The Comprehensive Guide to the Lease Abstraction Process
What is a lease abstract?
Lease abstraction is the process of summarizing and capturing key provisions within leases, and corresponding lease documents, to facilitate the understanding of the tenant’s terms and conditions of renting space at the landlord’s property. A lease abstract prevents the time-consuming process of reviewing the entire inventory of lease documents.
Who needs lease abstraction?
There are many applications for lease abstraction, particularly where efficiency is needed in the review of lease provisions and rent rolls; however, these parties most frequently interact with leases:
- Due Diligence Companies
- Property Managers
- Asset Managers
- Leasing Agents
- Lease Administrators
- Lease Accountants
- Property Owners
- Investment Sales Brokers
- Retail Properties
- Shopping Centers
- Office Properties
- Industrial Properties
- Mixed Use Properties
Why do I need a lease abstract?
- To summarize tenant provisions and understand the relationship the owner has with his tenant – economic terms
- To help the underwriting process in determining the value of the property by understanding the tenant’s lease provisions – detailed risk factors
Property Management/Lease Administration:
- To better service and field questions from tenants regarding their leases
- Capture financial information from leases to manage billing, collections, etc.
- Improve information flow from point of acquisition, to accounting, to tenant support for property/asset management, all the way through to disposition/sales of the asset
- Help manage and determine the value of portfolios of properties by better accessing information about tenants’ leases
- To understand covenants, responsibilities, restrictions, obligations, etc. – determine risk within tenant leases
What is the step-by-step lease abstraction process?
Here’s what the manual lease abstraction process looks like:
- Request copies of lease agreements/documents
- Take inventory of any missing documents
- Determine what provisions need to be summarized in the abstract (to consolidate onto an Excel or Word doc)
- Move individually through each provision, searching all corresponding lease documents and writing up provisions found in lease documents to abstract
- Check to make sure no amendments, addenda, or updates alter the original provision in lease; if so, capture change and document
- Abstract then gets passed to acquisitions, legal, accounting, lease administration, property management, and other teams’ members for review, processing, or to have on record for reference
Why is lease abstraction important?
Lease abstraction provides a more efficient and effective way of accessing the provisions, terms, and conditions of a tenant’s lease without having to find and pull each lease from files/folders.
How has the lease abstraction process evolved?
In the past, the lease abstraction process was performed completely manually by reviewers, until recently, when innovators like DealSumm automated the process with artificial intelligence and machine learning.
What are the benefits of automated lease abstraction?
Automated lease abstraction digitizes and indexes all your lease documents, allowing specific data sets or provisions to be instantly extracted from the lease and associated documents.
DealSumm’s automated lease abstraction benefits include:
- Bulk abstraction of large amounts of leases
- Drag n’ drop loading capabilities of thousands of documents at a time
- More thorough review and faster data verification
- Secure web-based platform – no software to install and accessible from anywhere
- Integration with 3rd party accounting, lease administration, property management, and workflow systems
- Split-screen workflow displays linked documents with abstracts for easy viewing and editing
- Abstractions and rent rolls ready for review within minutes
- Fully automated table of contents creation for all documents loaded
- Multi-document aggregation per tenant, including leases, amendments, updates, etc.
- Base rent calculation wizard, including CPI, percentage rent, abatement, commissions, etc.
- Linked access to original PDF with a single click, including the abstract, search, and reports
- Full search capabilities across tenants, properties, and entire portfolios
- Custom and configurable abstract template and reports
- Abstract and reports are all printable and exportable to Excel
- Editing and comments capability for users
- Secure, highly controlled access rights for different users, both internal/external
- Ability to share access with other users, teams, and customers
- Fully printable audit trail of all edits and use of the system
How will lease abstracts be prepared in the future?
Specific provisions will be identified within an abstract template and automatically searched and extracted from the lease and lease documents through an AI engine, and then verified by human reviewers. As the AI improves over time, there will be less of a need for human abstract reviewers. All parties will share/access the reviewed information and data will be used for reporting, updating, and additional data connectivity.
But you don’t have to wait years for this technology – DealSumm offers it now.
What are the most important provisions or terms to include in a lease abstract?
