Why the Mechanics of Lease Administration are Difficult

At Grant & Lewis we think of lease administration as encompassing two components.  The first is what we refer to as the decision-making component; this is all about managing the landlord-tenant relationship.  From the standpoint of a portfolio’s performance this is the more important of the two components.  When it comes to planning and the financial performance it is hard to overstate the importance of having a pulse on a tenant’s performance.  The second is what we refer to as the mechanics, these are the tasks performed on a more regular basis.  Practically speaking, the mechanics include things like collecting gross sales statements, insurance certificates, and the preparation of annual expense reconciliations.  In our experience, it’s the mechanics of lease administration that create the most headaches for asset managers.

The number one factor contributing to the mechanical difficulties associate with lease administration is lease language.   The very nature of commercial real estate creates highly varied agreements between landlords and tenants.  Tracking all of the different rights and obligations, allocations, and critical dates can quickly become overwhelming.  Second, most software packages are not designed specifically for lease administrators.  Most software packages are great at accounting or construction but fail to address the unique needs of lease administration.  This explains why most lease administrators continue to rely heavily on excel.  Lastly, the varying level of skills between lease administrators and lease administrator turnover contribute heavily to the difficulties experienced by most asset managers.  Losing a lease administrator, especially one with experience, can be a major setback.  Subsequently, finding and training a new lease administrator is time consuming and not without risk.  All of these mechanical factors combine to make lease administration difficult and time consuming.

It’s no secret that lease administration is hard, prone to error, and time consuming.  It’s also no secret that no one wants to do it.  At Grant & Lewis we focus on the mechanics of lease administration so that you can focus on the part that really matters, the performance of the asset.