The importance of good lease management in business
Updated: Jul 13, 2020
Good lease management is a key aspect of running an effective and efficient organisation. However, many struggle to keep their leases in check over time, and this can have big consequences.
When you’re trying to grow a business, the last thing you need is missing lease contracts, out of date documents and incorrect outgoings, and simply not being on top of where your leases are at.
Remember, leases should be overseen and not overlooked. Here’s our key tips to get back on track with your lease management.
The last thing you want is to find out your documents and contracts are incorrect, incomplete or missing altogether. It can be extremely costly and time-consuming to follow up and also put you under a large amount of avoidable stress.
Minimise any complications with your documentation by implementing an efficient document register that will allow you to record and track the status of your documents. You should be including absolutely everything in your register and using clear names to communicate the purpose of the document. To remain organised at all times, you should also look at establishing a procedure where you regularly review these documents and ensure they’re up to date.
Beyond a document register, you can also research various programs and technology services now available for you to streamline your paperwork and documentation.
Key Lease Milestone Dates
A milestone date is a marker that signifies a change or action required over the course of your lease.
So, keeping a tab on your lease milestone dates will ensure you’re taking action and making the correct decisions with your lease. The three key types of milestone dates you should be setting up with all of your leases are insurance, lease options, and payment and billing milestones.
Insurance milestones includes dates where you may need to renew your policies and pay your premiums. Lease option milestones include the renewal or termination of a lease, while lease payment and billing milestones will ensure you’re up to date with the creation and payment of invoices.
Rent Review and Renewal Advice
If your lease includes rent reviews, you firstly need to make sure you understand the lease details of when the rent review will take place and which method the basis of the review is to be made on. If your lease doesn’t include these details it will become void and cause you a great deal of stress and extra work. The five common methods you could use in your rent review include:
· A fixed percentage
· A consumer price index (CPI)
· CPI plus percentage
· A fixed annual amount
· Current market rent
Where possible, it is advisable to agree on what the revised rental will be prior to exercising any options to renew your lease. You don’t want to get stuck with re-committing to a new term without agreement on the rent. This is where your representative can take care of this and ensure commercial terms are always at market levels.
Annual outgoings review
An annual outgoings review is an important way to manage the costs associated with your lease. Your main outgoings will include expenses like land tax (in some instances), council rates, building insurance, property management fees, repairs, electrical, water usage, cleaning and more.
The scope and method of recovering your outgoings should be defined in your lease. For commercial properties, the three common methods of recovering outgoings are:
· Direct recovery, which entails continually and directly recovering costs when they occur,
· Net lease, where you provide your tenant with a rent and outgoings charge item on their monthly tax invoice, and
· Gross lease, where outgoings expenses are included in the rent amount.
· Semi-Gross lease, where any increase in the base year outgoings are recovered in addition to the gross rent.
Team up with a property advisor
Working with an experienced advisor can take away all of the headaches associated with lease management. Your advisor will ensure there is consistency and continuity in the management of your organisation’s lease obligations and milestone dates.
Contact us to discuss your needs. No obligations.
Managing Director, Broadway Property
Director, Broadway Property