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Loss to lease: don't miss out!

Loss to Lease: Don’t Lose Out

Loss to lease is kind of like a mythical creature. It’s not an actual loss of revenue but a loss of potential revenue that a property owner or manager may not even recognize because the bottom line adds up each month. There is no impact on cash flow since it’s not expected income. There’s also no benefit from this mythical beast at tax time because it doesn’t really exist. So, how can something be called a loss if you aren’t actually losing out?

Loss to lease basics

First, let’s look at a few essential facts about loss to lease:

  1. It’s the difference between the market value of a rental unit and the rent charged.
  2. Its number changes as market value changes.
  3. It can be a good thing or a bad thing.
  4. It is almost impossible to eliminate it perfectly.

1. The difference between the market value and rent

Loss to lease: the difference between market value and rent charged.

The fact that there is often a difference between the market value of a unit and the rent charged for that same unit seems ludicrous. How can property owners make money if they aren’t charging market value? There are several reasons for this (which we’ll get into later), but the most common is that the market value increased during the lease period. Meaning, while a property owner is making $8,000 per month on a rental unit, if the market value is $8,300 on that unit, they could be making an additional $3,600 over the course of a 12-month lease. The extra $3,600? That’s the loss to lease. That is, the dollar amount a property owner could be making above the lease amount.

2. The loss to lease amount changes with market value

Not only can a property owner experience this potential loss each month, but the amount of that potential loss could also vary month-to-month or quarter-to-quarter. In a given year, when there are drastic fluctuations in property values—such as during a global pandemic—a unit could have a loss to lease that swings equally as drastically.

3. It can be a good thing or a bad thing

This is more than just a case of glass half-full or half-empty. It absolutely depends on your role in the property. If you’re an owner, it’s not such a good thing; you could be getting a greater ROI—but aren’t—or you may need to revisit your property management.

On the other hand, if you’re an investor looking to buy the property, there is the potential for rent escalation, increasing profitability with little-to-no financial outlay. For example, consider a case where the existing owner isn’t aware that the rates are well below market value. In that case, the building is also underpriced based on the CAP rate—a win for the investor. As a result, the rent rates can be escalated when the lease term expires—making the loss to lease doubly attractive.

4. It is almost impossible to eliminate it perfectly

While this doesn’t sound like great news, it’s not terrible news either since you’re losing imagined profit. But the reality is that, for many landlords, the market value increases faster than their leases accommodate for. But wait, the rent can be increased at lease renegotiation, right? Great! It all worked out. Not so fast—three months later, the market value rises (for example, due to low availability and resultant trending higher lease rates), putting your newly agreed lease out of sync again. Taking this a step further, not every unit will be on the same cycle, so while you may get one or two units up to market value (for a while anyway), the remaining units fall further behind.

How can some of it be eliminated?

One way to minimize the loss is to use leases that can be adjusted based on a specified consumer price index (CPI adjustment). In theory, this completely eliminates loss to lease since any time the market changes appreciably, the lease rate can be adjusted to match. Practically, however, this proves to be very difficult to manage. It requires someone to monitor the CPI, make the calculations, notify the tenant in advance and then set new rental rates in the system used to calculate and process the monthly rent invoices. The small gains often just aren’t worth the time spent on this. A common workaround is to factor an average CPI into the lease rate annually or utilize shorter lease terms, which allow for more frequent adjustments than a longer lease term.

On the other hand, knowledgeable landlords can buffer this by implementing backloaded leases. Back-loading provides a lower front-end rate, which tenants appreciate during their expensive move-in period, and includes an extension term for higher rental rates aligned with market rate expectations. In addition, a no-reduction clause prevents losing rent to market down-turns at extension time. CRESSblue’s extreme automation makes all of this easy to manage, and our expert team is ready to share their best practices knowledge with you.

How to implement a backloaded lease.

Other factors causing loss to lease

While the main reason a property is not making its optimal income is the disparity between market value and actual rent charged, it’s not the only reason. Sometimes, it’s pretty clear what the issue is, and other times it requires an owner to dig a little deeper.

Properties that are run-down or lack amenities are not as desirable and don’t attract high-quality tenants willing to pay higher rent. That’s a clear example. A not-so-clear example is a property manager who may not be looking out for an owner’s best interests, either intentionally or unintentionally. Does your property manager have the right connections to attract tenants willing to pay higher rates? Are they staying on top of regular building maintenance while looking at cost reductions? As an owner, it’s your job to monitor your property manager and make sure you are getting the right service for your property.

Another problematic factor is assessing the property owner/landlord. Sometimes with the best of intentions, they can wreak the most havoc on the bottom line.

Are you causing your loss to lease?

Loss to lease isn’t always caused by charging less than market value. Some property owners are the cause of their own loss to lease without even knowing it. Take the case of David, a landlord we spoke with recently. He was incredibly proud that his tenants really liked him and that he cared about each and every one of them. This may seem like a fantastic approach, but he treated his property as a hobby and not an investment. He needed to formalize his business processes because his informal management style was limiting his wealth creation.

David would adjust rent based on how his tenants were doing. So you can imagine what his rents looked like during the global pandemic. Giving his tenants rent concessions ensures they stay and continue to pay rent. But at what cost? He was so focused on keeping his tenants happy and in his units, he forgot his property was supposed to make him money, not just break even at every lease cycle.

Why on earth would a landlord or property manager charge less than market value or provide regular rent concessions?

What do rent concessions have to do with loss to lease?

David thinks he’s doing the right thing by offering his tenants rent concessions. He didn’t believe using property management software like CRESSblue would be right for him. How could a software that calculates and tracks rent accurately work for him when he provides rent concessions based on how his tenants are doing?

Rent concessions are any form of reducing what a tenant will pay in rent. There are many reasons to do this, but they should be used as the exception and not the norm. When a landlord gives tenants a break on the rent, they lose out on real income, not the mythical potential income. But that real income loss is much more important. And that’s what David is facing. Let’s take a closer look at some examples of rent concessions.

Rent abatement

Giving some type of discount, be it rent concession, a percentage off or an early payment discount, is called rent abatement. It provides a financial break for the tenant and ensures the landlord gets early payments or keeps units occupied. To keep tenants in his units, David offered one month free during each one-year lease period. The remaining 11 months’ rent is paid in full, which is already lower than market value. By charging $8,000 for 11 months, David is only making $88,000 over 12 months instead of $96,000. Factor in the loss to lease of $3,600, and David is losing almost $12,000 a year through kindness and poor management.

Market rates aren’t the only factor in loss to lease analysis. If the data reveals a significant difference between the current lease and market rates, the opportunity costs of a new tenant must be factored in. Vacancy, free rent, fixturing periods costs, realtor commissions and legal expenses will offset the gains in the lease rate. Often these factors result in the landlord accepting a market rate loss to lease when negotiating with existing savvy tenants who are aware of these factors and consider them in their lease term extension proposal. This shows up in lease term extension options with wording such as “Base rent to be 90% of the market rate.”

Tenant Inducements

An extremely common tenant inducement is improvement allowances. Often a tenant will require improvements or upgrades to the physical space before moving in. These improvements are a condition of the lease. By agreeing to them, the landlord hopes these upgrades will be equally valuable to another tenant. The risk, then, is that the ROI on the tenant improvement allowance will not equal the cost of the allowance.

Tenant inducements to consider instead of rent forgiveness.

An alternative to tenant improvement allowances is the landlord-tenant loan. While there is some default risk here, it is far less risky than essentially giving away money in the form of free rent or improvements that may never be fully recouped through future rent. In addition, for tenants looking for an inducement to sign a lease, a loan from the landlord that is secured by the premises is attractive since moving a business is expensive. Securing additional financing from a traditional bank for moving expenses and leasehold improvements is much harder for a tenant to obtain, so a landlord loan can free up the tenant’s cash for other expenses.

Both improvement allowances and landlord-tenant loans allow a better chance for the landlord to recoup losses. But David prefers his way. Another way he accommodates his tenants is by offering a choice of upgrades or free amenities when their lease is coming up for renewal. David wants to make sure his tenants renegotiate their lease, so these small—to him—offerings provide great returns. Not quite. David fails to see that recouping the cost of the improvements or losing the income from additional storage and CAM fees will not be easy without rent escalations. Never mind that his rent is already below market value.

So, what can David do instead?

Making loss to lease work for you

Track market value and loss to lease as part of your regular accounting. This is the single most important step to making this phantom number work for you and not against you. If you know how much a unit could be worth, you will be able to make informed decisions about it, such as whether to proceed with leasehold improvements to a unit or rent escalation to full market value or a portion of it.

And when leases come up for renewal, there may be no way for you to escalate rent to market value and keep your existing tenants. That’s where your tracking can help. For example, suppose you know that the building is outdated and needs upgrades. In that case, you can leverage that information to decide which improvements will give you the most bang for your buck and bring in the highest-quality tenants possible at the highest rent they are willing to pay.

Your research may show that the market value far outstrips your property, and you need to invest in more creative ways to attract different tenants or keep the ones you have. Added amenities to the building? Rent increase is worth it. Should you renovate to an almost-new state? What does your data tell you about the area, the market, the tenants and their customers? Over-improvement may not allow you to recoup those costs.

Get creative with your concessions

If, like David, you feel strongly about giving rent concessions, there are ways to recoup the losses so that neither you nor the tenant feels the pain. For example, backloading the lease allows you to offer a break while ensuring you end up close to market rate expectations. Or, instead of offering free rent for one month and keeping the rest of the lease amount the same, increase the monthly lease amount to absorb the loss. In David’s case, the monthly rent would increase by less than $700 a month to spread the cost of that free rent month across the remaining 11 months. Or offer a landlord-tenant loan to bridge high expense periods for tenants.

Your research and data will tell you what you need to know to make decisions based on the bottom line and not your heart.

Getting more out of your data

Using loss to lease as a tool can also help identify issues when they happen and even before they happen. In addition, it can be a gauge of your property manager’s performance. Reviewing loss to lease regularly helps property owners set performance goals and reach new targets.

David didn’t want to hear that he was losing money. But once he started tracking his concessions and his potential income, he realized that he should be focused more on ROI and less on making the next leasing cycle. David finally understands that accurate financial reporting can only help his business grow. In a few short months, David has found numerous instances of loss to lease that he himself caused. And now, he has a plan in place to eliminate as much as possible at every lease cycle.

Loss to lease is an invisible number. It’s not real. It is a potential. Reaching that potential may not fully be possible, but you can use loss to lease to your advantage. By tracking it and understanding which factors you can affect and which are out of your control, you can lessen the gap between what you are making and what you should be making. It’s the only way to tame this invisible beast.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Property Management Accounting – Management versus Ownership

How to Ensure Accurate Property Management Accounting: Management Versus Ownership

Property owners sometimes unknowingly fall into a trap of their own making. They buy a property to house their business and rent out a portion to other companies. As a result, they get some additional revenue and build their portfolio. So, where’s the trap?

Businesses that aren’t real-estate savvy often don’t know the difference between accounting for their initial business, property investment accounting and property management accounting. However, if ignored, there are crucial differences that can cost an owner money. Or worse, it opens them up to liability and legal action.

Let’s take a look at a scenario where the business ownership and the property ownership became thoroughly entangled over the years. And what they should do to correct it.

Business owners who own their property

Tom, our fictional property owner, has accumulated a small portfolio of commercial buildings in this scenario. He owns these in conjunction with his long-time business partner, Fred. However, Fred is a silent investment partner and hasn’t been involved in the business operations. Tom and Fred have been modestly successful at Widgets, Inc., building a solid business making widgets over the last two decades.

It made sense for Tom and Fred to purchase a property for their own business needs as they started to grow. They found a good location with some extra space to lease out as a business investment. The new site gave them additional room to grow Widgets without the disruption of moving their business again in a few years. Tom managed the properties himself. This was a solid decision and served them well. Until it didn’t.

