Managing Risk in the Leases You Inherit

What happens when lease administration does not have a seat at the table before the lease is signed?

8 min read  •  Part 3 of 3

Over the past two posts in this series, I have made the case that occupancy cost issues usually begin long before the reconciliation, and that lease administration belongs at the table before agreements are signed. I am humbled by how many folks reach out to me regarding these issues and setting up best practices. We are all in this together, and we learn best from each other.

But we all know that is not always how it works. So, what happens when you do not have that seat?

The reality is that many lease administrators spend much of their time managing leases they did not have an opportunity to review before they were signed. Some are inherited through mergers and acquisitions. Others arrive through divestitures, portfolio transfers, lease assignments, or business reorganizations. By the time the lease reaches the administration team, the opportunity for negotiation may be long gone.

Some of the most challenging occupancy cost issues I have encountered were not caused by poor administration. They were the result of lease language negotiated years earlier by people who had long since moved on from the organization or leases that were acquired. The lease administrator is left managing the consequences of decisions they never had the opportunity to influence.

This reality can be frustrating, but it is also where lease administration provides some of its greatest value.

When a new portfolio is acquired or a lease is assigned, one of the first priorities should be to understand where the risk lies. Every lease contains obligations, but not every lease carries the same level of occupancy cost exposure. Some agreements contain clear definitions, strong audit rights, reasonable expense caps, and detailed operating expense language. Others provide broad landlord discretion, limited transparency, and few tools for controlling future costs. The goal is to identify the agreements that deserve additional attention and prioritize them.

One of the most overlooked opportunities to identify lease risk occurs before the lease administration team ever assumes responsibility for the lease.

Get Involved Early in M&A Due Diligence

Too often, lease administration is brought into an acquisition after the transaction has closed and the leases have already changed hands. At that point, the organization assumes the obligations, but many opportunities to understand and manage risk have already passed.

During due diligence, most attention is naturally focused on valuation, legal structure, financial performance, and operational integration. Real estate often becomes just one workstream among many. Yet the leases being acquired may represent millions of dollars in future occupancy costs and long-term obligations that will eventually fall to someone else to administer.

This is where lease administration can provide significant value.

A robust real estate due diligence checklist should go beyond simply collecting lease documents. It should identify provisions that create future occupancy cost risk, highlight leases with limited audit rights, identify unusual operating expense language, evaluate expense caps, and document areas that may require additional scrutiny after closing. Due diligence is not just about understanding what you are acquiring. It is about understanding what you are inheriting.

The due diligence process may also create opportunities to influence future outcomes. If renewals, amendments, assignments, or new lease negotiations are occurring while the transaction is underway, there may be opportunities to provide feedback before agreements are finalized. While every lease provision may not be negotiable, identifying potential risks early can help prioritize discussions that create long-term value after the acquisition closes.

This is also the ideal time to request information that may become difficult or impossible to obtain later. Historical operating expense reconciliations, landlord invoices, supporting documentation, escalation schedules, audit reports, prior disputes, and occupancy cost analyses can all provide valuable insight into how a lease has been administered and where future risks may exist.

Once the transaction closes, access to that information often becomes significantly more difficult. The people who understood the lease may no longer be available. Systems may be retired. Records may be archived or lost. Questions that could have been answered during due diligence become much harder to resolve months later.

Use Technology to Keep Risk Visible

Technology can play an important role in managing inherited risk. A lease management system should do more than track rent, renewal dates, and critical obligations. It should capture critical lease provisions and make those risks visible to stakeholders at the moments when action can be taken.

When a renewal, expansion, contraction, assignment, landlord consent, or disposition activity is approaching, stakeholders should receive more than a reminder that a date is coming. They should receive visibility into the lease provisions that may warrant review or changes.

The alert should not simply state that a lease expires in twelve months. It should remind stakeholders that the lease contains no audit rights, no controllable expense cap, broad operating expense language, or other provisions that should be addressed if negotiations occur.

The goal is not simply tracking dates; the goal is creating opportunities that result in cost savings. By making risks visible before a business event occurs, lease administration can help influence outcomes long before occupancy cost issues appear in a reconciliation.

