Why Lease Management Services?

Inconvenient Truths…..

• Think there is nothing to manage once a lease is signed?
• Need a better way to manage your real estate assets?
• Has real estate always raised more questions than answers for you?
• Do you fell you are sitting on a landmine called lease?
• Do you know what your lease is SILENT about?
• Do you fear about the data security of your lease?
• Do you know the current market rentals of your building (s) up for renewal ?
• Do you know which of your lease assets is up for renewal ?
• Is your lease powerful enough to help you make the correct real estate decisions?
• Do you search your lease every time to understand the negotiations agreed upon?
• Do you get a single glance of the cash flow and NPV analysis of your real estate portfolio?

If your answer for the above questions is “yes” then the solution is Lease Management Services. We help you make well informed real estate decisions through our lease management services.If you are still using spread sheets or out dated database to manage your leased assets then you should consider Lease Management Services.Check out the next post for a detailed description on Lease Management Services.

Indemnity Clause

What is it?An indemnity clause is one in which ,an individual takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual.

• A provision in aLease under which one party or both parties commit to compensate the other or each other for any harm, liability, or loss arising out of the lease.
• To indemnify means  guarantee against any loss which another might suffer.
• These clauses are one way people allocate risk in their contracts.
• This is one of the most over looked clauses in a lease document.

Pit Falls :The language of the indemnity clause is very important.For example, when does the obligation arise? Does it cover legal fees or just damages? What happens if more than one party is at fault? In most lease documents only the landlords indemnify the tenant where in the land lord is liable for the damages or losses.This is not in the best interest of land lords.

A typical broad indemnity clause :“Lessee agrees to indemnify and hold harmless lessor of and from any and all claims, demands, losses, causes of action, damage, lawsuits, judgments, including attorneys’ fees and costs, arising out of or relating to the work of Lessee.
This is a very broad indemnity clause saying  “You pay if you hurt me, I hurt myself, or some other guy hurts me.”

A narrower version of this clause might say:“Lessee agrees to indemnify and hold harmless lessor of and from any and all claims, demands, losses, causes of action, damage, lawsuits, judgments, including attorneys’ fees and costs, but only to the extent caused by, arising out of, or relating to the work of Lessee.”

Even Refined the clause might read:“Lessee agrees to indemnify and hold harmless Lessor of and from any and all claims, demands, losses, causes of action, damage, lawsuits, judgments, including attorneys’ fees and costs, only to the extent caused by or arising out of or relating to the work of Lessee.In no event shall the maximum liability hereunder exceed the sum of Rs _________.”

Indemnity clauses should be drafted as clearly as possible. Clearly identify what kinds of potential loss you are trying to protect.

Finally ,A good lease document is one in which both the land lord and the tenant are indemnified by each other and both their interests are well protected.

Lease Management

What is lease management ? Lease management  services assists Landlord(s) holding income generating real estate assets and Tenant (occupying premises on rent) , in managing their Lease agreements, Contracts and Leave & License agreements by abstracting and summarizing key provisions contained in such agreements.

Why Lease management ?The obligations of a lease require constant attention long after the terms are forgotten by the parties who negotiated them. The consequences of missing an obligation in a lease can be costly. Imagine the potential cost of failing to provide timely notice to extend the term or being unaware of a renewal/ termination.

What does it provide?It provides  accurate, ready-to-use, timely information in a consistent format to make an intelligent decision regarding the Lease.

What are its constituents ?

• Lease Abstraction : An accurate and timely comprehensive summary in a consistent and easy to read format.
• Lease Monitoring : Effective key date management  and resulting in timely communication on the way forward in a lease .
• Lease Document Management : Scanning paper leases and documents into PDF format. Once scanned, documents are uploaded into a server space for access.
• Lease Restructuring :  Helps in avoiding the potentially devastating pitfalls of post-deal resentment and retribution bringing a wealth of positive benefits.