Merged property management accounting

Tom didn’t set up a property management company when he acquired his first investment property. Instead, as is typical in these situations, he had his Widgets company bookkeeper do the basic rent invoicing. Tom managed the property informally, with the building and property maintenance expenses processed and paid for by Widgets Inc. There wasn’t any formal budgeting for the property management. Instead, Tom treated it as building maintenance for Widgets Inc.

When Fred and Tom acquired another property, they followed the same management style. They did not create a formal property budget, and the realtor delivered a mix of primarily gross leases and some base-year leases. As a result, most leases didn’t require any reconciliations and the ones that could have been reconciled simply weren’t. At year-end, no one in the company knew what the reconciliation process entailed, so the property management accounting was lumped in with the business. They assumed that the corporate accounting firm would have flagged it if it were important. No one thought to ask the external accountants directly.

Improper corporate structure equals inefficiency that compounds with each added property

Years pass by, and Tom and Fred are mostly retired from the daily operations. Control has passed to Fred’s son Ben and daughter Alex who both work in management at Widgets. Both are technically savvy and have implemented digital technology into Widgets’ operations. However, Alex wants to get the neglected property portfolio sorted out and is looking for a property management accounting solution. She contacts CRESS about CRESSblue Commercial Property Management Software and arranges for a demo. Alex wonders whether CRESSblue can post transactions for the property management to Widgets’ accounting package.

Unfortunately, there is a larger issue here. The property management accounting records have become merged with the Widget company manufacturing business records. In reality, they should be two businesses with separate accounting records.

Why property management accounting needs to be separate

A single corporate structure that worked when PM operations were very limited or insignificant is no longer working effectively. While it seems that adding another corporation would entail much more work, that isn’t true. Imagine that a single folder with all your documents is the simplest file structure. Certainly, adding more folders will increase complexity, but it also makes your workflow exponentially easier! It is much less complicated to find, track and use appropriately segregated files for efficient workflows.

Corporate structures and accounting records are merely means of separating business operations. Just as you wouldn’t use one folder to organize all your files, you shouldn’t expect that one corporation is the simplest and most efficient way to organize business activities either.

Widgets Inc. is both the property owner and a tenant in its own building. As the owner, Tom will want to see the overall property and financial reports. First, however, he will have to set up Widgets as a tenant for its portion of the expenses in a multi-tenant building. That way, it will see only its proportionate share of the common area expenses, and its corporate records will accurately reflect the cost of its tenancy in the premises.

Proper corporate structure equals efficiency that grows with your portfolio

Most commercial leases require property expenses to be distributed proportionally based on rentable area. When the accounting records are merged with the books of one of the tenants (even if the tenant is also the property owner), it is easy to introduce errors that result in noncompliance with the terms of the leases. Additionally, if one of the tenants requests an audit of the property accounting records, does Widgets Inc. want to expose its entire operation to a tenant’s auditor? Tom and Fred would avoid this situation entirely by structuring the property management as a separate company.

Business Management versus Property Management

In standard business practices, a company offers property management services to the public, and owners approach them to manage their properties. This only becomes an issue when the separation between the two businesses is grey. This scenario shows up in various manifestations, but they have several characteristics in common:

  • Property owners request the rents be deposited directly into their bank account, not the property manager’s bank account.
  • The properties are individually owned by a corporation, and each property is a separate corporation.
  • Often the property-owning corporations have the same or a similar group of owners.
  • If accounting records are kept, the PM company does them in the name of the corporation that owns the property.

What is occurring here, besides a lot of confusion in accounting records and very inefficient workflows?

Business Management

What these characteristics describe isn’t property management. Instead, it is multiple business management that combines several parties in ownership and operations.

The questions potential customers typically ask that indicate this type of setup are:

  • Can we link multiple accounting databases into CRESSblue?
  • We use 100+ bank accounts to deposit rents—one for each property. Can we connect all of them to CRESSblue?
  • It takes a very long time to process our incoming mail because we have numerous spreadsheets and accounting files. Can CRESSblue speed that up?

In theory, holding the property ownership in separate companies keeps any liability incurred on one property from flowing across to another property. It is supposed to keep the assets separated from the risk.

In practice, the owners have handed off the liability-producing activities from property management operations to a third party, who then uses the asset-holding company to run those operations. Liability doesn’t come from holding property; it comes from operations on that property that involve the public and tenants. Therefore, it doesn’t make any sense to hold property and then let a third-party property manager use that company to conduct operations. It’s now become the worst possible situation for cross-liability.

This isn’t property management in a corporate setup. This is business management, with a convoluted and labour-intensive process.

The business management model isn’t scalable. Each managed property has its own set of accounting records and chart of accounts. When the accounting is done individually in each property-owner company, the accountant must open each set of books and record each transaction. As each chart of accounts is different, it gets harder and harder to memorize the correct accounts as more properties are added to the portfolio. In fact, this business model is worse than simply additive. All familiarity present with a small portfolio is lost, and the accounting process slows for each company as more and more accounting books are added. This model only works for very small portfolios. 

Each commercial property will average 70-120 vendor transactions annually per building for property management operation, depending on the PM services performed. Experience shows us that the business management model tops out at less than 35 properties per person.

Alternatively, using the extreme automation in CRESSblue, one accounts payable bookkeeper can reasonably expect to enter 100 transactions per day. There are about 250 workdays in a year. Therefore, one AP accounting person can annually manage up to a whopping 250 properties using CRESSblue! 

Efficiency per property in Property Management Model versus Business Management Model

Imagine how an improper corporate structure translates into significant revenue loss due to wasted time deciphering, recalling and correcting account transactions and workflows, not to mention the slippage due to human error. A company set up like this is impaired by the pressure to hire excess staff to compensate for inefficiency and the inability to add properties to their portfolio confidently and rapidly. The company bogs down quickly, and it is difficult to restructure when the company hits the maximum workload.

So, what is the correct way to structure property management versus property owner companies?

Property Management

Property management should be separate from property ownership for two reasons.

The first reason is to keep the public liability from the operations separate from the asset holding corporations. This limits the risk exposure to the property asset itself. For example, suppose a tenant or visitor sues the winter maintenance contractor and property management company for a slip-and-fall accident. In that case, the property owner isn’t automatically also exposed to the claim, and therefore neither is the asset.

Secondly, they are separate businesses. There’s a reason that accounting software packages only allow one set of accounting records for each company. The companies should be kept separate. If a third party is running the property management operations for the property owners, there needs to be a property management agreement between the two independent companies. A property management company isn’t an accounting service for business owners.

Businesses need accurate property management accounting

Property management companies initiate, charge and record services such as:

  • Hiring contractors for maintenance and repairs
  • Processing and paying contractor invoices
  • Receiving and documenting rent revenues
  • Managing operating and reserve funds

Property management software like CRESSblue is designed to manage properties. It allows for standard accounting protocols to be followed for properties that the PM company owns and operates or those it manages on behalf of a third party. It does this by separating the third-party management services from the PM company-owned management to provide accurate reporting.

Third-party relationships in property management workflow

With automated property management software, owners have access to their documentation and records through secure owner portals. Each month, the software generates property management invoices, automatically picking up all the tracked PM activities that generate fees for the PM company. These fees and activities include percentages of base rent or additional rent, vacancy or occupancy fees, and a PM company’s numerous services.

These PM invoices are automatically generated and provide a record of the previous period’s activities for the property owners. In addition, owners can get property and financial reports, as well as reports that are automatically triggered by specific activities such as a new lease, budget or a property reconciliation.

How to structure Property Management accounting

Property management operations should be conducted within one management company to limit the spread of liability and make the workflows easy to follow. All accounting entries are completed in one system and tracked to each property, tenant, and property ownership company. The accounting entries are automatically pushed to a linked accounting system. All property and financial reporting are self-contained within the integrated systems.

Owner/Tenant role accounting management

Property ownership remains in property-owner-controlled asset holding companies. A formal property management agreement is the contractual basis for the services rendered by the PM company. All that is recorded in this company’s accounting books are asset-related corporate accounting entries and monthly PM services invoices.

Rents are deposited into an account set up by the PM company. Owners access their property and financial reports via their secure portal. Only one accounting entry needs to be recorded in the owner’s books each month that details all activities and records the revenues and expenses, including the property management fees. The net revenue is remitted to the owner each month and deposited in their corporate bank accounts.

Sometimes a formal property management agreement isn’t enough to satisfy the property owners. In that case, a PM can use a separate bank account controlled by the property owner to hold the funds securely. These separate bank accounts can still be linked to the central property management accounting software and reconciled within that one system.

CRESSblue fully supports this property management and asset ownership business structure.

Better systems get you better business

Scaling the business management model is additive—each new client adds to the workload, and after a certain point, the sheer number of accounting books becomes overwhelming to manage. It also is unsatisfactory in separating the liability-producing operation activities from the asset holding company.

Doing all business through a PM company that uses accurate property management accounting practices reduces the work per client. The same set of operational accounting records is used with minimal additional overhead for the automated document generation and PM fees tracking in CRESSblue. The more clients you have, the more efficient CRESSblue becomes per client.

In addition, separating operational liability from asset ownership is an effective way to reduce the total risk exposure of property ownership.

As always, consult your lawyer, accountant and insurance advisers for advice specific to you.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Lease compliance - Part three - Audit-proof your portfolio

Lease Compliance Part 3: Audit-Proof Your Portfolio

This article is part three of our three-part series on commercial lease compliance:
Lease Compliance Part 1: Understanding Lease Terms
Lease Compliance Part 2: The Tenant Audit
Lease Compliance Part 3: Audit-proof Your Portfolio

In this third article, we talk about preparing your commercial property operations for potential audit scenarios. Interestingly, always being prepared leads to several habits that essentially audit-proof your portfolio against future claims.

In Part One, we looked at setting up your documentation to have accurate lease information readily available. Then, we covered how to set up your workflows to make the best practices your default. We also talked about building your team of experts to complement the skills you bring to your leadership. Putting knowledge and information into practice leads to success.

Preparation leads to confidence. Knowing what you are required to do to maintain lease compliance is empowering.

In Part Two, we reviewed best practices of accurate calculations for expense allocations on your commercial net leases. Then, we covered area gross-ups, variable expense gross-ups and how to account for discontinuities in lease periods. In addition, we highlighted the importance of recordkeeping in controlling slippage. Finally, we touched on all the steps required to comply with net lease additional rent terms.

Accounting accuracy leads to confidence. Having the correct numbers and allocations and knowing you are compliant with the leases removes doubt. And there’s no fear of inquiries uncovering deficiencies and errors in your work.

In Part Three, we will uncover the final steps to audit-proof your portfolio. Part one was knowing and part two was doing. Part three is all about sharing information.

What is an audit?

Investopedia defines a financial audit as “an objective examination and evaluation of the financial statements of an organization to make sure that the financial records are a fair and accurate representation of the transactions they claim to represent.”

An audit isn’t something to fear. Think of it as a report of financial transactions. An audit should be smooth sailing if your business practices and documents are accurate and consistent. However, knowing what to do, doing it and then sharing the information transparently means there isn’t any need for an audit.

Reasons tenants request audits

How can transparency help you audit-proof your portfolio?

Often an audit is requested because of a lack of information. A tenant or a property owner may want an accounting of past transactions to determine whether their loss to lease is at an acceptable level. Or, they may be looking for discrepancies caused by poor workflows or outdated business systems. Either way, there is an information problem.

By ensuring a transparent business process, you open communication with tenants and owners. When stakeholders can see accurate reporting and lease terms, they are less likely to question costs. Transparency removes the need for an audit.

Let’s look at the information areas we need to share and how to distribute them to have transparent communication with both tenants and property owners.

