What is Lease Management and Why is it Important?

The day-to-day execution of responsibilities linked to a company's lease portfolio is known as lease management, or lease administration. There is no one-size-fits-all solution to lease management. It entails reporting, document management, stakeholder coordination, and a slew of other administrative chores. 

 

Every contract has specifications and obligations that must be fulfilled, and someone must be in charge of completing them. Until recently, many corporations around the world paid little attention to their assets and property other than paying their obligations. 

 

The lease was only seen as an expense of the company, and keeping track of commitments and lease conditions was not a top priority. However, lease management has evolved into a critical practice that has an impact on financial reporting and the bottom line. The lease management market is predicted to grow to $6,252.3 million by 2027, up from $3,721.6 million in 2019.

 

With the implementation of new lease accounting standards, which will take effect for private companies in 2021 and public corporations in 2019, this thinking is rapidly changing. Lease management has evolved into a critical practice that has a significant impact on financial reporting and the bottom line.

 

If your company wants to comply with FASB/IFRS, you'll need to set up leasing management rules and procedures. We'll explain why now is the best time to do it and how to set up a streamlined lease management process flow in the sections below.

 

What is Lease Management?

 

Lease management in a corporate or non-profit setting entails tracking and maximizing every aspect of your leased asset portfolio. Tracking leases (not just real estate, but also technology, vehicles, and even assets you manage as part of service agreements) properly can help you dramatically cut leasing costs. We're not talking about pennies on the dollar here; we're talking about millions.

 

In their day-to-day operations, most businesses manage an extraordinary number of leases. As a result, having a solid infrastructure and lease management mechanisms in place is now critical to success. 

 

It's critical to understand the whole cost of lease administration and where time-consuming processes and systems may be stifling your company's growth, whether you're leasing offices or other types of property.

 

For lease management to be successful, multiple teams must work together to do the following tasks:

 

1.  Lease negotiation and decision-making, including duration of lease, lease structure, and lease vs. buy choices

 

2.  Lease administration activities include keeping track of upcoming renewals and options, updating lease data, and keeping track of operating expenses.

 

3.  Lease accounting responsibilities, such as paying lease-related costs, calculating liability and asset figures, making journal entries, generating reports, and re-measuring when leases change.

 

Also Read | What is Contract Management?

 

Basics of a Lease

 

The bundle of rights notion is necessary to fully comprehend a lease. A lessor (the owner of a bundle of rights) can grant a renter (the "lessee") the right to use and occupy a property for a set amount of time. The renter agrees to pay some type of compensation in exchange.

 

The owner of real estate has the right to contract freedom, which provides for a wide choice of leasing arrangements. As a result, lease administration is the most crucial aspect of property management.

 

The lease serves as a relationship guideline in addition to the normal contractual responsibilities between the two parties. The parties' rights and responsibilities are outlined in the terms and conditions, which include the term, rentals and other financial obligations, the property or portion of the property being leased, and the parties' rights and responsibilities.

 

 

What is Lease Management Software?

 

Lease management software, as we've discussed, is a key system that firms may use to track any leased equipment. The most prevalent application is for rental properties.

 

All parts of the real estate lease lifecycle can be managed more efficiently with the correct lease management software. It can also provide vital information that businesses can use to optimise their space consumption.

 

This programme should, ideally, be hosted in the cloud. It should also be compatible with a company's overall Integrated Workplace Management System (IWMS).

 

When this is the case, lease management software can aid not only in the management of real estate portfolios, but also in the improvement of overall workflow. As a result, it is a very potent tool for FMs. Especially when the primary role of the FM is to keep the company functioning properly. Plus, having a single SSO log-in for all of your facilities management makes everyone's life easier.

 

Also Read | Guide to Workflow Management

 

Need for a Lease Management System

 

It is critical to have a lease management system if you must manage the lease. The following are some of the reasons for using a leasing management system:

 

1. A regular Performance Review

 

You can use a lease management system to keep track of your business's performance on a daily, weekly, or monthly basis. With a dynamic approach, it allows you to view your brief information with greater accuracy and quickness. The real-time availability of information has been enhanced thanks to the lease management system.

 

2. Make the documentation more automated

 

It is critical to have a complete record in the form of e-documentation as a lease manager or property owner. You should be in charge of document management, whether it is done manually or automatically. Manual handling or record keeping is not a big deal if you own one or two properties, and you can do it in an efficient manner. 

 

On the other hand, if you have a lot of different properties, it's difficult to manage them all manually and accurately. As a result, having an automated lease management system that benefits from easy accessibility, accuracy, and management is critical.

 

3. Save Time

 

A lease management system is a time-saving method of managing a specific aspect of your company. You're a business owner, and your company is clamoring for your attention, but you're squandering your time and energy on management tasks. Such tasks can be completed automatically and quickly using a lease management system.

