need in a list and mark each thing as very important, sort of important, or not so important.

Also think about other things you might need, like how easy it is to use the software, and if it can work with other programs you use.

Step Three: Picking the Right Software

Now that you know what you need, look at different software companies and see which ones have what you need. Pick the software that fits your goals and matches well with your company.

Compare each software company to your goals. Ask them questions and get the info you need to decide.

Narrow your choices down to the top three software options that match your needs best.

Think about which software company fits best with your company’s style and values, and which one fits your budget.

Following these steps will help you find the best lease management software for your company. For more help on picking the right software, check out our Buyer’s Guide to Lease Administration and Accounting:

Lease Management Next Steps

Managing leases is always changing and growing. To keep up with all your leases, follow lease rules, and make smart choices for your company, you need to stay on top of lease management tasks. Using lease management software is the best way to do that.

With Tango Lease, all your lease info is in one place, and it’s easy to use. This helps people who handle money and manage leases to do their jobs better.