Information you need to share for lease transparency

Lease Documentation

The first step in achieving an audit-proof portfolio is making it easy for tenants to access and understand the lease terms.

Just as property managers and lease administrators need to know and understand the lease terms, so do the tenants. While the responsibility of understanding the lease resides with the tenant and their lawyer, we can make it easier by providing essential information to the tenant through a lease abstract.

A lease abstract is typically a one- or two-page reference document that includes a short description of the key terms and shows tenants where to find the full text in the lease.

CRESSblue has built-in lease abstracting capabilities to allow the data to be easily compiled. When a lease is executed in CRESSblue, the lease abstract PDF report is automatically generated. The abstract is automatically distributed to the appropriate tenant and owner portals, as well as to any internal leasing managers. This is just one example of how CRESSblue automates best practices into its standard workflows, allowing you to achieve optimal efficiency with minimum effort.

Property Budgeting

Preparing and using property maintenance and operating budgets is the best way to ensure your expenses are well-planned and executed. A budget does more than facilitate the property manager’s job, though. It is an excellent tool that allows you to charge accurate additional rent installment amounts with the rent during the financial period. Then you aren’t left with a large discrepancy at reconciliation. Advance notice goes a long way in smoothing PM/tenant relationships. No one likes costly surprises. Controlling this source of stress is paramount for peaceful business operations.

CRESSblue has budget functions that automatically add all existing expense accounts to the property budgets. This dramatically simplifies making a budget for those with little or no prior budgeting experience. As always, there isn’t any need for spreadsheets or calculators. We believe that computers should do the math for you.

Rent Documentation

Most tenant accountants and bookkeepers are not involved in the lease negotiation process. Neither are the accountants and bookkeepers at the property and asset management companies. As a result, property managers need to transmit the lease rent information to them simply and clearly.

Base rent is reasonably straightforward in most cases, but periodic scheduled rent increases still need to be communicated. In addition, the budgeted additional rent and any other rental charges, amortized cost recoveries and tenant loan installments also need to be shared. Finally, a Rental Advisory Notice (RAN) summarizes these amounts into a monthly payment schedule.

CRESSblue automatically creates, updates and distributes a new RAN with every new lease, lease addendum and every new or revised property budget. This ensures that tenants always know in advance what payments are required and when they are due.

Transaction Documentation

For net leases, the operating expenses, maintenance and service charges and, in some cases, the capital cost allowance is charged back to the tenants. These are collectively known as additional rent. Tenants can be charged either by direct invoice for immediate cost recovery or through additional rent installments and a reconciliation. For costs recovered from multiple tenants, special attention must be paid so that the calculations correctly allocate the costs to each tenant in accordance with the lease agreement terms.

Each transaction recorded to the additional rent will need to detail the cost allocation to each tenant and the basis for this amount. This transaction breakdown record must be available for the tenant to audit its proportionate share of the costs.

CRESSblue does this automatically for every additional rent-related transaction. In addition, a PDF breakdown report accompanies each transaction and can be distributed to each tenant (and owner) portal automatically when the transaction is posted.

If the tenant’s expense bill is immediately recoverable, CRESSblue can automatically generate a corresponding invoice for the tenant, including applicable management and administration fees. This workflow makes sure no allowable expenses are ever missed. And when it comes to an audit-proof portfolio, this is critical.

Reconciliation Documentation

The last part of the net lease journey is the period reconciliation. This is typically done annually, where the installment payments are reconciled with the actual allowable cost recoveries. A statement is produced specifically for each tenant that reflects their lease terms and where they are in the lease cycle. After the accounts are checked, and the additional rent reconciliation is approved, an invoice is generated for each account where the installment payments are less than the actual recoverable expenses and fees. In the case of overpayment, a credit memo is issued to each tenant that overpaid.

CRESSblue has a simple account approval process where all the calculations are done for you. Any non-recoverable amounts are indicated, and a drill-down report can be instantly pulled up to detail the reasons for any legitimate slippage. The entire reconciliation can be approved upon approval of all the expense account amounts. All tenant accounts are reconciled, all invoices and credit memos are created and posted to the accounting system, and all tenant reports are posted to the associated portals.

CRESSblue automatically generates and distributes documents through secure portals

Distributing the information

Another important step to audit-proof your business is communication. CRESSblue has extensive automation for document creation and distribution internally between users and externally to property owners and tenants. Standard documents and reports can be generated based on event triggers linked to user actions, scheduled intervals or can be run manually at any time.

Secure portals are used to distribute documents to external owners and tenant users. Free tenant portals support both accounting and administration as segregated roles so that confidential negotiations can be kept separate from daily operations if desired. Owner portals are also free and allow owners to securely receive their property activity and financial reports.

CRESSblue portals are available for past, current and future tenants, allowing for confidentiality between occupants of the same spaces while documentation is opened and closed out between leases. Reports are automatically routed to the correct portals and recipients.

Audit-proof your portfolio

An audit is a request for information, not necessarily a challenge to correctness. There may still be tenant challenges about whether specific work needed to be done, a significant repair was capital in nature or whether it was simply maintenance that could be expensed. Those are different types of management and accounting issues that can still arise.

If a property manager feels threatened by an audit, they do not have the necessary confidence in the quality of their work. That is a clear indicator that business systems and workflow processes should be improved. There is logic to using CRESSblue to audit-proof your commercial net lease portfolio:

  • If the work is done using CRESSblue, reporting accuracy is guaranteed in accordance with the entered lease terms
  • Accurate data means there are no barriers to being transparent
  • If transparency is easy, you can conveniently do it all the time
  • Consistent transparency removes the need for an audit

Lease compliance gives everyone peace of mind. There’s no need for issues to escalate or result in audits with automated business systems that elevate your workflows and consistently provide accurate financial reporting. Because everyone is on the same page.

This article is part three of our three-part series on commercial lease compliance:
Lease Compliance Part 1: Understanding Lease Terms
Lease Compliance Part 2: The Tenant Audit
Lease Compliance Part 3: Audit-proof Your Portfolio


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Lease compliance - Part two - The tenant audit.

Lease Compliance Part 2: The Tenant Audit

This article is part two of our three-part series on commercial lease compliance:
Lease Compliance Part 1: Understanding Lease Terms
Lease Compliance Part 2: The Tenant Audit
Lease Compliance Part 3: Audit-proof Your Portfolio

What is a tenant audit?

Very simply, the definition of an audit is a request for additional information to verify the information someone already has. Therefore, property managers with office, retail, warehouse and industrial buildings need to know how to manage a tenant audit relating to commercial leases. For an explanation of the differences between commercial lease types, see this article.

A tenant audit of landlord statements is related to the annual additional rent reconciliation process. There are a few different reactions you may have when a tenant requests to audit your records:

Three reactions you may have to a tenant's audit request.
  • Panic because you don’t trust your records for accuracy or completeness
  • Fear because you know that intentionally or unintentionally, there are things amiss
  • Confidence because you know you always act with integrity and you can easily back up anything you need to explain

Panic and fear are gut-wrenching emotional experiences that lead to undesirable stress and unpleasant interactions. So, let’s explore those very human responses and learn how to be more confident in your property management.

3 common reactions to audit requests

The panic response

This is the most common type of response for small or new property management companies. It stems primarily from inexperience and demonstrates a lack of confidence. Often the panic is associated with a feeling of inadequacy, particularly if the tenant is a large multi-national corporation. There is an expectation that the tenant audit will be overwhelmingly long and challenging as the corporate gears grind you up. What will they think of you when they start to dig into your statement? How bad will it be? Your confidence is at an all-time low. Should you call your lawyer to review the lease agreement?

Serious disputes resulting in lawsuits are rare. To be sure, working through an audit where your position is poorly documented and you are unsure of what your obligations are is going to be a very unpleasant experience. Even though lawyers may need to get involved, going to court to have the matter settled isn’t always necessary.

The way to overcome this is through self-education and implementing better business systems. You can read more about choosing business systems here and here.

The fear response

There are two types of fear responses in the case of intentional errors. Occasionally a big landlord feels they can bully or intimidate small tenants to get away with overcharging. Don’t be one of those. Much more common are landlords that intentionally undercharge or unintentionally overcharge due to the complexity of the lease terms and resultant calculations. Voluntary slippage and accidental errors aren’t good situations either.

Common thoughts for the fear response centre around trying to do your best but still not measuring up. Are your calculations correct? Did you classify the expenses correctly? Maybe you should have had an expert prepare your statements? Can your accountant back you up if you call them now? Perhaps you should have called them to prepare the statements rather than trying to salvage your reputation after the fact. Maybe the tenant will go easy on you because they can see that although your math is wrong, it is primarily erroneous in their favour?

These thoughts are common, so take some comfort that you are not alone in having them. We hear them from the majority of people making inquiries about CRESSblue. That doesn’t mean that it is okay—you should still step up your professionalism and understanding of your lease agreement obligations. The good news is that it is possible to do so with better workflows and business solutions. When using CRESSblue, it is easier to maintain your professionalism than you might expect.

Legal agreements are never better than the people signing them. However, you can do your part by implementing systems with workflows that produce the best outcomes by default. That will allow you to avoid the panic and fear responses to any tenant audit request.

The confidence response

This is by far the most comfortable place to run your business.

Confidently respond to tenant audits

The good news is that you can be confident when you are supported by smart, intentional business decisions and systems implementation.

First and foremost, build a professional team that you can trust to provide accurate advice. Not only will that team inform your decisions, but it will also help educate you and multiply the experience you can bring to any situation.

Secondly, take deliberate steps to direct your property management business into the confidence arena when dealing with tenant audits.

Let’s find out how!

Know what you agreed to do

If you are missing data, you need to take steps to be compliant. Talk to the tenant. You cannot comply with a percentage cap on CAM expenses if you don’t know the initial rate or base year additional rent amount. Be honest. Start from where you are and work out a lease addendum with the tenant so that you can continue in compliance from now on. Honesty and transparency might cost you a small amount now, but they can provide peace of mind to resolve the uncertainty before a tenant audit. The silver lining is that tenants are much more inclined to cooperate and stay with landlords they feel they can trust. As a result, you could save on future vacancy costs and leasing expenses.

The first step is knowing what you agreed to in the terms of each lease agreement. Find the agreements and read them. Research terms or review them with your lawyer and accountant to find out what is required. Get practical guidance from your team for leases you are unsure of so you know what to expect.

Track your expenses

Here is a handy checklist to help you complete your additional rent reconciliation:

  • Have you included all the expenses? For example, we’ve seen a case where most of the additional rent was the property tax portion, yet it was missed for three consecutive years.
  • Do you have copies of all invoices for expenses? Save digital copies of the invoices, preferably with the transaction record (CRESSblue has this capability), so that you can back up transactions even if the vendor account is later closed. Do not rely on the third-party’s vendor portal to save your audit records for you. You will need to retain them for several years for lease compliance and tax audits, and those portals often don’t store data for long enough.
  • Do all of the invoices have the required information? This means the full vendor name and address, tax registration numbers, work location address, date or date range of the services provided, and a clear description of the work performed and the services supplied.
  • Are the invoices internally consistent? Frequently, when a vendor uses an invoice template or recurring transactions, inconsistencies appear between the shipping address and line-item descriptions. See an actual invoice inconsistency in this article.
  • Have you accrued the expenses to the correct periods? This applies to invoices received and paid in the current period for expenses incurred in the prior period as well as prepaid expenses. Utility invoices are for a date range and are usually not billed on the last day of the month. CRESSblue calculates the accrual on these invoices automatically.
  • Have you checked the eligibility of each expense against the list of operating expenses and exclusions? Verify that you can recover those expenses during that particular lease period as there may be specified exemptions during a fixturing or free rent period.  
  • Have you included asset amortization and depreciation expenses as permitted by the lease agreement terms? This means that you need to track assets and the amortization amounts—something that CRESSblue can do for you.  
  • Have you recorded all tenant additional rent installment payments? You will also need the initial year additional rent amounts for the base year or other semi-gross lease agreements.
  • Have you checked the leases for any CAM recovery caps and done the cap calculations? Do you have the initial values to make the calculations?

