Lease Abstraction Services and Software

What does it mean to abstract a commercial lease?

2 Answers

An abstract of a commercial lease, like an abstract of anything else, is a summary of the terms of the lease. Commercial leases are often full of long, wordy paragraphs written in convoluted legal language, and an abstract cuts through all of that language and condenses the lease to its important information. Basically, a commercial lease abstract takes all the important information - all the main terms and the fine print - and makes an easy to read report out of it.

The details of an abstract vary depending on the type of lease, but all commercial lease abstracts contain the following terms: the name of the tenant; the name of the landlord; the term of the lease; the amount of square footage leased; the space number; the base rent; the percentage rent and/or sales reporting; and a list of documents modifying the terms of the lease. If the lease is for retail space, the abstract might also contain the terms pertaining to hours of operation and merchants' associations. If the lease is for office space, the abstract might contain the terms pertaining to lessee improvements.

Most often, a person needs a lease abstract not for his or her own understanding of the terms of the lease, but for financing purposes. When a person seeks to purchase a commercial property with tenants, that person must perform what is called due diligence. Due diligence requires the potential buyer to inspect all aspects of the property including the status of the leases associated with the property. Sometimes, as in the case of the purchase of a shopping mall or a large office complex, there can be over 100 leases. If the lender, to whom the task of due diligence usually falls, is able to review abstracts of the leases rather than the leases themselves, the task is made that much more cost and time efficient.

Lease abstractions are usually produced by abstracting agencies. A good lease abstracting agency will use attorneys, accountants and real estate professionals to ensure that the abstract accurately summarizes the essential information described above and additional information such as insurance responsibilities, and maintenance responsibilities for both the landlord and the lessee.

There are also a number of lease management software packages that include a lease abstracting feature. The feature uses reporting software to take a lease that has been created with the software and abstract it. Usually, the abstracting feature allows the user to pull out the exact information needed, allowing a customized lease abstraction to be created each time.

An abstract has uses outside the context of due diligence, too. It's a good idea to have a lease abstracted each time there is a change in the terms of the lease, even for common changes such as a rent increase. Having it abstracted every time there is a change in terms will make sure that there are no surprises for either the landlord or the lessee.

A lease abstract means conversion of legal language to a common laymens language, capture and summarize critical lease information and giving heads up to the parties for a well negotiated lease.

The major components of a lease are:

  • Property information ' Name, Address, Area (Square Footage), Use of premises

  • Landlord and tenant information ' Name and Address (including Notice and Billing addresses)

  • Critical Dates ' Possession, Term Commencement, Rent Commencement, Expiry dates

  • Rental Charges ' Monthly/Annual Base rents

  • Cost of use of Premises ' tenant's share of total operating expenses of the building

  • Tenant Options ' Renewal/Termination of term, expansion/Contraction/Purchase of premises

  • Key Obligations of landlord and tenant ' Construction/repairs, Default/Remedies, Assignment/Subletting, Subordination/Estoppel etc.