What is third party lease abstraction and how does it work?

In commercial real estate, contracts can be lengthy and complex documents. Lease abstraction is the process of creating shorter summary documents known as “lease abstracts”, setting out the key terms of a contract in an easy-to-read, standardised format.

Lease abstraction can be a time-consuming manual process, and for this reason some companies choose to look for external support.

What is third party lease abstraction?

Third party lease abstraction providers manage the process of lease abstraction on behalf of a company, bringing in a specialist team or providing specialist software/tools to review lease contracts and create abstracts.

How does third party lease abstraction work?

When a company engages third-party lease abstraction, they provide their documents for abstraction, whether that’s real estate leases, loan or credit agreements, purchase agreements, appraisals, rent rolls or other similar documents.

The third-party team reviews each document in full, identifying key clauses such as the lease period, start and end dates, landlord and tenant information, rent, charges and other important information. They then create a lease abstract template containing all the key terms and use this to create a lease abstract for each contract using the same consistent format, making it easy to compare clauses across different contracts.

The third-party lease abstraction provider will then review the abstracts, referring to the original documents to ensure accuracy, and then deliver the completed abstracts.

Things to consider with third party lease abstraction

If you’re considering outsourcing lease abstraction to a third-party provider, there are some important factors to bear in mind:

Quality

Lease abstraction is a specialist job. A level of legal and financial expertise is required to correctly interpret lease clauses and pull out the right information to create an accurate lease abstract.

Lease abstracts are often used as the basis for important strategic decisions, such as whether to renegotiate or renew leases for specific locations, as well as for accounting and regulatory reporting purposes. Because of this, it’s vital that when choosing a third-party lease abstraction service provider, you have confidence in their experience and skillset, and that they have robust quality control processes in place.

Skill investment

While engaging third party support for a time-consuming task can take pressure off your business in the short term, it can prove risky in the long term if you become reliant on an external supplier.

While third party suppliers can be a valuable extension of your team, many companies prefer to invest in developing the right skills and technologies in house rather than outsourcing, and this can make them more resilient and able to respond to change in the longer term.

Financial burden

Third party services come at a premium, and while they can be invaluable in reducing resource demands on your team, it’s likely that you will pay more for third party lease abstraction than you would managing the process in house or investing in lease abstraction software.

If the number of leases you handle scales significantly, costs will increase, and your business could also be left open to risk if your supplier changes their service offering or increases their fees.

Productivity

While it’s likely to be more economical to manage lease abstraction in house, this reduced cost comes at the expense of other tasks your team could be taken away from. Lease abstraction can take weeks of resource time, reducing your team’s ability to focus on more important areas. Using a third party can help ensure your team are devoting their time to the areas most aligned with your business objectives.

Ensure accuracy with our lease abstraction software

Third party lease abstraction services are one way of reducing the resource demand of the abstraction process on your team, but they’re not the only option. By investing in the right technology, you can streamline your internal lease abstraction processes, dramatically reducing the time required to create lease abstracts whilst ensuring the highest possible levels of accuracy and transparency.

MRI Contract Intelligence leverages powerful AI technology to automatically parse contracts and extract key clauses. With all your lease data pulled into a structured data repository, you can create powerful analyses and reports for fast, confident decision making and effortless compliance with lease accounting standards.

With a complete audit trail allowing you to trace back to the original contract document in just a few clicks, you’ll have complete trust in the accuracy of your data, and powerful predictive analytics capabilities help you gain invaluable insights into your portfolio and identify efficiencies and strategic opportunities.

FAQs about third party lease abstraction