Business Events Create Negotiation Opportunities

Business events create negotiation opportunities. Yet organizations frequently focus only on the immediate transaction. The renewal gets completed. The amendment gets signed. Everyone moves on.

Months or years later, the same occupancy cost challenges persist because nobody recognized the opportunity to improve the language at the time of the transaction.

A renewal, expansion, relocation, assignment, or landlord consent request may provide the best opportunity to improve lease language without reopening the entire agreement. Adding audit rights, clarifying capital expenditure language, limiting management fees, or establishing caps on controllable expenses can create meaningful long-term value.

Using AI to Scale Lease Reviews

As portfolios grow through acquisitions, assignments, and business expansion, the challenge is finding the time to review them. This is an area where AI can become a valuable tool.

Lease administration teams are often asked to evaluate large numbers of leases during acquisitions, portfolio integrations, system implementations, and due diligence exercises. Reviewing every document manually can be time-consuming, particularly when the objective is identifying specific provisions such as audit rights, expense caps, management fee language, gross-up clauses, capital expenditure recovery, assignment provisions, or renewal terms.

AI can accelerate that process. A well-designed prompt can help identify key occupancy cost provisions, summarize lease language, highlight potential risks, and compare lease language against company standards. During acquisitions or portfolio reviews, AI can help teams quickly prioritize which leases deserve deeper analysis and which agreements may contain elevated risk.

AI should never become a substitute for professional judgment; it is a tool. Lease language is often nuanced. A single exception, cross-reference, or defined term can dramatically change the meaning of a provision. AI can help surface information faster, but lease administrators remain responsible for validating the results and understanding the business implications. Lease administrators who perfect that balance will thrive and be highly productive.

One of the most valuable investments a lease administration team can make is developing and refining a library of prompts. Rather than starting from scratch each time, teams can build repeatable prompts designed to identify common risk areas, evaluate lease provisions, summarize occupancy cost language, and support due diligence reviews.

Over time, those prompts become part of the organization's institutional knowledge. They create consistency, improve efficiency, and allow teams to focus their expertise where it provides the greatest value: interpreting results, making recommendations, and influencing business decisions.

The organizations that gain the greatest value from AI will not be the ones that replace people with technology. They will be the ones who use technology to allow their people to focus on higher-value analysis and decision-making.

Breaking the Amendment Cycle

Another common challenge in mature portfolios is what I call the amendment cycle.

A lease is amended to support a business need, then again several years later, and again after that. Over time, important provisions become scattered across multiple documents. Definitions evolve. Exceptions are added. Industry language and standards become dated. Conflicts begin to emerge, and the workload of administering the lease increases.

At some point, another amendment may no longer be the best solution. Sometimes the better approach is a new, restated lease. If you have a lease that still refers to fax communication or does not allow electronic document exchange, it is probably time for a restated lease.

A consolidated agreement can simplify administration, eliminate ambiguity, and provide an opportunity to address occupancy cost concerns that have accumulated through years of piecemeal negotiations. While a restart is not always possible, it is often worth considering when leases become overly complex or difficult to administer. The additional legal cost is a good investment.

For organizations operating globally, these challenges become even more pronounced. Lease structures vary significantly across countries. Effective lease administration teams understand those differences while still maintaining appropriate portfolio-wide controls and visibility.

Having a seat at the table is not always possible, but lease administration can still have a meaningful impact by identifying and notifying the proper stakeholders so they can address poor language at the next leasing opportunity.

Get a Seat at the Table

Lease administration needs to be in the room before the lease is signed.

8 min read  •  Part 2 of 3

In Part 1 of this series, I wrote about where occupancy cost risk really begins. The answer, in most cases, is in the lease language itself. Provisions that look reasonable during negotiations can shift costs in ways that are difficult to untangle and even harder to dispute once the lease is executed.

The response to that post was strong, and a common theme came through: many lease administrators are not involved in the deal process until after the lease is signed. By then, the language is locked in. The risks are already embedded. And the team responsible for administering the lease is left managing outcomes they had no opportunity to influence.