Keep accounting records

To prove lease compliance, you will need accounting records for all expenses, payments, adjustments and reconciliations. There are two types of accounting systems: cash basis and accrual basis. Accrual accounting means you recognize and record revenue and expenses when they occur, while cash basis accounting means you’ve documented these line items when cash exchanges hands.

Cash based versus accrual accounting.

Cash basis accounting is the easier of the two. Typically, a company using the cash basis will rely on a bank statement and spreadsheets for their record-keeping. However, this system does not capture enough information to allocate income and expenses to the correct fiscal period. In addition, utility invoices for services provided during a specified time require accrual systems for accounting. Using cash accounting when the lease terms require accrual accounting will result in an immediate compliance failure. This is an unwinnable position.

The examples above illustrate why most people use the accrual method. Accrual accounting portrays a more accurate portrait of a company’s financial position by including accounts payable and accounts receivable. It also allows for recording transactions that cover a specific period. This is what makes accrual basis the only workable method for net lease accounting.

Almost all expenses are time-period-based, and net leases require the ability to calculate expenses down to the daily level. CRESSblue specifically tracks the expense period dates so that per diem expense breakdowns can be automatically calculated and applied as per the net lease terms. In addition, accrual calculations and allocations are automatic in CRESSblue.

Annual reconciliations

Tenants on net leases pay installments for the additional rent estimates with each rent payment. Net lease agreements require that the landlord complete a reconciliation of budgeted versus actual expenses for the fiscal period. We covered the first two steps already: first, knowing what the lease terms require of you, and second, keeping accurate records of what you have done. The third step is to compare each category’s actual expenses to the amounts collected from each tenant and provide a statement to each tenant.

Getting the math right

Getting the math right is a complicated process. It isn’t just doing the areas and expense gross-up calculations; numerous factors create discontinuities in the calculations within the same fiscal period. Often changes occur within the calculations for a single month. Each change in lease circumstances, like a vacancy or free rent period, requires another set of calculations. Let’s look at three common cases.

Calculations needed for a commercial tenant audit.
Case 1: Area gross-ups

When tenants share common areas within multi-tenant buildings, area gross-ups become a challenge. Usable areas are grossed up with a proportionate share of common areas. Tenants are resultantly charged on a leasable area that is larger than the space defined within the premise’s walls. Calculation difficulties present when not all tenants have access to the common areas. Specifically, the percentage of the cost allocations varies depending on the nature of the allocated expense. Fixed percentages cannot accurately allocate the correct proportion of the shared costs. Calculations must be determined on an individual basis. CRESSblue dynamically calculates the allocations individually per expense account. In addition, our software automatically generates an audit trail of every calculation.

Case 2: Discontinuities

Calculation discontinuities have three sources. The first is when a change in area results in a change in proportionate shares. The second is a change in recoverability status due to a lease period adjustment, such as free rent or a fixturing period disrupting the norm. Third, vacancies resulting in different expense gross-ups create discontinuities. Each type of change requires a separate set of calculations for the relevant period. CRESSblue checks all the leases tagged in an allocation for area changes, recovery status changes and vacancies.

Case 3: Expense gross-ups

There are two types of expense gross-up. One type is the over-utilization gross-up, where a tenant consumes relatively more than its co-tenants or vacant space. Typically, this is for things like utilities where separate metering is not present or possible. In this case, a markup is applied to the cost allocation. As a result, the over-utilizing tenant pays its fair share of the costs. The second involves vacancies. A utility service usage component is allocated to only the occupied spaces, while the fixed charges are applied to all spaces, occupied and vacant. Property managers can easily configure these accounts within CRESSblue. Then the software automatically handles all expense gross-ups without any further user intervention. As always, CRESSblue fully documents every calculation for audit purposes.

Spreadsheets are hard to get right

CAM calculations are very hard to do correctly using spreadsheets. The three cases we looked at all require running multiple sets of calculations within the same period. Creating spreadsheets that can handle these calculation sets requires manual work for every single property for every single reconciliation period. CRESSblue automates all of the calculations using original source data and very simple-to-use lease period recovery rules. It also provides an audit trail report on every transaction.

Doing the reconciliations

Manual reconciliations using spreadsheets and accounting transaction records are painfully complicated and slow. Completing the annual reconciliations is the number one stressor for clients that we meet. The pain ranges from missing major components of the additional rent reconciliation for years to fearful audits and panic attacks. And, ultimately, the financial losses from voluntary slippage. They all cause significant worry and stress needlessly. CRESSblue can help you avoid all that. CRESSblue automates the entire reconciliation process, from amalgamating the source records, completing all of the calculations, processing each transaction against the lease terms, and preparing the reports and accounting entries.

As a commercial property manager, it’s your job to respond to a tenant audit. However, we dare say—with clear lease terms, transparent documentation and accurate accounting automation—it’s your responsibility to prevent them in the first place.

This article is part two of our three-part series on commercial lease compliance:
Lease Compliance Part 1: Understanding Lease Terms
Lease Compliance Part 2: The Tenant Audit
Lease Compliance Part 3: Audit-proof Your Portfolio


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Lease compliance - Part 1 - Understanding lease terms.

Lease Compliance Part 1: Understanding Lease Terms

This article is part one of our three-part series on commercial lease compliance:
Lease Compliance Part 1: Understanding Lease Terms
Lease Compliance Part 2: The Tenant Audit
Lease Compliance Part 3: Audit-proof Your Portfolio

Lease compliance covers many things. For instance, tenant compliance with their lease obligations for rent and upkeep. Not to mention landlord compliance with the building maintenance obligations and general accounting compliance in record keeping and reporting. This series will focus on three main topics: understanding lease terms, what you need to know about tenant audits, and how to audit-proof your portfolio. We are explicitly addressing lease compliance for landlords in commercial property management. You will dig into the lease clauses that cause the most confusion, stress and even fear for tenants and landlords.

Lease terms are about more than just objectives

The simplest approach to writing an agreement is to state the objectives for each party. While that is great for setting the stage, it is useless on its own. The overriding principle you want to encompass in your lease agreement is to set the boundary conditions for acceptable behaviour and performance. Define what constitutes a default and how to remedy that default in a specified period. If you use a lease agreement short form supplied for free by your realtor, it almost certainly just states the objectives and has virtually none of the boundary-setting terms and remedies you will need to resolve issues. You are unlikely to have much luck with that if anything goes wrong.

The basics of lease compliance

Before we get into the technical aspects of commercial leases, let’s review some of the most basic activities you must undertake to offer your services as a property manager to anyone, including yourself.

Be the boss, but use the team

We have covered this before in other articles, but it bears repeating. You don’t have to be the expert in everything. Instead, you need to bring in at least four classes of professionals: your lawyer, accountant, realtor and insurance agent. You may have one of these professional designations, but you need all of them on your team. Your limited experience in the other areas isn’t enough to provide professional services to yourself or others. Just don’t do it!

The experts you need on your PM team: accountant, lawyer, realtor and insurance agent.

We see this countless times when onboarding new clients. The team has one or more professionals on it, but other key positions are missing. Often, landlords completely ignore entire business areas. This leads to significant problems that could have been avoided. For example, leases without legal reviews and agreements full of errors and inconsistencies could result in litigation. Contracts missing essential information such as the property address, the premises area and the rental rate mean unenforceable lease clauses and unrecoverable future expenses. Leases that a landlord never reads after signing or lease accounting that’s not done for a decade equal voluntary slippage. Not to mention, poorly negotiated leases result in huge liabilities years down the road. You can avoid all of these problems by ensuring that you have the right people with the right credentials on your team.

Consider a scenario in which a metal fastener supplier applies to be a warehouse tenant. The warehouse use doesn’t seem like an obvious fire hazard. However, the fasteners are coated with a film of oil, placed in plastic baggies in cardboard boxes, inside more cardboard boxes and shipped on plastic pallets. The supplier then stores the packed boxes on open mesh shelving. A lease-use review by fire inspection safety personnel could immediately identify the risk and point out the storage limitations for that combination of packaging with the existing sprinkler fire suppression system.

You are still in charge

Although you need to rely on the expertise of others, remember that your team needs direction and guidance. Do not delegate everything to others without being the boss yourself. You are the glue. You are in charge. Each of your professional team members reports to you—they do not take your place at the helm.

The professionals on your team are valuable. However, it is essential to realize that their perspective is transactional, whereas yours is relational. Your realtor is brokering a deal for you. Once they’ve closed the deal, they won’t be back until close to the lease expiry date. Your relationship with the tenant is just beginning and will continue throughout the lease term. Therefore it is essential to see the difference in perspective. Your team members complement you, but they do not replace you.

Your job is to know enough about each profession to understand the value and services they provide and understand their language. A company without anyone in charge is still chaos. If you don’t know enough about the services they provide, ask them to explain them to you. They will. It’s your job to be a leader, so use your professionals to further your expertise and career.

Use a lease template

A lease template should be the starting point for your commercial leases. This means a professional one, not just the free form your realtor used to submit the lease proposal. Pay your lawyer to provide you with a customized template suited to your business.

Your lease template should include the standard lease fields and terms in the initial section of the lease on the first couple of pages, from the names of all parties to the lease terms and indemnifiers. Together with who gets lease notifications and where they must go. The lease dates and rates. The fixturing and free rent dates and definitions. The deposits. The parking. Anything and everything that you need to fill in and review for every single lease. The rest of the document should then reference the data only by the field name. This creates a record where you can find all essential information, and it will prevent errors throughout the rest of the document.

Stay away from generic forms

Never use a form that requires you to fill in the same data in more than one place or in the middle of a paragraph buried in the document. The information will invariably be missed when you update the form during the lease negotiations or subsequently use the template. Our CRESSblue implementation team comes across these errors often. Instead, use a lease template that includes all the clauses you would expect to need for your entire portfolio of properties. Again, you want to use a cohesive, consistent and complete document.

Use your team to review

Have your insurance agent review the insurance requirements and responsibilities sections. Equally important, have your accountant review the cost allocations to understand the implications of various accounting practices noted or implied in the document. Do you know how to account for the additional rent cap the tenant wants? For example, do you know what it will cost over the lifetime of the lease and its extensions? Bring your team’s expertise into the document template to enhance your lawyer’s work. Going through this process will also increase your ability to negotiate well.

Use document formatting

Your lease agreement describes your ongoing business relationship with your tenant. Make sure it is a well-written, clearly assembled, accurate document that you can use to guide your activity. Write it so that you can be in lease compliance in a practical way without math or accounting gymnastics. The use of document formatting can go a long way to enhancing your lease agreements. To clarify, formatting here means using headers, lists and built-in document formatting available in Microsoft Word.

While there is other document editing software, stick with the industry-dominating Microsoft Office for the simple reason that you won’t be the only one editing the document. Repeatedly transitioning from one format to another rarely turns out well. Niche software products won’t make your leases better if the other party can’t use the output you provide. While on this subject, do everyone a favour and Track Changes so that changes are apparent and it is clear who made them. Digitally provide both a marked-up (changes tracked) and a clean copy (changes accepted) to the other negotiating party. It saves legal reviewing time and prevents a lot of silly mistakes from slipping through.

Cross-referencing will save you from costly mistakes

Use cross-references to link the parts of your document to the appropriate sections, not direct number references or words like “previous” or “next.” Those do not survive insertions and deletions without manual editing with a sharp eye. A cross-referenced article will update its linking automatically, making sure you are still referring to the correct section. If you delete a linked paragraph, you will have a broken link indicating you still need that section or have more editing work to do.