Leave & License Vs Lease Agreement

The cardinal distinction between a lease and a licence is that in a lease there is a transfer of interest in the premises, whereas in the case of a licence there is no transfer of interest, although the licensee acquires a right to occupy the premises. When premises are given out on lease or tenancy basis the legal possession of the premises in these cases is also deemed to be transferred to the lessee and tenant respectively.

1. Lease is an inheritable right, which is available as a right against any person in the world. License is not an inheritable right. It is personal and exclusive to the Licensee and on death it automatically stands revoked.
2. Lease creates interest on the leased property in favour of the lessee. In License no such interest is created in the Licensee.
3. Lease interest can be assigned. License is not assignable.
4. Denial of Lessor’s title results in forfeiture of lease. It is not so in case of License.
5. Remedy of breaches in case of lease is that lease can be enforced. In the case of License only suit for damages can be filed.
6. Termination of lease requires notice to be served on the lessee. Termination of License can be done without notice.
7. Lease deed requires registration under Registration Act 1908 and Transfer of Property Act 1882 if the value of property exceeds Rs 100 or lease duration exceeds 11 months. Earlier in case of leave and License agreement registration was not compulsory. However according to recent amendment ,stamp duty and registration is made compulsory.
8. A Lessee can sue stranger or third party in his own name. A Licensee cannot do so.

A license is a personal right granted to a person to do something upon immovable property of the grantor and does not amount to the creation of interest in the property itself. It is purely a permissive right and is personal to the grantee. The normal clauses in lease agreements, if incorporated in the leave and license agreement, shall not hold good in the eyes of law unless some specific structuring is done to ensure the validity of such clauses.

Simply saying a leave and license agreement is more biased for the benefit of the land lords unlike a lease agreement where the interests of both the lessee and the lessor are well protected.

Reverse Mortgage

What is it?A reverse mortgage (or lifetime mortgage) is a loan available to senior citizens. Reverse mortgage, as its name suggests, is exactly opposite of a typical mortgage, such as a home loan.
How does it work?You pledge a property you already own (with no existing loan outstanding against it). The bank, in turn, gives you a series of cash-flows for a fixed tenure. These can be thought of as reverse EMIs.

After the Tenure period ?If the tenure is for 15 years and the owner of the house and his/her spouse continue to live in the house till their death ,which can occur later than the tenure of the reverse mortgage.

Simply put, any senior citizen, opting for reverse mortgage will get annuity (the reverse EMI) from the bank for 15 years. After that, the annuity payments stop. However, they can continue to live in the house.

What are the features of this loan?The draft guidelines of reverse mortgage in India prepared by the Reserve Bank of India have the following features:

• Any house owner over 60 years of age is eligible for a reverse mortgage.
• The maximum loan is up to 60 per cent of the value of the residential property.
• The maximum period of property mortgage is 15 years with a bank
• The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.
• The revaluation of the property has to be undertaken by the bank once in every 5 years.
• The amount received through reverse mortgage is considered as loan and not income,hence the same will not attract any tax liability.
• Reverse mortgage rates can be fixed or floating and hence will vary according to market conditions depending on the interest rate regime chosen by the borrower.

How is the loan paid?With a reverse home mortgage, no payments are made during the life of the borrowers. Since no payments are made during the term of the reverse home mortgage loan, the loan balance rises over time.

In most areas where appreciation is good, the value of the home grows at a much faster rate than the loan balance. Therefore, the remaining equity continues to grow.

When the last borrower passes, or it is decided to sell the home and move, the loan becomes due. The ownership of the home is then passed to the estate or directed by a living will or will to the beneficiaries.

The beneficiaries now own the home and have to sell the home or pay off the loan. If the home is sold, the reverse home mortgage lender is paid off and the beneficiaries keep the remaining equity of the home.
What happens after the death of one or both of the spouses?If one of the spouses dies, the other can still continue living in the house. If both die, the bank will give their heirs two options to settle the overall outstanding loan and retain the house, or the bank will sell the house, to use the proceeds to settle the outstanding loan and give the rest to the heirs.