Many of you reached out to me privately through LinkedIn, and I appreciate that. But I want to encourage you to share those questions and experiences in the comments section so everyone can benefit from the dialogue. The challenges we face in lease administration are rarely unique to one organization, and the conversations that happen publicly tend to help far more people than any one-on-one exchange.

This is the second post in the series, and I want to focus on what it looks like when lease administration does have a seat at the table, and why it matters.

A Different Lens

When lease administrators review draft leases, they bring something different to the process. It is not a legal review. It is not a real estate strategy review. It is an operational and financial view of how the lease will actually perform over time.

We are analyzing how it will work in practice under our policies, with a focus on cost control and cost avoidance. We are identifying where language creates risk, where it may not hold up operationally, and where it can drive cost over the life of the lease.

That perspective matters because many of the issues I covered in Part 1, including ambiguous capex treatment, poorly defined gross-up provisions, and expense caps that do not actually protect you, are exactly the kinds of things a lease administrator would flag. Not because the language is legally flawed, but because we know how it plays out in practice. We see it every reconciliation season.

The Power of a Playbook

One of the most effective ways to support proactive lease negotiations is by building a playbook for preferred lease language. Standardizing key provisions, particularly around occupancy costs, audit rights, and financial terms, creates consistency and reduces ambiguity across the portfolio.

A good playbook does a few things. It defines what optimal language looks like for the provisions that matter most. It gives deal teams a reference point during negotiations. And it creates a baseline that makes it easier to identify when a lease deviates from your standards.

But the playbook alone is not the full picture.

Tracking Where Landlords Push Back

This is where lease administration adds additional value when they have a seat at the table. Visibility into where landlords are pushing back provides insight into where risk remains in the final lease. Not every provision will land the way you want it. Landlords have their own interests, and negotiations are a give-and-take process.

When lease administration is involved, that pushback gets documented. And that documentation becomes a tool. It can be carried forward into the administration of the lease, helping lease administrators focus their time and attention during reconciliation reviews on the specific areas where the lease language is weakest.

Without that visibility, reconciliation reviews become broader and less targeted. You are looking for issues without knowing where to look first.

The Reality of Variability

Lease language will never be fully standardized. That is the reality of the negotiation process. Some landlords will not agree to certain changes, and outcomes are often influenced by leverage. That leverage can vary depending on the tenant, market strength, and even the country in which the lease is executed. Some tenants have more negotiating power than others, and that power can vary significantly across regions.

A playbook does not eliminate variability. It helps prioritize what is most important while making risk more visible. The important thing is to identify risks during the negotiation process so they are not a surprise later.

Making It Work

Every organization is structured differently, and there is no one-size-fits-all approach to integrating lease administration into the lease lifecycle. The goal is not to slow down the deal process. It is to add a focused checkpoint where lease administration can contribute where it matters most.

In practice, this may include targeted reviews of occupancy cost and financial terms during the draft lease stage, or integration into workflow-based lease approvals. Some organizations build lease administration into the approval chain formally. Others use a more consultative approach where lease admin reviews specific sections and provides feedback to deal teams.

Either way, the principle is the same: get the operational and financial perspective into the process before the lease is executed.

The Outcome You Cannot Always Measure

I come back to something I said in Part 1 of this series. Proactivity in lease administration follows the same theory as crime prevention. When this work is done well, the result is often measured by what did not happen.

When lease administration has a seat at the table, the wins are often invisible. The ambiguous provision that got clarified before execution. The audit rights that were strengthened before they needed to be exercised. The expense definition that was tightened before it could be interpreted broadly.

Those outcomes do not show up on a dashboard. But they represent some of the most valuable work lease administration can do.

As I have previously said…

Where Occupancy Cost Risk Really Begins

By the time you are reviewing reconciliations, the outcome has already been decided.

8 min read  •  Part 1 of 3

I have said this before, and it is a principle I come back to often. It captures something essential about what we do in lease administration. The wins are not always visible. They show up in the overcharges that never made it to an invoice, the cost escalations that were caught before they compounded, and the lease language that held up when it was tested.