That covers the basics of your documents and formatting. This workflow alone will put you in an excellent position to have accurate records. And onboarding to CRESSblue will be so much quicker if you have your data readily accessible, complete, clear and consistently accurate. Make best practices your default workflow, and your work product will improve substantially as a result.

Lease agreement sections

On to the good stuff! Let’s review the key sections your standard commercial multi-tenant leases should cover and what they mean.

Basic terms and definitions

As stated in the lease template section (see what we did there? We referenced a section title, not a paragraph number or relative placement), all lease terms and definitions should be in the first section of your lease. You need them front and centre so that you do not miss any and so that you review them all for accuracy every single time you use your template.

Review the template for completeness and accuracy. Have you defined all the terms and filled in all the fields? Do they all make sense in the context of this lease?

Put your schedule of base rent payments and deposit information in this section. In addition, if you have any tenant leasehold improvement allowances or other incentives, include them in the definitions and capture all of the variable data.

Demise and term

Key things to include here are a description of the demised premises and the rentable area, what is included and which measurement standard will be applied. Be sure to include language such as “or its replacement” since standards are updated and changed over time. A typical industrial standard area reference is “in accordance with ANSI/BOMA Z65.1 – 2010 Method A (or a subsequent replacement or amended standard).”

Include a plan of the premises and site in the lease schedules with the demised areas and common areas marked out. It’s great to use colour, but remember the document might be printed and sent in black and white. It can be hard to see the area of the premises outlined in red on a black and white copy. So, using patterned fillers to identify different areas in the plan drawings can help define the spaces more clearly.

Other topics you will want to include in this section are:

  • Overholding: This is when a tenant stays in the premises after the lease expires and becomes a month-to-month tenancy. This impacts your ability to obtain financing since the tenant isn’t bound to a rent term, and lenders view this as unreliable revenue. As a result, overholding rates are typically set higher to encourage the tenant to sign a lease term extension agreement.
  • Delay in Possession: This describes what happens when, if for some reason, the lease commencement date is missed. How do the other dates adjust? Is the fixturing or free rent period guaranteed?
  • Fixturing Period: This period allows the tenant to complete outfitting the space for their own purposes. With this in mind, define which costs are their responsibility.
  • Free Rent Period: If there is a free rent period to allow the new tenant to ramp up operations, it will be defined here. Like the fixturing period, you must specify which costs are the tenant’s responsibility. Is it base rent-free, additional rent-free or some other combination?


If the base rent amount was already recorded in the definitions, what goes in this section?

  • Lease Type: A covenant to pay, and a description of the lease type: a gross, net or partial net lease.
  • Payment Methods: Describe what payment methods you accept.
  • Deposits: What the landlord can do with them, and how they need to be replenished, increased, decreased and finally returned to the tenant.
  • Rent Past Due: Interest rates and penalties.
  • Partial Periods: How to account for partial rent periods.

Basic rent

This section provides straightforward information on commercial net leases. The basic rent refers to rent payments only. All other expenses and costs recoveries are classed as additional rent. Note that basic rent is paid in exchange for an interest in real property, whereas additional rent is paid under the terms of a contract. Therefore, they are treated differently in law. If you want to learn more about this, you can read it here.

Additional rent

Some key items to be defined in a commercial lease additional rent section.

There is an overwhelming temptation to try and cover every situation with one long run-on sentence. Resist that urge. Save the definition of capital cost and operating expense for a lease schedule. For this purpose, those terms are too indefinite to use broadly on a practical level.

However, what should be defined is how a landlord will handle operating costs and what administrative or management fees will apply. Remember that adding complexity such as multiple fee rates and lots of categories means more record-keeping and accounting, so choose your level of complexity wisely. Keep it as simple as you can. Landlords often have difficulty complying with the very complicated schemes they invent.

Property taxes are often the most significant component of additional rent. Therefore, make sure to include clauses that cover property tax increases and re-evaluations that may come up mid-term or mid-budget.

Additional rent caps may also come up in this section. They are poor tools to control additional rent, as discussed in-depth in this article. If there is a cap, make sure you capture the initial starting rate. Moreover, clearly define what is capped and how the actual formula works. Remember math class and word problems? Write the formula out with words that describe it. Someone is going to have to understand this to be in lease compliance.

Calculating the additional rent

Multi-tenant properties typically allocate expenses proportionally based on the leased area of the premises. Define the formula, not the number. For multi-building sites, specify for each expense type whether the proportion is based on just that building’s area or the entire site. Leasehold improvements, alterations, appropriation and re-measurements all have the potential to alter the proportionate share numbers. So again, you need to know how to resolve problems that arise when the original number is no longer valid.

Don’t forget to define how gross-ups will work. These are two separate calculations: one for the premises area gross-up to account for the common areas spaces, and another to account for different usage patterns on shared expenses. Usage patterns can vary due to the tenant’s use of the facilities, vacancies and hours of operation. This can cover services as well as utilities.

The most critical point in negotiating the additional rent and operating costs is to make sure it is reasonably possible to make the determinations you agree to. The required data tracking and calculations need to be practical. For example, don’t negotiate a position that requires $1,500 of an accountant’s time to recover $150 worth of additional rent. On the other hand, you could use CRESSblue and have all the math done automatically for you. That’s a reasonable and practical decision.

Utilities and HVAC

This section describes who pays for the utilities on the premises and how to calculate common area cost allocations. We’ll also describe gross-up factors for above-normal utilization here. If there is a high probability of above-normal usage compared to the other expected uses at the property, consider having individual service meters installed for those utilities.

Control and operation by the landlord

Lay out the common areas in addition to broadly defined property operation and repair responsibilities here. Use a repair and maintenance schedule to detail specific types of repairs, responsibilities and who pays for them.

Use of premises

A description of the tenant’s broadly defined permitted use of premises. This covers uses permitted by law, environmental covenants, permits and zoning requirements. Include a list of specific permitted uses and restrictions in the definitions section. Also include any provisions for waste handling and storage, nuisance, noise, discharge or overloading concerns.

Maintenance, repairs and alterations of premises

Record the process and requirements for a tenant to make repairs and alterations to the premises. Don’t include specific work for the leasehold improvements. Instead, that information should go in the lease schedule. This is for ongoing maintenance and future work requests. Items you will want to include are:

  • Engineering and architectural drawings and specifications
  • Required permits and regulatory approvals
  • Inspections and quality control on materials
  • Qualified trades
  • Certifications
  • Liability and responsibilities
  • Access control and site security
  • Final inspections, reviews and approvals
  • Financial clearances for trades, contractors, liens, materials and fees payments

Typically, landlords need to arrange for annual or more frequent inspections of fire and life safety equipment. Include the procedures for tenant notifications and landlord access to have these inspections done. While the landlord can make it the tenant’s responsibility to carry these out, the practicality of getting all tenants to do the required work at or near the same time can be nigh impossible, leaving the landlord responsible to government authorities for the delinquent tenants. It’s often easier to add an inspection contract to the additional rent and have a qualified third party complete the work in one visit.

At the end of the lease term, the tenant will need to leave the premises neat and clean. The departing tenant usually takes trade fixtures, but what about removing improvements and other fixtures on the surrender of the premises? It is hard to determine what condition and desirability some of those improvements may have in the future. Likewise, a tenant will want to know what removal costs they need to budget for. Blanket statements for future work aren’t a reasonable approach; it is much better to deal only with the fixturing included in the tenant’s work now. The future removals condition should be left as part of the negotiation of the landlord’s approval for anything to be done later in the lease term.

Insurance and indemnity

Top five areas of consideration under the insurance section of a commercial lease.

There are five main areas to cover here. They are:

  1. Insurance for Tenants: Minimum insurance coverage limits for the various classes and the minimum required insurer’s rating.
  2. Insurance for Landlords: Minimum insurance coverage limits for the various classes and the minimum required insurer’s rating.
  3. Increase in Premiums: This relates to the tenant’s use of the premises, causing an increase in the landlord’s insurance.
  4. Tenant Indemnity: This releases the landlord’s responsibility for the tenant’s activities on the site and within the premises.
  5. Mutual Release: Defines that each party is to carry their own insurance.

Those unfamiliar with the industry may find insurance complicated and unintuitive. If you change or edit this section, get a professional broker or agent to review both the wording and the liability you are assuming. Nothing you write in a lease agreement is going to change the effect of your insurance policy. However, you may find out that your edits have left you with an uninsured liability.

A quick word about tenant’s insurance here: if they need extra insurance coverage, don’t take it out for them for three reasons. One, they need to build their own relationship with their insurance broker. Two, it will cost them the premium plus your management and admin fees and possibly an additional nuisance charge as well. Three, as a landlord, you are disinclined to file a claim on your insurance for their property as it will affect your premiums on the entire portfolio. With this in mind, make them get their own insurance.

Assignment and subletting

Pretty straightforward here. When is subletting permitted? Landlords rarely prevent subletting. However, it is usually dependant on their approval of the new tenant, which cannot be unreasonably withheld or delayed. Key practical points are: under which conditions the original tenant is released or held to their initial obligations, defaults of the sub-tenant and what happens when a sub-tenant pays more rent than the original tenant.

Quiet enjoyment

For the direct and straight-to-the-point people, this is for you! If the tenant pays rent and agrees to everything in the lease, it says right here the landlord agrees to leave them alone in peace and quiet to mind their own business.

Damage and destruction

Contrary to what you might expect, this isn’t about the tenants wrecking the place. Instead, this section is about the significant destruction or appropriation of the property that materially affects the tenant’s ability to use it for its intended uses. The section also covers insurance proceeds. Additionally, details and conditions of lease termination by a tenant or landlord may be included.


This is the first article that tenants refer to when there is a heated tenant-landlord dispute. The first section defines what events constitute a default on the part of the tenant in carrying out its duties as specified by law or in this lease.

The second section details the rights and remedies of the landlord for various defaults. Re-entry, repossession and lease termination are all available. One cautious word here—make sure your remedies are proportionate to the losses and costs as punitive damages are generally unenforceable in court. Furthermore, your lease agreement will not supersede any legal rights your tenant may have.


This is the fundamental legal boilerplate. For example, entry to the premises to exhibit them to a prospective new tenant, force majeure, waivers and forbearance, required notices, confidentiality provisions and the like are listed here.


Leases should include schedules that are specific to the property and tenant relationship. At a minimum include:

  • Plan of Premises: Outlines the location on the site and premises layout.
  • Legal Description: Describes the property.
  • Rules and Regulations: Applies to general site operations for all the tenants.
  • Landlord and Tenant Work: Specific to the lease.
  • Indemnity Agreement: Outlines whether the lease has an indemnifier or guarantor. Include in the agreement whether an assignment or transfer includes or releases the indemnifier. Also, consider if the guarantee covers lease term extensions.
  • Extension Rights: If the tenant has any lease extension options, include the conditions for the exercise and timelines for those options.
  • Tenant Environmental Covenants: These should be site-specific and, if necessary for the tenant’s permitted use, tenant-specific as well.
  • Maintenance Schedule: This is an important schedule for commercial net leases.

Maintenance schedule

This schedule is gaining in popularity due to the increase in transparency and clarity it can provide.

