By Ed Muna
As today’s business leaders strive to stay ahead of the competition and grow their bottom line, the last thing they have is spare time to spend worrying about real estate lease obligations. This includes the burden that may be put on a finance department or a facilities team whose efforts are better utilized focusing on the work environment.
The load becomes even greater as the number of office locations increases. While an Excel spreadsheet may be useful for managing a few sites, it can prove to be error prone and risky as the company grows. This is precisely where a lease administration service can prove invaluable.
Much like they outsource tax preparation, payroll, and other non-core functions, more and more businesses are taking the opportunity to add an experienced lease administrator to their team.
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A common goal of the companies retaining lease administration services is to keep track of key dates so they don’t miss important deadlines and rent changes. While this is one important function of lease administration, it merely scratches the surface. A good lease administrator will go much deeper into understanding the lease contract and, in many cases, uncover opportunities that can reduce risk and save money.
Consider how much changes between the time when a lease is negotiated and when it runs out. People involved on both the landlord and tenant side of the equation come and go, and all too often key provisions that were negotiated in the lease get lost in the shuffle, ultimately never materializing. This results in missed opportunities and oversights that may wind up costing the tenant a significant amount of money.
For a real life example, Hughes Marino was recently tapped to take over lease administration for a business that had exercised a series of complicated contraction and expansion rights over a period of years. Through our investigation and review, we discovered the tenant was paying for space that had been returned to the landlord via contraction right. All said and done, had this not been discovered, the tenant would have ultimately paid an extra $40,000 per year.
In another case, we were brought in to take over lease administration for a business four years into its 10-year lease. We quickly uncovered that the tenant had negotiated a one-time termination right after five years. Although the space continued to meet their needs and they were not planning to exercise the right, they were now able to use the option as a way to revisit market conditions and renegotiate the lease (which otherwise would have been above market over the balance of their term). The result was thousands of dollars in savings for our client.
It goes without saying that, in both cases, our clients were relieved to know they didn’t miss valuable opportunities, which otherwise could have cost them a small fortune.
As your business continues to grow, and you continue to focus on its future, consider adding a lease administrator to your team of trusted advisors. Outsourcing the management of your lease obligations to an experienced lease administrator not only lightens the load your internal resources have to bear; it can also help uncover viable opportunities for savings. More importantly, it will allow you to focus on the core functions of your business, while preparing for a bright future.
Ed Muna is a senior vice president of Hughes Marino, an award-winning California commercial real estate company specializing in tenant representation and building purchases with offices in San Diego, Orange County, Los Angeles, San Francisco and Silicon Valley. Ed heads Hughes Marino’s Lease Administration and Audit Service divisions and helps tenants address issues that arise during their occupancy. Contact Ed at 1-844-NO-CONFLICT or firstname.lastname@example.org to learn more.