Lease abstraction is one of the essential components of due diligence for a multi-tenant commercial property. Lease terms vary from tenant to tenant. The process of Lease abstraction includes reading the agreements, summarizing the issues and searching for the important items which are necessary for the completion of the cash flow analysis. The terms and conditions of the Lease abstraction agreement affect both the quantity and quality of rental income. The quantity of the rental income is affected by these terms by the adjustments made for factors such as rental rates and escalations. Rental rates can fluctuate and can reach to the increased level because of the factors CPI and agreed upon terms. The basic level for calculating escalations needs to be reviewed for each agreement.
Contract abstraction is a monotonous and time-consuming process, mainly for properties with number of tenants. Each lease is normally 20 to 100 pages in length. In most of the cases, the lease form varies from lessee to lessee depending on whether the landlord originated the lease form and which series of owners have executed the original lease. Several of special terms can be included in various portions of the lease. The special terms that are added are generally not financially significant. However, some special terms regarding to the renewal options of the rate, termination of the rights, rights to give back or need of an additional space and co-tenancy clauses can sharply impact value.
Legal Abstraction Services summarizes both the terms of the agreement and analyze their effect. Analyzing special requirements may involve a detailed analysis of several interconnected issues. These changes can considerably drive the cash flow and the value of the property. Special provisions with the potential include termination options, renewal options; first right of refusal at fixed rate and escalation clauses. Special provisions simplify and decide the needs of the subject tenant. In many cases, they can provide either uncertainty or unfavorable cash flow. Following are some of the agreement terms which should be kept in mind when conducting a lease abstraction:
Clauses for Escalation
Rights to Renew
After-hours electric Prices
Clauses related to Co-tenancy (In case tenant B leaves the center, tenant A can terminate the lease)
First right to refuse the purchase of the building; Right to terminate in case the building does not have adequate space to meet the tenants requirements
Write to give back space which is no longer needed
Pricing and Parking rights
Rights to Sign
Right to reduce rent if required
Before performing the financial modeling for the acquisition, a complete lease abstraction must be prepared. A discounted cash flow analysis of a multi-tenant commercial property requires information related to many fields of data.
There are various number of legal support services Lease abstractionCompanies available in India which provides Contract Abstraction, Legal Research, Legal drafting etc. There are vast options to choose from and you can always go for SunLexis, the legal process outsourcing India company for any kind of Legal Abstraction process.