Let’s set something straight before we dive into the ins and outs of effective lease management: Lease management is synonymous with lease administration. They are different terms for the overall process of performing daily tasks and upkeep related to a company’s lease portfolio.

However, since every lease contract is different, lease management may have different  requirements. This can make lease accounting difficult, but never fear! We are sharing the secret to effective lease management in this blog, so keep reading if you want to learn how to ease the burden of lease management on your company.

What are the Types of Leases?

First, let’s talk about the different types of leases that exist:

Net Lease

Net leases are common types of leases for owners of real estate properties of various scales. With this type of lease, it is common to have the lessee pay for some, or all, property expenses, including property taxes, insurance, maintenance, repairs, and utilities. These leases are commonly used in commercial real estate.

Triple Net Lease

A triple net lease, commonly referred to as NNN, is the most common type of commercial real estate lease. In a triple net lease, the lessee typically pays the lessor on a regular basis for the charges and the lessor pays the vendor. A triple net lease often requires a true-up by the lessor at the end of the year. The timing of this true-up is generally stated in the lease contract.

Embedded Lease

Embedded leases are one of the more difficult lease types to identify. Embedded leases occur when a lease agreement exists within a contract. Organizations with embedded leases often have a contract with a vendor that states that they are able to use the asset as a part of a larger value contract and the use of that asset meets the definition of a lease. Even service contracts may contain an embedded lease.

Operating Lease

Operating leases are leases that do not mimic a lessee purchasing the underlying asset. There is no ownership transfer at the end of a lease, and the leased asset could be used by someone else after the lease has terminated.

Finance Lease

Finance leases are leases that have characteristics that make them similar to purchasing an asset. Five criteria help to categorize finance leases. These are:

1. Ownership of the asset transfers to the lessee at the end of the lease term.
2. The lessee is reasonably certain that they will purchase the asset at the end of the term lease.
3. The leased asset has no alternative use to the lessor at the end of the lease.
4. The lease term is a major part of the economic life of the underlying asset.
5. The present value of lease payments equals or exceeds substantially all of the fair value of the leased asset at the start date of the lease.

Sale and Leaseback

Sale and leaseback agreements are transactions where the seller of an asset becomes the lessee and the purchaser becomes the lessor. In these types of agreements, the entity that sold the asset continues as the lessee; operating and controlling the asset. However, they no longer own the asset.

What is Lease Management or Lease Administration?

Lease management, or lease administration, is the practice of keeping leases organized once they have been negotiated and signed. After a lease is signed by all the necessary parties, it is either stored on a server or within software. Following the signing and storing, an organization should abstract the necessary information to be used for recording and tracking the lease. 

Lease management requires careful tracking of key data related to the lease, including but not limited to:

• Commencement date
• Written start date
• Lease term
• Options to extend or terminate
• Notice provisions
• Payments, including CAM, property taxes, and insurance
• Insurance requirements

Many companies abstract each lease when it’s signed so all key data stays organized. As the term of this lease continues, lease administration tasks are ongoing and may require attention when payments change or when notice provisions require a decision. If any aspect of a lease changes, it must be updated.

Audits and reporting also fall under the umbrella of lease administration responsibilities.

What Does a Lease Administrator Do?

Lease administrators perform management tasks associated with leases. These tasks generally include managing ongoing lease maintenance for the asset, tracking key dates within the lease, enlisting a broker to renegotiate terms or payments, reviewing CAM charges from the lessor, and more.

Why is Lease Administration Important?

Lease administration is crucial for any business, as leasing costs—whether for real estate, equipment, vehicles, or other assets—can represent a significant portion of a company's expenses. Ensuring effective management and reporting of a lease portfolio within the financial statements is of the utmost importance.

What Does a Lease Administration Analyst Do?

A lease administration analyst’s job differs slightly from a lease administrator’s. An analyst reviews lease contracts to ensure they are accurate and recorded correctly. They may keep track of leases and payments and ensure the terms of the lease are followed. They understand lease agreements and interpret the terms of the lease for accurate communication and reporting.

What is Lease Management Accounting?

Lease management accounting is the process of a company recording the financial impact of its leasing activities, including AP, AR, and CAM reconciliation and monthly entries. The process of lease management accounting requires documents like balance sheets, cash flow statements, and income statements to be updated and reconciled regularly.

The Secret to Effective Lease Management: Lease Management Software

The secret to effective and efficient lease management is implementing lease management software into your processes! 

With something as influential and crucial as lease management, you don’t want to take chances with incorrect calculations, missing documents, and data errors. Lease management software can minimize those errors while simplifying the lease organization and management process.

What is Lease Management Software?

Lease management software automates many aspects of lease accounting and lease management processes. LeaseCrunch helps to ease the pain of lease management/lease administration in that you can:

• Add all of your leases in just a few minutes
• Manage your leases or contracts in one dashboard
• Get email alerts for critical events such as lease end dates and more
• Ensure compliance with the latest lease accounting standards, such as FASB and GASB statements, IFRS 16, and ASC 842
• Get consistent, fast customer service from lease accounting experts

Who Needs Software for Lease Tracking?

Any size or type of organization can benefit from lease management software. Whether you have one lease or dozens, your organization would see an ROI from utilizing lease management software. 

LeaseCrunch’s lease management software is trusted by over 650 CPA firms and 26,000 companies not only because of our easy-to-use, effective lease management software, but also because our product is backed by lease accounting experts and former Big Four accounting auditors. Behind our software is white-glove customer service and endless resources for our customers to utilize in order to simplify and improve their lease management and accounting.

Contact LeaseCrunch today to get a free demo, or to get answers to any questions about how LeaseCrunch can make lease management easier for your firm.