A lease abstract is a detailed summary of key business information in a commercial real estate lease. This road map of the lease allows a lease administrator, leasing agent, property or maintenance manager to renew frequently referenced lease information without having to take time perusing a lease to find the needed information. It also allows an aggregation of critical lease information such as expiration and option notice dates to better manage a portfolio of leases. Commercial leases are often full of long wordy paragraphs written in convoluted legal language and abstracts cut through all of that language and condenses the lease to its important information.
Most often an individual requires a lease abstract not for his own understanding of the terms of the lease but for financing purposes. When an individual seeks to purchase a commercial property, he/she must perform what is called a due diligence. Due diligence requires the potential buyer to inspect all aspects of the property including the status of the leases associated with the property. The review of the abstract of leases rather than the lease themselves makes the task of due diligence much more cost and time efficient. A lease abstract will provide the essential details of a transaction long after the terms are forgotten by the parties who negotiated them. It is thus a powerful tool to help administer and audit a lease during its term.
The most critical information to be included is the financial lease information. The obvious reasons are because the financial components of each lease, drive every commercial real estate transaction. While most if not all financial information should be included in the lease abstract, the inclusion of non-financial information offers more discretion to the abstraction than financial discretion to the abstractor than financial information. Inclusion of these provisions is often dictated by what a party deems relevant in connection with the specific property or tenant in question.
The lease abstract has evolved in direct proportion to the increased complexity of commercial property transactions. A lot of data can and should be included in the Lease abstract. Much of this data is critical to the valuation and lease administration of properties and portfolio’s. However it is important to recognize that the lease abstract should be artfully stated to allow the landlord or tenant to accomplish their goal of understanding the basic lease provisions without having to refer to the actual lease document.
Tags: Lease Abstract, Property, Real Estate
Due diligence is actually the most crucial part of any buying transaction. It is the period when you will have complete access to all company files and records as a final step to analyze the business and uncover any potential problems. While the formal due diligence stage generally begins after an agreement is reached with the seller, to avoid any pitfalls a buyer’s diligent investigation of the business must begin the moment a business becomes of interest. And so, due diligence is an all-encompassing part of the buy a business process.
The due diligence checklist begins with the information gathering stage. This will enable you to establish a pros and cons list about the business. During this due diligence process, think of yourself as a detective trying to uncover everything you can about the business. Before contacting the seller, do some basic information gathering using the Internet. As part of your checklist, search online records to learn what you can about the business you are interested in buying. Also do online research into the industry sector, suppliers, competition and the overall market outlook.
Due diligence when buying a business is extremely important when making an offer prior to acquisition. At this point, due diligence is crucial when looking through all the business records. As part of this process, create a list for the seller of all the materials you want to review. Then, create a timeline for yourself on what you plan to investigate, how long you plan to dedicate to each segment of the business, and which parts you are going to need professional advice, such as from a CPA or business lawyer. While many sellers or brokers like to rush the inspection phase of the due diligence process, allow yourself the time you need. A minimum of a 20 business day time period is an acceptable amount of time for the inspection stage in most contracts, but if you need longer, don’t be afraid to ask for it. And remember, the formal due diligence process that is referenced in any business purchase agreement should not begin until you have all the materials requested from the seller.
Take your time when reviewing all the business operations books, financial statements and tax records. Have your checklist handy to jot down questions, follow-ups and other things you need to check out with the seller. As part of the due diligence when buying a business, it’s common to find inconsistencies or questionable items. Write them all down on your due diligence checklist and talk with the seller when you have finished your due diligence process. The information will help you build your case in determining whether renegotiation of the price, terms or deal conditions may be necessary. Due diligence when buying a business is all you have to go on in order to make an informed decision on whether or not to purchase the business. When conducted properly, your final decision should be an easy one.
Tags: Business, CPA, Due Diligence