How much of an annuity income can my house generate using reverse mortgage?
We can safely assume that it will not exceed the interest rates used for loan against property  which is currently in the region of 12 per cent to 14 per cent.

What is a loan to value ratio?Loan to value ratio means the percentage of loan that you will get for the value of the property that you pledge. The typical rate loan to value ratio is 60 per cent.

Does a person’s age affect the amount of annuity paid?Higher the age, higher the annuity. Everything else remains the same.

Why Exclusive Project Marketing?

• What is it ?Exclusive project marketing is when you delegate the responsibility of leasing your building exclusively to an organization or a person, who would work to satisfy your leasing objective.

• Why exclusive project marketing? Assume , you have a product that would sell. As a part of the marketing, you go to two or three retail outlets and place your product or rent a shop and appoint a sales person to do the sales.Which do you think would give better results? Obviously, your own shop. Reason being , for the sales people in other shops your product is yet  another product to sell.But,for the sales person in your shop ,yours is the one and only product to sell,  by all means he would try make sale of your product to every customer who walks  into  your shop.In other shops this may not necessarily happen.The same philosophy applies good for a building to be leased too.You have a word with local brokers for whom yours  is one of those many buildings that they would like to lease, where as ,assigning an exclusive project marketing to a firm would assure you that there is somebody who takes responsibility to lease your place and see to it you get the best possible deal out of the transaction.

• What do I gain ?The person whom you have assigned project marketing exclusively to, would do the negotiations at your best interest . Unlike a broker who would switch to the better side , in course of negotiations ,but get paid by both the parties.

• Is it faster ?In Marketing your project exclusively ,the commitment to lease is high and hence you get to lease your building in faster time and thereby enjoy your rental income faster .

• Reliability ?A broker may manipulate your desperation to lease your place and may lock you with a deal ,which not necessarily be the best possible deal you could get.An exclusive project marketing personnel would be a veteran in the field ,who  would get to understand your specification and needs,and also tell the estimated time within which he would lease your building and the type of organisation who would be interested in the given type of building,with best rental rate  in the market and a company with a “highly reliable tenant”  record.

To buy or To Lease?

All growing small businesses may someday be faced with the question of leasing versus buying office space. This question has many pros and cons. With ever-changing office vacancy rates and stock markets, it is uncertain what the future may bring. A small business owner needs to carefully weigh the pros and cons of leasing or buying office space.

Pros of Office Space Buying

• Fixed Costs: Locking in your commercial mortgage long-term can give your business clear and fixed costs.
• Tax Deductions: The associated costs of owning and running a commercial space can provide expense deductions in the form of mortgage interest, property taxes and other items.
• Additional Income: Owning your office can offer the advantage of renting out extra office space adding another source of income.
• Retirement Fund: The prospect of owning commercial space and having the property appreciate over time, allows the owner to sell out and fund their retirement.

Cons of Office Space Buying

• Lack of Flexibility: A new or growing business may experience unexpected needs in the future. If your business continues growing, your owned office space may become inadequate forcing a sale of the property.
• Upfront Costs: Buying commercial space will initially cost far more upfront. There are property, appraisal and maintenance costs along with a large down payment and possible property improvement costs.

Pros of Office Space Leasing

• Prime Property: A leasing office space option provides a business with the chance to rent in an area with a good location and high image. If your small business is dependent on location and image, such as retail or restaurants, the leasing option is much more affordable.
• Free-up Working Capital: With your money not tied up in real estate your business can respond to opportunities in the market. In addition, your ability to borrow funds will not be as limited as with buying office space.
• More Time: Any type of ownership comes with headaches. A leasing option affords the time to focus solely on running your business.

Cons of Office Space Leasing

• Variable Costs: With a leasing option you may be subject to annual rent increases and higher costs at the time when your lease expires.
• No Equity: While leasing you will be funding someone else’s retirement with your lease payments. However, owning requires you to get involved in the property management business.