It depends on the person or organization needing the abstract, as well as the purpose and utilization of the abstract. Buyers/investors, legal, and lease admin may be more focused on provisions such as rent, termination rights, restrictions, co-tenancy, exclusives, renewals and rent, while asset/property management is more focused on provisions like reimbursements, responsibilities, and usage.
What are the essential elements in a lease abstract template?
- Basic information (address, square footage, lessee name, etc.)
- Base rent, lease term, and renewal information
- Additional rent (CAM, taxes, insurance)
- Lease options (expansion, relocation, ROFR, etc.)
- Usage (restrictions, exclusives)
- Covenants (guarantor, TI, deposits, etc.)
- Responsibilities (repairs, security, maintenance, etc.)
How do I create a lease abstract template?
Whoever is tasked with lease abstraction would, in the past, populate either a .doc or .xls document with a summary of the relevant provisions, financial information, and terms and conditions of the lease.
Things to consider in preparing your lease abstract:
- Capture all key provisions that may be contained in other lease documents (addendum, amendments, etc.)
- Apply the most recent terms and conditions to the provisions that may also be contained in other lease documents
- Make sure to convey the proper meaning of the provisions from the lease documents to the abstract
- Decide if you will note the location of the legal verbiage from which the provision was pulled within the lease documents
What are the common challenges in creating a lease abstract?
- Capturing all relevant terms and provisions that are buried in lease documents
- Revise abstract with updated provisions that are changed by amendments, addenda, etc.
- It’s a complex and time-consuming process
- Incurring considerable personnel and/or legal fees
- Subjective interpretation of legal verbiage by non-legal staff
How does a lease abstract help with creating a rent roll?
Lease abstracts summarize some of the fields in the rent roll such as tenant name, suite number, square footage, base rent, and renewal terms. Manual abstraction makes capturing and calculating this information difficult. With DealSumm, AI pulls those fields from the abstract and configures the data into a typical rent roll configuration.
What is the best or most efficient way to prepare a lease abstract?
The most efficient way to prepare a lease abstract is with an AI solution that digitizes the lease documents, extracts the relevant information, and automatically populates the corresponding provisions. A human-review team can then check the work and make any needed edits/corrections. Helpful tools include editing tools, links to the lease documents, suggestions on possible alternative provisions, and document search capabilities to help human reviewers.
Who typically prepares a lease abstract?
- Due diligence firms
- Lease abstraction companies
- Property/Asset Managers
- Lease administration departments
- Attorneys and paralegals
- Acquisition teams
How is AI technology changing lease abstraction?
Improvements to AI by companies such as DealSumm now allow for higher percentage of prediction of provisions within leases. The AI continually improves its prediction as the number of leases in the system grows.
Do I need lease abstraction software to prepare a lease abstract?
No. It is widely done by a time-consuming manual review; however, AI-driven automated lease abstraction significantly speeds up the process and provides more accuracy than manual abstraction.
How does automated lease abstraction save money?
- Reduce wasted personnel time by eliminating the pulling of leases to check provisions
- Can decrease time to abstract by 4x, saving labor costs
- Reduce costly operational errors
- Save time automating data input into lease/accounting system through integration features
- Eliminate errors from manual input of data into lease/accounting systems
- Savings from reduced use of legal services
- Eliminate penalties, litigation, and lost due diligence deposits through more accurate lease review/analysis
- Helps avoid missing lease renewal dates and missed rent increases
Why do lease abstracts reduce my legal exposure?
By digitizing and abstracting lease documents, all critical information is found, outlined, searchable and linked. This provides you with a complete legal and financial picture of your property to enable more informed decision making, inherently reducing risk. There’s no need to manually pull lease documents to look for legal provisions, as they are linked and viewable in the abstract.
How does automated lease abstraction improve efficiency in the operation and management of my portfolio?
Through DealSumm’s centralized platform and user access capabilities, team members from within an organization and their internal/external collaborators share the most current data, adding consistency, transparency, and reducing errors and redundant tasks. This allows your team to work more quickly, confidently, and execute leases and acquisitions with the greatest due diligence, efficiency, and ROI.