For each of the classifications, detail all of the following:

  • Description of the asset type
  • Type of work: replacement, repairs, maintenance or supply
  • Responsibility for the work: who looks after getting it done
  • Level of service: how often it will be checked or done
  • Chargeback: who pays for it
    • It can be the landlord’s responsibility
    • The landlord can pass it on to the tenant as additional rent
    • The landlord can bill it to the tenant
    • It can also be billed to the tenant directly
    • Amortized cost recovery only
      • Amortization period

Maintenance schedule classifications and sub-classifications

There are two primary classifications and eight sub-classifications:

Repairs and maintenance for grounds
  1. Hardscaping
  2. Landscaping
Repairs and maintenance for buildings
  1. Architectural and Structural
    • Foundations
    • Superstructures
    • Exterior closures
    • Roofing
    • Interior construction
  2. Mechanical
    • HVAC (building)
    • Control systems
    • Plumbing (building)
    • Wells (if not on public water systems)
    • Wastewater treatment (if not on public sewers)
    • Special systems (tenant installations)
    • Refrigeration
    • Fire protection
    • Security systems
  3. Electrical
    • Primary electrical (building)
    • Secondary electrical (building)
    • Electrical service ground (building)
    • Lighting fixtures (premises)
    • Electrical systems (emergency power and communications systems)
  4. Special Facilities
    • Gates
    • Cameras
    • Weigh scales
    • Monitoring systems
  5. Utilities
    • Electrical
    • Gas
    • Water
    • Other
  6. Insurance
    • Building
    • Premises
  7. Renovations
    • Leasehold improvements
    • Maintenance on leaseholds
  8. Management Fees

This schedule is far more comprehensive than a statement about the landlord paying capital cost and the tenant paying for operational expenses.

As you can see, commercial lease compliance can be fairly complex, but using a template, schedules, and standard lease terms and clauses can help make the job easier. And don’t forget to lean on your trusted partners—lawyers, accountants, realtors and insurance agents. As a result, your team will ensure you have the most comprehensive and well-negotiated leases.

This article is part one of our three-part series on commercial lease compliance:
Lease Compliance Part 1: Understanding Lease Terms
Lease Compliance Part 2: The Tenant Audit
Lease Compliance Part 3: Audit-proof Your Portfolio


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Where does the future of property management events lie?

Is This the Future of Property Management Events?

In an industry that has relied heavily on signed documents, in-person inspections and networking, property management businesses have had to pivot sharply during the pandemic to maintain connectivity with their potential and existing customers. The COVID-19 pandemic has turned the world of work upside down. People are not as comfortable in face-to-face meetings, social events or conferences that bring together strangers from across their region, country or the globe. What does that mean for an industry built around in-person interactions?

Traditionally, property managers could find new leads or partnerships at trade shows and conferences, but now some businesses are stuck in a virtual limbo. Others have embraced new technologies in the form of remote asset management or online events. Predictions made early in the pandemic about returning to normal are now discarded as the world experiences the third and even fourth waves of this disease. In fact, new predictions say there is no return to normal. Instead, we will start the next normal that affects how we interact and do business.

Navigating the change

CRESSblue is proud to be a part of the changing workspace. We support and contribute to our industry by providing informative articles on our website and getting involved in the industry, both as a business and by presenting or sponsoring virtual property management events. We’ll look at two such events. The first event took place in a Zoom-based virtual format with a panel of experts discussing what a return to work might look like. The second event tapped into new technology to reproduce a live-event format in a virtual space.

Reopening the Nation’s Workplaces

In July 2020, CRESSblue partnered with Bisnow to present the virtual webinar, Reopening the Nation’s Workplaces: Analyzing the Short & Long Term Changes in Today’s Office Culture. Featuring five industry leaders, the webinar delved into topics around returning to offices, vaccines, health and safety protocols and whether the United States is actually ready for a return to work.

The consensus from the webinar was the need to focus on employee well-being rather than a physical workspace. Further, employees felt a lack of connection with colleagues and management, which exacerbated mental health issues.

Add to that the need to better understand what employees require to trust that a workplace is safe. That may mean building owners and property managers will train occupants on how to use shared spaces safely. Or a reorganization of work areas. But, long-term, social distancing and cubicle dividers won’t be enough.

Watch the webinar here.

Read Bisnow’s summary here.

PM Springfest

April 2021 saw a historically live event shift into an online property management event. But they (virtually) reproduced everything from the live event and then some.

PM Springfest is an educational conference for property managers, building operators, facility managers, maintenance managers, board members and building owners only. Exclusive and revolutionary, this conference connected attendees and educated them on innovations, legislation, sustainability and other timely, relevant ideas for the industry.

Over the course of two days, participants had the option to virtually attend seminars, product demonstrations and tech pitches, all focusing on software, services, building maintenance and strategies to effectively improve building performance. In addition, feature seminars were introduced by pre-recorded video, and two introductions were provided by CRESS Inc. CEO, Martin Sommer.

CRESSblue sponsored the Tech Express Pitches, where attendees watched short presentations from seven vendors, followed by a live Q&A period. Different from live events, the Tech Express Pitches and the virtual tradeshow area combined to create a truly innovative twist on vendor booths. First, participants needed video and microphone access to sign into the tradeshow area. Once inside, attendees saw a visual representation of a traditional tradeshow floor, including booths, aisles and seating areas. Then, by clicking on a kiosk, attendees entered and could begin a conversation via video call or chat by clicking on the profile photo of vendors or other guests.

Not only was the tradeshow floor innovative, but the event also took meet-and-greets to the next level. PM Springfest’s all-in-one networking platform allowed users to attend receptions, join group meetings, participate in interactive discussions and search for attendees to connect with directly.

Register to access the event content here.

While these two virtual events followed the current norm across all industries, it begs the question, where are property management events heading?

From live to virtual (and back?)

Planning for the future of live CRE events.

According to Business Wire, 83% of Americans who currently work from home can’t wait to return to live meetings and conferences. While that may be true, the driving factor behind that could be a general lack of connection due to working from home and missing out on regular social opportunities. However, research from the latest PULSE Survey seems to corroborate Business Wire’s statement, finding that more than 80% of meeting planners will host a live event at some point in 2021.

Of course, the virtual event is not going anywhere. It’s more cost-efficient, accessible to more attendees and, in some cases, lets attendees join in at their convenience. If that’s the case, why are people so eager to go to live events?

Let’s look at the different kinds of events and what each brings to the table.

The big 3

Before the pandemic, the most prevalent event type was live, in-person events, i.e. workshops, seminars and conferences. These were abundant sources of customers, mentors, information and networking. However, the pandemic landscape requires a more hands-off method of connection. To this end, virtual meetings have taken centre stage.

The range of virtual event types is limited only by your business’ imagination and the available technology. Without a doubt, web-based events can be as simple as a Zoom meeting with a host and chat room. On the other hand, they can be an elaborate virtual recreation of a venue, complete with breakout rooms, exhibitors and entertainment.

The possibilities of web-based CRE events.

A newer trend is starting to evolve as restrictions on public gatherings are being lifted: the hybrid event. Hybrid events are a combination of in-person and virtual presentations. Attendees can choose to attend virtually, fully in person or as a combination of both, depending on how organizers plan the event.

Live property management events

Live events can be anything from an educational workshop or seminar to a full-blown conference or trade show. These events are often hosted by an industry association, a business or, more frequently, by several companies, allowing the organizers to reach more participants. And businesses get a forum to share their product or service.

If you’ve attended an in-person conference or trade show, you know how exciting it can be to stroll through the exhibition area. Taking the time to talk to vendors, pick up brochures to take back to your colleagues, reconnect with your extended network or add new connections. The buzz in the air as attendees discuss the program, new products and services enhances attendee experience and increases the event’s overall success.

The good

  • Greater reach for potential customers and vendors
  • Opportunity to review products and services you may not have been aware of
  • Ability to discuss issues, concerns or new technology directly with vendors
  • Reconnect with your broader network
  • Real-time question and answer periods

The bad

  • The cost of registration, travel and expenses can be prohibitive to attending
  • Most of the time, when a live event is over, it’s over. There’s little to no access to attendees, presentations, documents or final thoughts

The ugly

The pandemic caused legislators to severely restrict public gatherings. As a result, participant or presenter health and safety concerns and government restrictions affect every aspect of in-person events, including the quality and potential opportunities.

Virtual property management events

Depending on the organizer’s goals, a virtual event may allow attendees to participate by video only, by video with sound or by simply watching a digital stream of the session. Pre-pandemic, virtual events started picking up momentum but were not especially prevalent, nor were they particularly impressive. However, technology has had to expand by leaps and bounds to be able to provide incredibly interactive experiences for attendees.

The struggle for businesses and technology to intersect in a meaningful way to create professional yet welcoming online interactions has been documented all over social and mainstream media alike. Specifically, clothing faux pas, interruptions by children and pet outtakes were all part of the learning curve to get us to a place where large virtual events can successfully achieve the same goals as live events. And in some cases, surpass in-person events.

Innovative technology is a must to create a successful and effective virtual event. Access to chat rooms, breakout spaces and virtual exhibitor booths allow attendees to connect on a more intimate or one-on-one level. Given that, the virtual property management event, PM Springfest, was a high-quality example of this, with their breakout demonstrations, the tech express pitches sponsored by CRESSblue and virtual kiosks. Using technology to enhance and promote the brands sponsoring, participating and exhibiting can take a so-so virtual presentation to a powerful event that can exist online for much longer than the short lifespan of an in-person event.

The good

  • Registration fees only, making them much more cost-effective
  • Anyone, anywhere, with an internet connection can join the event
  • Keynote speeches and presentations are clear and visible to all participants
  • Excellent for shorter-form events like educational presentations and webinars, such as Reopening the Nation’s Workplaces presented by CRESSBlue
  • Participants can live stream sessions and watch ones they missed on-demand for as long as the content is relevant

The bad

  • Participants cannot connect face-to-face
  • Attendees can be “blind,” i.e. they may have no idea who else is attending the event
  • Viewers may easily be distracted by their environment

The ugly

Technology issues—whether the event’s or the participant’s—can interfere with satisfaction, thereby ruining the experience for some.

Hybrid property management events

This newer event format brings together the best of live and virtual events. Hybrid events allow participants to show up in person or conveniently participate from wherever they happen to be. For some conferences, this means choosing one option. While for others, it means choosing which sessions to attend in-person and which to watch virtually.

The benefits of attending a hybrid CRE tradeshow event.

Hybrid property management events may be the most valuable and effective way to provide learning and networking opportunities. Apps and websites offer both in-person and virtual attendees many ways to connect with each other and organizers.

The good

  • Costs range from low to high depending on the attendance type
  • Attendees choose how they want to take part
  • Organizers can provide added value to participants who attend in person with swag, cocktail hours, special lunches and more
  • Greater opportunity for guests and presenters to attend from anywhere in the world
  • Exhibits can be both digital and live

The bad

  • Internet connection issues may affect the quality of the experience for an attendee choosing to join virtually
  • Participants who attend in-person may choose not to use connectivity tools and apps designed to reach out to virtual participants

The ugly

The worst thing about a hybrid event may be having to choose which stream to use. What’s more, organizers may include bonus content or swag for one stream and not the other to boost participation.

Why bother with property management events?

The real estate industry is based on trust. Trust comes with connection. Building the relationships necessary to become successful in real estate, specifically property management, requires connecting with agents, owners, tenants, lawyers, accountants and tradespeople. How property managers connect with their network transformed during the pandemic.

One of the biggest networking challenges that owners, property managers and businesses providing real estate services or software have recently faced is the lack of in-person events, places where you can look someone in the eye and shake their hand. Events where social cues and body language tell you which business is an excellent fit with yours.

The long-term gains from property management events can be felt across various aspects of any business. Trade shows and conferences are exceptional venues to learn about new products and services on the market, hear about the current state of the industry and where it’s going, and promote your business. Events with a niche focus can bring an audience intent on participating and learning about that particular topic. Expert speakers and panellists analyze new industry-specific possibilities and trends. And the question periods and social hours attached to these shows are fertile ground for business growth and high-quality connections.

The next normal

People are hard-wired to find connections and common ground. For now, we have to find our virtual community. But from what we can see, the next normal for property management events will lean toward a hybrid format, bringing together the best of both worlds to create connections and build relationships. From a practical standpoint, in-person events guarantee the best opportunities to build a network and strengthen our industry. They most likely won’t disappear forever. But they will definitely be forever changed.

