Hardships from COVID-19 offer companies ways to save money and accumulate cash from within their portfolio of leases. But without the ability to know where to find these opportunities within their contracts, lessees may be missing the chance to recoup tens of thousands of dollars. Leases housed in a single database can help lessees find the below listed saving opportunities for current and future leases.
One of the first places to check where money may be saved is by decreasing the amount of space that is being leased. With more employees working from home, companies may not need to renew all currently leased properties and may decide to lease smaller areas in locations they currently lease.
Often companies neglect to get back their security deposits on leased properties. Some deposits are refundable after a year or two, and others are refundable at the end of the lease. But it’s up to the lessee to request the refund. When all leases for property and equipment are in one place, it’s easy to pull up all refunds due at any time.
Landlords often provide a leasing incentive, such as a tenant improvement allowance (TIA) for a tenant to improve the asset. When leasing new properties or renewing a lease, lessees may be able to negotiate with landlords to provide a rent abatement, which is a reduction in rent for a period of the lease term. An abatement could be offered in the form of free rent or a percentage discount for a period of time.
When lessees renew their leases, they often receive lower rates, especially in a declining real estate market. If the company fails to abstract the lower amount into the payment system, the old rate will continue to be paid. Companies that have hundreds of leases could be overpaying on many of them.
That’s why a lease management system like CoStar is so important. Only then can all departments work from the same information, ensuring only certain people can make changes to the data and all changes are tracked. So once a lease is renegotiated with lower rates and is abstracted, everyone works from that same data and new rates will be paid automatically.
Due to the coronavirus, online shopping has increased and many retail tenants have left shopping centers. If a certain percentage of tenants or an anchor tenant leaves a shopping center, those tenants that have a cotenancy clause in their contracts may be eligible for reduced rents. However, it’s often up to the tenant to know that a cotenancy clause exists, recognize that a cotenancy violation has occurred, and request the rent reduction.
Evergreen lease fee avoidance
Companies often end up paying for leased assets long after they no longer need to. Not all contracts require lessees to return the asset at the end of the lease term. But many contracts state that lessees will pay month-to-month rent until the asset is returned. Often companies quit using the assets before the end of the lease term but haven’t scheduled reminders that the lease has ended and the assets need to be returned. So companies end up paying monthly fees even though the lease has expired and the assets are not in use.
With CoStar Real Estate Manager, users can avoid unnecessary evergreen lease payments. They can schedule reports to be sent to anyone to alert them to leases that will expire, equipment that must be returned, and payments that need to stop.
Force majeure clauses
Some lease agreements include a force majeure clause, which provides rent relief in the event of an unforeseeable circumstance, such as COVID-19. In many cases, lessors have been willing to offer rent relief even without a force majeure clause. CoStar Real Estate Manager helps companies identify leases with force majeure clauses and facilitates communication with lessors to request discounted rent.
Companies that are looking for an influx of cash could execute a sale-leaseback transaction, which is used to monetize corporate real estate and equipment portfolios. The seller transfers an asset to the buyer and then leases the asset back from the buyer, typically a finance company or institutional investment organization. Sale-leaseback transactions often involve multiple assets, so it’s helpful to have lease management and accounting software like CoStar that can accept an upload of hundreds or thousands of new leases in seconds.
CoStar Lease management software helps companies recover cash by allowing them to quickly identify leases with the above opportunities. The key to finding the most savings is having all lease data organized in one cloud-based software solution. The software also helps companies automatically account for transactions while following ASC 842 and IFRS 16 lease accounting guidance.