 

4. Information is easily accessible

 

You're on a business trip and need to put together a presentation for your clients right away. What would you do in this situation? Will you bring all of your documents with you, but will you be able to bring hard copies of your business statistics? No way are you going to be able to bring everything with you. 

 

As a result, the lease management system offers the best solution and allows you to access information from anywhere at any time. You don't need to bring any documents with you; all you need is an internet connection.

 

5. Increase the client's self-assurance

 

Because you're instantly sharing the facts with them in a summarized manner, the lease management system helps you boost your client's and contractor's confidence. Your portfolio, in and of itself, demonstrates your company's growth and encourages contractors to put their trust in you.

 

6. Data Security

 

Another feature of lease management software is Data Security. To keep your company's information safe, the software applications use strong SSL encryption. Your data is scrambled with SSL encryption to prevent unauthorized parties from accessing it.
 

Apart from SSL, the software can back up your leasing data on a regular basis for safety. Some applications even allow you to export the data and save it to an external drive or a cloud storage service of your choice.

 

The majority of businesses are creating leasing management software and deploying it in the cloud. These programmes are delivered from secure data centers with a reliable IT infrastructure and redundant fail-safe mechanisms. As a result, as long as you have an internet connection, you can always access your leasing data through the programmes from anywhere.

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Benefits of using Lease Management Software

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What is the most efficient way to manage a Lease?

 

Some businesses have a lease administration department, while others outsource the job and rely on software to help them. Many commercial real estate firms, particularly smaller ones, do not have dedicated personnel or software. We strongly advise investing in a programme that improves your lease administration process rather than continuing to do it manually as your company grows.

 

It becomes more difficult to stay organized on everything from repairs to CAM as the number of leases you manage grows. However, there is a silver lining: more data means more opportunities to improve processes. 

 

Even if you think you can handle 10 or 12 leases with ease, you may be missing out on important information. Furthermore, if you do everything manually, you are more likely to make mistakes or overlook inaccuracies.

 

Property Management vs. Lease Management

 

Property management and lease management can be confusing at times.

 

To clarify, lease management is the process of keeping track of a company's real estate portfolio. Not only should rent payments be kept up to date, but the company's overall asset management should be optimized as well.

 

The property owner, on the other hand, is in charge of property management. Property managers are the people in charge of collecting rent on behalf of the landlord. They are also in charge of the building's upkeep and functionality.

 

Also Read | What is Property, Plant and Equipment?

 

Tasks related to Lease Management

 

Lease management typically refers to the activities that occur after a lease has been signed. To comprehend day-to-day lease management responsibilities, you must first understand the path a lease takes.

 

• First, the final contract must be routed through the procurement, legal, and finance departments for signatures and approvals. The lease contract must be stored somewhere after it is signed, which is usually on a server, intranet, or software.

 

• The process of compiling the key details of a lease into an easily readable format, known as a lease abstract, is the next step. A lease abstract contains asset information such as serial numbers or addresses, contact information, financial information, and other information that stakeholders may need quickly. 

 

In addition to the abstract, lease data must be inventoried in a format that allows for easy reporting, which is usually accomplished using an Excel spreadsheet or software. 

 

• Following that is the onboarding process. The leased asset must be bought and activated before it can be used. Renovations and customizations must also be managed if they are required. 

 

• It's time to swap keys. Employees who will use the asset on a daily basis must be connected to their counterparts on the lessee's side. All of these particulars must be documented, managed, and communicated.

 

Who is in charge of Lease Management?

 

So, who is in charge of lease management? Well, that is debatable. Lease management responsibilities can be spread across multiple departments, delegated to administrative staff, or assigned to a single person.

 

Retailers, for example, who have a large number of real estate leases, typically have a real estate manager who oversees all of their leases. A dedicated equipment manager may be employed by companies with a large number of equipment leases, such as healthcare and manufacturing. Finally, some businesses employ a general lease manager who is responsible for all leases, regardless of type. Lease management responsibilities can be assigned to someone in the accounting, operations, or legal departments.

 

Managing leases, especially in large organizations, is a highly collaborative task. Lease managers distribute information to teams that may or may not work closely together in the future.

 

They must be detail-oriented and strong communicators who can understand the nuances of each lease and communicate them to stakeholders in the back office and in the field because they play such an important role in the execution and management of lease information.

 

Also Read | Overview of Operations Management

 

Lease management is a cost-effective process that benefits businesses and organizations in a variety of ways. While working toward lease accounting compliance, organizations should take this opportunity to examine and overhaul their lease management practices and policies.

 

Lease managers will play a critical role in maintaining the data that informs future financial decisions as leases become more visible and companies look for more ways to control costs. 

 

To support and execute lease obligations, lease management processes and tools will continue to evolve. With the rise of remote work, having lease management tools that provide centralized access to critical data ensures operational efficiency and accuracy.