Whether you prefer live, virtual or hybrid events, the important thing is to attend them. By participating and engaging with the real estate community, you build a strong foundation for learning and sharing your expertise with others. This is how we thrive in the face of a crisis that has us standing six feet apart.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Commercial tenant rights - an overview.

Commercial Tenant Rights: An Overview

As a landlord, it is important to understand commercial tenant rights as well as your rights and obligations. Commercial tenancy regulations are far less restrictive than residential landlord-tenant acts and tend to favour the landlords. This is because commercial lease agreements are viewed as contracts between knowledgeable business people. Therefore, the assumption is that they are capable of negotiating lease terms that benefit both parties. As a result, commercial lease parties tend to use more of their negotiating ability than those of a residential lease.

While every country, state and province has its own regulations to oversee these agreements, all tend to lean heavily on the wording of the lease agreements as “law” that guides the relationship.

It is essential to make sure the lease language is as straightforward as possible and clearly outlines the tenant’s responsibilities. But a word of caution. Veering away from industry language is not recommended. Inexperienced parties tend to write their agreements only in terms of intent (rights). While this seems helpful, most of the lease language is used to delineate boundary conditions of expected behaviour (responsibilities) and contains terms and remedies to describe the processes that will be used if a breach occurs. Industry terms have been tested for interpretation in the courts, and insurance companies rely on those definitions to underwrite their insurance risks.

Lease terms have meaning in a legal context, and the lease is a legal agreement. If it is not possible to write the lease in easy-to-understand terms, provide a summary of rights and obligations in clear language to outline your expectations. Commercial tenants need time to review and receive legal counsel on the lease agreement language, terms and clauses. Both parties should understand the lease terms and be aware of rights and responsibilities.

To do when entering into a commercial lease agreement.

Prior to signing the lease

The best way to make sure both parties are aware of their responsibilities is to communicate openly. Clear lines of communication will ensure fewer misunderstandings and help build a stronger relationship and a level of trust. A good relationship foundation helps when questions or complex issues need to be discussed.

Before you enter into a commercial lease agreement, it’s essential to seek legal advice. Doing so will help you determine which specific policies apply to your situation. While there are laws and regulations in each jurisdiction, a signed lease agreement can waive rights granted in the acts. A good lease will outline each party’s obligations, including those relating to leasehold agreements, operating and maintenance costs, and rent, among others.

What should a commercial lease include?

A lease is a contract that outlines the rental rights and responsibilities of both the landlord and tenant. This document is intended to provide clear guidelines to both parties to minimize any potential misunderstandings.

While every lease is different, and there is no one-size-fits-all template, it should include certain items:

  • Names of lessor and lessee (landlord and tenant)
  • Rent amounts and rent frequency
  • Insurance requirements
  • The length of the lease and type of tenancy (fixed-term or month-to-month)
  • Conditions for terminating or extending the lease
  • Ownership of any leasehold improvements
  • Responsibilities for repairs and maintenance
  • Shared space and amenity cost allocations
  • Consequences of non-payment of rent and other expenses
  • Specifics of when/how a security/damage deposit is considered forfeited or partially refunded
  • Permitted uses of premises
  • Ownership of fixtures
  • Liabilities and force majeure
  • Any other details that have been negotiated between the landlord and the tenant

The lease terms should clearly outline whether it is a gross lease, net lease, triple net lease or percentage net lease.

If the tenant needs to alter the space before moving in, get the leasehold improvement details in writing first. The lease should outline who pays for what and whether there are any restrictions on what they can do. This will help avoid any disputes over financing and the scope of the project. The lease should also outline who is responsible for obtaining regulatory approvals and permits. Also, the lease should detail what the landlord requires from the tenant to approve the tenant’s scope of work. For example, details could include engineered drawings, work reviews and the conditions for releasing the tenant improvement allowance.

Remember, a commercial lease is a binding contract between the landlord and tenant, so the terms should be agreeable to both parties. Both the landlord and the tenant must sign the lease to formalize the business relationship. Doing so will protect not only commercial tenant rights but also the landlord’s rights as well.

During the lease term

Key lease terms to not overlook.

Damages and breakdowns

Though not common in commercial leasing, you and your tenant may wish to complete an inspection report before taking possession of the property. This form contains a description of the property to detail the unit’s condition at the time of move-in. This document can support claims for the repair of damages as they occur. More commonly, the premises come “as is.” The tenant makes their leasehold improvements before occupancy, which the landlord inspects before releasing the Tenant Improvement Allowance (TIA). These improvements usually negate the usefulness of an inspection report completed at the time of possession.

Savvy tenants ask the landlord to guarantee the existing building systems (i.e. doors, dock systems, electrical services and HVAC units) for three months or, for HVAC units, three months into the first season of use.

Leasehold improvements

Tenants may require changes to the unit to make it functional for their specific purposes. These requirements should be worked into the lease in advance and clearly state which party will retain ownership of the improvements. Most commercial net leases assign ownership of the leasehold improvements to the landlord, but the tenant must still insure and maintain them. There are several ways that payment can be handled for these improvements. Further details on leasehold improvements can be found here.

Rent increases

The lease agreement should detail any increases to the rent. The landlord must include specific policies regarding rent increases to ensure that tenants know the terms and conditions. The lease alone serves as the full and final notice of all rents due. Leases almost always specifically exempt the landlord from any requirement to provide prior notice of any rental amounts being due.

Paying property taxes

This is a provision that must be outlined in the lease before tenancy. If the landlord expects the tenant to pay property-related taxes in part or in full, this must be included in the lease agreement. The clauses must be worded so that the tenant is not on the hook for future taxes once they have terminated their tenancy.

Entry to the rental unit

The lease terms determine the landlord’s rights to premises access. For example, the lease can specify access to both keys and access codes and entry without any notice or lessor rights.

Settling disputes

If the landlord is not fulfilling their obligations, the tenant has the right to take the landlord to court to force them to comply with the conditions of the lease agreement. Additionally, the tenant can ask for compensation for any losses related to the landlord’s negligence.

When a tenant has breached the lease, the landlord must notify them in writing and provide a reasonable amount of time—usually 10 days—for them to begin to comply. If the tenant has failed to fulfill their obligations, the landlord has the right to terminate the tenancy. They can also take the tenant to court to reclaim any rental income owed as a result.

Expansion rights

If a unit opens up in the commercial property, an existing tenant within the building may have the right to lease it before anyone else. This is the Right of First Opportunity, or ROFO. If a tenant is looking to expand their presence within that building, this can give them an advantage in a competitive market. This does guarantee that the tenant will secure the space, however. The ROFO usually specifies the rent terms, often 90% to 100% of the market rate.

The Right of First Refusal (ROFR) works a little differently. The landlord is entitled to lease the available space to a third party, but first, the existing tenant has the right to match the third-party’s offer on the unit. In this case, the tenant does not have the opportunity to negotiate the lease terms with the landlord; they must accept or decline the terms presented.

In either case, the ROFO or ROFR details should be very clearly spelled out in the lease agreement ahead of time so that both parties know their rights. You can find more information on ROFO and ROFR clauses here.


Landlords can evict tenants for not following the lease terms. That’s why it’s critical to be aware of all the obligations set out in the lease to maintain compliance.

If tenants do not pay their rent on time, the landlord has two primary courses of action.

The first is to terminate the lease and evict the tenant. This typically happens after a set amount of time without rent payments. The landlord changes the rental unit’s locks. Ideally, this occurs after giving the tenant reasonable time and access to remove property from inside the unit. However, this ends the landlord’s right to use other options he has under the lease. Typically, this isn’t the first choice as commercial leases are valuable, and the recovery rights are significant.

The second is known as the right to distrain the tenant’s chattels. Typically the tenant’s chattels are the lifeblood of their operations, and their business is finished without them. This provides significant motivation for the tenant to redeem the lease. The landlord seizes the tenant’s property on the premises. The landlord must give the tenant notice of the seizure and hold the property for five days before disposal. If the back rent is still unpaid, the landlord is free to sell the seized property to recoup some of their losses. If the value of the tenant’s property exceeds the back rent, the excess must be paid back to the tenant.

The landlord has various rights outlined in the lease, which can be jointly or severally applied. For example, the landlord can apply a three-month rent penalty in addition to seizing the tenant’s property. On the other hand, the right to distrain can be specifically excluded in the lease terms. This is more common for tenants with a patented or restricted product.

At the end of the lease term

Considerations when the lease term ends.

Ending a tenancy

Most regulatory bodies have rules about how a lease can be ended. In a month-to-month tenancy, either the tenant or the landlord must give written notice at least one month in advance of termination. For a fixed-term lease, there is no requirement to provide notice to terminate by the end date. If both parties wish to continue the lease agreement, a lease extension agreement should be made before the due date. Without an amended lease agreement, the tenant becomes a month-to-month tenancy in an overholding position and no longer has the right to occupy the unit once the term is up. Overholding usually comes with a rental rate increase to compensate the landlord for the term insecurity.

Restoration of space

If the tenant has made significant changes to the unit through leasehold improvements, the landlord may require them to restore the premises to the original condition. Landlords may wait until close to the end of the lease term to make that decision, as some alterations may enhance the space and increase the property’s value. However, tenants need to know whether they need to outlay a considerable expense at the end of their lease and budget accordingly. Optimally, if the landlord granted approvals before the leasehold improvements, they should add the restoration clauses to the lease in advance to avoid last-minute panic.

Extension rights

When continuing a tenancy, there can be two options: renewal or extension. A renewal of a lease agreement constitutes a wholly new agreement, potentially with new terms and obligations. An extension, however, continues the existing lease agreement with the landlord with an extended end date. The renewal represents a short break (and potential change) in the relationship between the two parties. The extension perpetuates the original lease without a gap. An extension is preferred when both the landlord and the tenant are happy with the existing conditions and wish to continue the relationship as is.

Security deposit returns

At the end of the tenancy, the landlord must return the initial security deposit, less any charges for damages incurred. The landlord will often require the tenant to vacate the premises first to inspect the unit. If any damages are found, the landlord should provide documentation as proof of the damage and itemize any deductions taken from the security deposit. The tenant may negotiate these deductions if they can show evidence that the damage was pre-existing or occurred due to normal wear and tear. If no significant damage occurred during the lease term, the deposit should be refunded. Tenants who have proved themselves to be reliable and trustworthy may be able to negotiate the early return of the deposit, but that would be on a case-by-case basis.

Final reconciliations

Both parties should agree upon any further reconciliations as outlined in the lease. Any reconciliations that occur outside of the parameters of the lease should be negotiated by the two. In the event of a disagreement, the parties can settle the issues in court.

These are just some of the general commercial tenant rights and landlord rights that you may come across. Some of this information may vary from country to country, state to state and province to province. As usual, always consult a commercial property lawyer before entering into a lease agreement, and seek legal advice to ascertain your specific rights in the event of a dispute.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

When should you hire a commercial property manager?

When Should You Hire a Commercial Property Manager?

Owning commercial properties is an excellent investment, but managing it can also be a lot of work. Some owners prefer to manage their properties themselves, but you may find it makes sense to hire a commercial property manager to help you out once you scale up. When does it make sense to take that next step? We’ll take a look at some of the factors you should consider before making your decision.

Factors to consider

Can you afford to hire a commercial property manager?

There is no set formula for commercial property management fees, but there are several ways that property management companies may charge for their services. For example, they may charge a percentage of the total collected rents. The percentage will depend on the company’s services—the more services, the higher the rate. Or, they may charge a flat monthly management fee for larger buildings and charge any on-site salaries and expenses back to the owner.

How property managers get paid - percentage of rent, flat fees plus expenses, contractor markups.

