It almost seems apropos that when you do a Google search on the word legalese that the definition that’s returned is “the formal and technical language of legal documents that is often hard to understand.” Often hard to understand! With a definition like that, it’s not surprising that real estate leases, which are filled with legalese, designed to protect the lessor and the lessee, are often hard to understand, or at least to digest. To make things a little easier for all parties, very often a lease abstract is created. Easy is good, because as one seventh grader demonstrated, people are not too eager to read the fine print.
What is a lease abstract?
A commercial real estate lease abstract is an abbreviation of the key financial, business and legal information that would be found in a commercial real estate lease. With an abstract, the reader can avoid the arduous task of reading 80 pages or more of legal verbiage and gain an understanding of lease provisions, financial obligations or other important issues in a more easily readable document. Frequently included in real estate offering memorandums, the best lease abstracts keep things brief and to the point, but cover all of the most pertinent issues.
Abstracts will vary in volume and detail accordingly based on the needs of the lessor or the size and provisions of the deal. Because an abstract is only a summary of the lease, it will also include references as to where additional information can be found. A lease abstract provides a lease summary together with referenced section headings, so that all critical lease information is readily accessible.
When to use a lease abstract
A lease abstract is very important ahead of an acquisition and allows for effective decision-making. With the help of a commercial real estate marketing company that has an expertise in lease abstracts and through careful consideration and integration of all relevant documents, a new lease abstract is created for each deal or offering. The result is an easy-to-use tool for acquisition officers, investment sale brokerage companies, lease administrators, leasing agents or property managers to review all pertinent lease information without taking the time to search and read through each page of the lease. Through aggregation of the lease information, a real estate lease abstract should allow users to better manage a portfolio of leases and organize lease data as well as help prospective investors make quicker and better informed acquisition decisions.
The components of a lease abstract
It’s sometimes overlooked that a lease abstract is a vital part of the selling process. If the content is not legible or not well organized, this can become frustrating to reader, who’s trying to glean the most salient facts of a lease in a quick and efficient matter.
The information included in a lease abstract should consider the needs of your target audience. It should convey the physical characteristics of the property like location, square footage, building materials, but also speak to any provisions concerning responsibilities for maintenance, insurance, taxes, HVAC and so forth. Typically, within two to five pages, everything that the lessee needs to make an informed decision should be encapsulated. At a minimum, an abstract should contain the most important “dates and dollars” provisions of the lease, such as Commencement, Expiration, Renewal Term and other key Option Dates along with Rents, Operating Expenses, and Square Footage’s.