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.