CAM and operating expense reconciliation season is when lease administrators tend to feel some pressure. Reconciliations come in. The math and logic need to be validated. Questions and back-and-forth communication start stacking up. But here is the truth: by the time you are reviewing reconciliations, much of the outcome has already been decided. Occupancy costs do not start with the reconciliation. They start with how the lease was negotiated.

This is the first post in a three-part series exploring how to proactively manage occupancy costs across the lease lifecycle. We are starting where the risk starts: in the lease language itself.

Where Risk Lives in the Lease

Many occupancy cost issues can be traced back to lease language. On the surface, the language may appear reasonable, but in practice, it can shift costs in ways that are difficult to untangle and even harder to dispute. These items are often subtle during negotiations, but they can have a significant financial impact over time.

I want to focus on four areas that I see create the most risk.

Capital Expenditure Treatment

One commonly overlooked gap is how capex is handled within operating expenses. Many leases exclude capital improvements, but then carve out exceptions allowing those costs to be passed through if they are expected to reduce operating expenses, often without clearly defining how that reduction is measured.

This can open the door to large projects like roof replacements, HVAC upgrades, or energy efficiency initiatives being passed through over time. What is often missing is how those costs are amortized, a clear definition of what constitutes a capital improvement, and whether interest charges are included in the amortization. Each of those gaps can add meaningful cost over the life of a lease.

Controllable vs. Non-Controllable Expenses

Leases may include caps on controllable expenses, but if the lease does not clearly specify what falls into that category, there is flexibility in how costs are classified. Expenses like security, landscaping, janitorial, administrative costs, or certain maintenance programs can fall into gray areas.

Over time, those gray areas tend to get resolved in one direction: more costs get categorized outside the capped bucket. The cap still exists in the lease, but it may not apply to a meaningful portion of total expenses. The protection it was intended to provide gets quietly reduced, and occupancy costs end up higher than expected.

Gross-Up Methodology

Gross-up provisions are frequently included but not adequately defined. A lease may allow expenses to be grossed up to a certain occupancy level, but fail to define which expenses are eligible, what occupancy percentage is used, or how the calculation is performed. This can result in tenants paying for expenses that were not actually incurred or paying at levels that do not reflect the building’s true operating conditions.

There is also a risk of double computation, which I covered in a previous post called “CAM Audits – Management Fees” in a section titled “The Gross-Up Trap.” If you have not read it, I would recommend going back to that one.

New and Evolving Cost Categories

This is one that is growing in importance. As buildings modernize, new expenses are being introduced: technology fees, sustainability initiatives, smart building systems, compliance-related costs. This can include items like building analytics platforms, energy management systems, ESG reporting costs, EV charging infrastructure, and new regulatory requirements.

Without clear guidance in the lease, these costs can be introduced into reconciliations with limited visibility and little ability to validate or challenge them.

This is especially critical in base year leases. When new categories are introduced after lease commencement, they can bypass the original base-year structure and create incremental costs that were never contemplated. If the lease does not clearly address how new expense categories are treated, the result is often a steady expansion of recoverable costs over time.

And That Is Not the Full List

Beyond these four, there are additional areas that create risk: management and administrative fee structures that get applied to inflated expense bases, utility and shared service allocations that lack clear methodology (especially in mixed-use environments), audit rights that exist on paper but are not practical to exercise, and timing requirements that limit your ability to review and respond. Each of these deserves its own focused discussion, and I will be touching on several of them in future posts.

The point for now is this: each of these issues may seem small during negotiations. But over time, they compound. And by the time they surface in a reconciliation, the ability to address them is significantly limited.

The Work That Prevents the Problem

This brings me back to where I started. The most impactful lease administration work often happens before a reconciliation ever arrives. It happens when someone reviews the lease language with an operational lens, identifies where the gaps are, and flags them before the deal closes.

That is the kind of work that does not always get measured, because the outcome is what did not happen. But it is where some of the greatest value in lease administration lives.