2022 Buyer's Guide to Lease Administration and Accounting

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2 2022 BUYER'S GUIDE TO LEASE ADMINISTRATION & ACCOUNTING About This Guide WHAT IS LEASE ADMINISTRATION & LEASE ACCOUNTING SOFTWARE, AND WHY DO I NEED IT? Harris and Sunna (2013) define a lease as a contract between the owner of an asset (the lessor) and another party (the lessee), whereby the lessee obtains the right to use the asset in exchange for periodic payments. Leasing as a method of financing the use of assets has been around a very long time, and businesses are increasingly taking advantage of this financial instrument. When most people think of leasing in a business context, real estate is the first use case that comes to mind. Buying commercial real estate is capital intensive and most companies would prefer to lease space and conserve funds to invest in their core business. Depending on the size of a company and its industry segment, the number of property leases in a portfolio can range from fewer than 10 to more than 10,000 – and the associated occupancy expenses can run into billions of dollars per year. Lease administration and lease accounting soware emerged in the 1990s to help companies with larger portfolios effectively manage the legal, financial and day-to-day operating needs related to leases. Let's break down the two sides of these soware packages. LEASE ADMINISTRATION Commercial real estate leases can exceed 100 pages of legalese and, oen by design, are notoriously difficult to interpret and manage. Each lease contains information including lease term, renewal options, lease clauses, rent and other occupancy expenses, landlord/tenant obligations, critical dates, insurance and tax information. Compounding the issue is the fact that leases are dynamic in nature. ey require action by the landlord or tenant at certain points in time or as things change – i.e. pay rent, calculate common area maintenance (CAM), notify the landlord of intent to exercise an option, lease amendments, etc. For these reasons, proactively managing even a small portfolio is extremely difficult. Larger companies have entire lease administration departments dedicated to managing all the moving parts, including working together with their colleagues in finance to effectively control the company's #2 or #3 expense. Lease related expenses, often called occupancy costs, typically represent a company's #2 or #3 enterprise expense.

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