Fees may also be higher for properties that require more intense compliance and regulation, such as medical offices or food processing facilities. An older building with outdated equipment may also warrant higher fees as it is more likely to need more frequent repairs. Property managers may also mark up the cost of contractors’ prices by 5% to 15%. Be sure to get a breakdown of costs to get a clear picture of how much you will need to budget for property manager costs. You can find more details on commercial property manager fees here.

Do you have too many properties to manage on your own?

How many properties do you own? Are you able to give each one enough attention, or do you feel like you are always shortchanging at least one property? If you manage multiple properties at once, you could likely benefit from hiring a property manager. The more units you own, the more tenants you handle and the greater the responsibility. Each tenant may also have their own unique lease terms and agreements, making it critical to stay on top of various obligations.

Are you short on time?

Is your office staff working overtime to manage your properties? When was the last time you had a vacation? Hiring a property manager to take care of the day-to-day tasks can free up your time for other things. A property manager is dedicated to servicing properties as a full-time job and has much more flexibility to meet with tenants and perform repair work and other essential tasks.

Do you live near your buildings?

Tenants expect a quick response in the event of an emergency or issue. If you are not able to get on-site quickly, your tenants may become frustrated and angry. It’s one thing to make residential tenants wait for repairs or maintenance, but for commercial tenants, it’s their livelihood that’s at stake. Leaks, plumbing issues, HVAC failures can all lead to a loss of revenue or even a loss of inventory. A locally-based property manager can be dispatched swiftly to sort out any problems in an efficient manner.

Also, consider the amount of time you are spending commuting from home to your units regularly. Even living just 30 minutes away takes at least an hour out of your day, plus the time you spend on-site. Not only will you waste time driving back and forth, but you will also spend more money on gas and incur more wear and tear on your vehicle.

Do you want to hire and manage staff?

You can hire staff to manage your properties, but you may need several different positions to cover the same tasks a property management company can provide. You will also need to oversee those employees, and you’ll need to cover benefits and other expenses incurred by having staff on the payroll. Even if you hire contractors rather than employees, you will need to source out reputable tradespeople and supervise them yourself. Property managers typically have a pool of reliable, vetted contractors that they can call on to provide various services to their clients at any given time.

Do you want to be a landlord?

Does the thought of dealing with evictions, tenant complaints and maintenance issues leave you cold? That’s okay. Not everyone is passionate about dealing with commercial tenants and the responsibilities that come with being a landlord. An experienced property manager is skilled in handling landlord-tenant issues and can do so on your behalf. They are well-versed in enforcing lease terms and legal processes, so you don’t need to be.

So what can a commercial property manager do for me?

Commercial property managers can take care of a variety of services, depending on your needs. Most property owners know that property managers take care of facilities, landscaping, upkeep of parking lots and building repairs. But many of them can offer a lot more than just maintenance.

Here are some types of support a commercial property management company can provide:

What property managers handle, from lease admin to insurance to legal issues.

Tenant relations

A property management company can actively solicit and screen potential commercial tenants and show units to interested parties. That in itself can save quite a bit of time. In addition, they can field and resolve all inquiries and complaints from tenants, so you don’t have to do so yourself. They will be on the ground, building the day-to-day relationships with tenants, and they will be the first to know of any issues that may need to be addressed. Property managers can also coordinate move-ins and move-outs and handle the legal eviction processes. A good property manager will also provide a tenant retention plan to keep tenants happy and satisfied for the long term.

Lease administration

When it comes time to sign a lease, a commercial property manager can prepare documents and arrange the signing around the tenants’ schedule. They can also manage the different lease terms for each of your tenants. This in and of itself can be worth hiring a property manager, especially if your tenants all have different types of lease agreements and unique terms. They can also negotiate the lease terms to ensure that both parties receive a favourable opportunity.

Rent collection

Complex leases with different rates, due dates and terms, means rent collection becomes more complex, especially in commercial properties with multiple tenants. A professional property management company can set and collect rent on your behalf. They will also handle the associated financial record keeping.

Accounting and financial services

And speaking of record-keeping, another considerable benefit that some companies can offer is full accounting and financial services. Again, these services can be worth the money as commercial real estate finances and annual audits can be quite complicated. From keeping track of expenditures to identifying recoverable and non-recoverable expenses, defining capital costs and CAM charges, it can be challenging to stay on top of your accounting. And accurate financial reporting is essential to your business success. Hiring a company to take care of these responsibilities will help ease your burden.

Legal experience

Experienced property managers also understand landlord-tenant laws and can mitigate risk associated with legal processes around security deposits, terminating leases, safety compliance and more. They will also have knowledge of commercial building codes and construction standards.


This is an oft-overlooked area of responsibility because it only shows up when it is too late to correct. A certified commercial property manager will ask about the items a tenant is storing on the property that might not be part of the approved use of the premises. Often employees bring projects to the warehouse to work on weekends with company tools. A drum of used oil leaking into the ground can lead to a surprising amount of environmental liability long after the tenant is gone. Other concerns include overloading warehouse storage, which leads to fire suppression inadequacy, or failing to perform equipment maintenance and premises inspections as required to keep the building owner’s insurance policy in force.


A commercial property manager can also advertise and market your property to find the right tenants to fill any vacancies. They are experienced in writing compelling ads and know where to advertise to attract suitable candidates. They may already have a base of potential clients that could be interested in your properties if they are the right fit.

You may not require all of these services, but most commercial property management companies can provide assistance tailored to your specific requirements. The ideal property manager should have a good working relationship with both the tenants and you, the owner.

What are some disadvantages to hiring a commercial property manager?


Of course, the cost is an obvious disadvantage—if you do it yourself, you won’t have to pay other people. However, it makes sense to pay others who have a strong background and experience in the industry to take care of your investment. Remember—time is money! If you are spending way too much time managing your properties than you would like to, it is worth the expense. Calculate how much an hour of your time is worth, and then calculate how much the property management company is charging you. If the return on investment is high, then it is worth the money.

Value of your time versus property management company fees.

You may not be aware of day-to-day operations

Going from a hands-on manager to contracting out the services, you may feel disconnected from the daily operations. The idea of hiring a property management company is to relieve you of excess responsibility. However, it is natural to want to know what is going on in your own business. Ask the property management company to provide regular updates (weekly or monthly reports—you decide). Check in with your tenants as well to make sure they are happy with the contractor’s services.

No close relationship with tenants

When you take a hands-off approach to managing your properties, inevitably, you will lose connection with your tenants. The property manager will become their first point of contact, and they will regularly see the property manager depending on the services they are contracted to do. However, this may also be an advantage to anyone who prefers not to deal with tenants directly.

A property management company may handle things differently than you would

If you are very particular about how you want your properties managed, you may be hesitant to hand over the reins to a second party. However, you can interview various companies to find the right fit for your style. Prepare a list of questions to ask and understand what is reasonable within the industry.

You will have to manage the manager

To ensure that your business is running smoothly, you will need to be in constant contact with the property manager. Schedule regular check-ins and request monthly reports to stay well-informed. Ask for cash flow statements, balance sheets, profit and loss statements and any other information that can give you an overview of your financial performance. Read the reports and analyze them for any irregularities.

You may not be aware of critical data

When you step back from the operations, you may not be informed of significant payments or refinancing triggers. Again, make sure you set up a system with the company to contact you when critical financial decisions need to be made. Check to see if the company uses property management software like CRESSblue. If they do, they can easily set you up as a user on the system, so you can keep yourself up to date and informed at all times with automatic owner’s reports.

Bottom line: Hiring a commercial property manager is up to you

While deciding whether to hire a commercial property manager is a personal decision, there are many advantages of doing so. Finding the right company to manage your property can save you both time and money and reduce your stress level. Look for an established commercial property management company with the knowledge and experience to help you get the most out of your investment. To find the best fit for your business, take the time to do your research and thoroughly screen the commercial property management companies. Ask your colleagues for referrals, and look for a company that shares the same business philosophies as you.

The commercial property manager represents your company and should be considered a long-term partner in supporting your business vision. A successful partnership will result in a more substantial return on your investment.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Which property management software is right for you?

Choosing the Right Commercial Property Management Software

Migrating your business to commercial property management software can dramatically improve its efficiency, scalability and profitability. But with so many programs available these days, it can be challenging to know which will intuitively do what you need it to do. Take the time to do your research and carefully evaluate your options to find the best solution for your business and portfolio.

Here are a few things to consider before jumping ahead and selecting a software program.

Which features do you actually need?

It’s easy to get caught up in all the marketed features of software offerings, but it’s essential to determine your needs and then decide which plan provides the best and most robust solution.

Do you manage net leases on multi-tenant properties? Do you need the capability to budget for and calculate common area maintenance (CAM) instalments? These are integral to any commercial property management business. If you answered yes to any of these questions, you need software specifically designed for commercial (not residential, not generic) property management.

Map out your workflows

The goal here is to identify what you really need your systems to do. Think about and research effective workflows. How does information travel between people? Who knows the information the best? Who receives it first? And who needs that information to do their work?

Using a lease agreement as an example, we get the following answers:

  • The lease negotiator knows the lease agreement the best.
  • The leasing agent has the information first.
  • The property manager and accountants need that information to do their work.
    • The PM needs it to know what the landlord is responsible for maintaining and what the tenant must maintain.
    • The accountant needs to know the rental rates, what costs are recoverable from the tenant and what dates apply.

Map workflows to specific positions within your organization. Avoid directing workflows to specific individuals in your company. Doing that makes you susceptible to hostage-takers, i.e. people who threaten to derail your entire improvement process unless they get their way. These people are most easily spotted by their “black box” spreadsheets, the critical part of your current systems that only they understand.

Avoid mapping workflows to specific individuals in your company.
DILBERT © Scott Adams. Used By permission of ANDREWS MCMEEL SYNDICATION. All rights reserved.

Don’t be blindly pulled into features that already exist elsewhere

For example, it may sound helpful to have the ability to collect rent payments in a tenant portal. But really, no software can improve upon the security and functionality of existing payment services such as bank or credit card pre-authorized payments. Replicating this functionality into another workflow system is redundant and would significantly increase your licensing cost of such software. Similarly, realtors use MLS. Use the platforms where other realtors are looking, rather than using an in-house listing site with no traffic.

Payroll is already processed by external services and accounting software packages, so you don’t need it in your property management software. Instead, look for a solution that provides an interface to integrate the two applications smoothly. QuickBooks provides accounting capabilities and integrates nicely with leading commercial property management software. If one person manages parking lots and revenue, use a parking lot software system for that. Why require people to be trained and use non-standard software systems when there are already reasonable solutions available? As the saying goes, if it isn’t broke, don’t fix it.

Duplicating features already delivered with excellence by existing software is not helpful.

Ask for recommendations

Talk to colleagues and find out which systems they use. Ask them if they are happy with what they are using and, if not, why? Post questions in property management forums to get advice from your peers on the topic. Ask your employees to identify workflow bottlenecks or any areas that could improve. They may be able to offer suggestions to improve efficiencies.

Be clear in what you expect your staff to do and be reasonable in what you want them to use. Don’t look for an elusive silver bullet software package that “does everything.” Your property management software should specifically address lease administration and asset management for a commercial property portfolio. Moreover, it should be the best system for handling and automating these functions.

Systems integration versus silver bullets

Once you map out your workflows, start your search for the best solution to each phase of the workflow. All your lease administration should stem from a core solution. There shouldn’t be triple entries in lease administration software, accounting calculation spreadsheets and an accounting app.

Your expectations should also not be to find a magical silver bullet that can do everything internally. That isn’t how the rest of the world works. No one wants to learn your specific payment system in your portal because people already pay bills with their bank or their credit card or existing major payment processor like Paypal. No one wants to see your listing website with only your handful of property listings. They want to see and compare all the listings available to them in that area.

Pay attention to which workflows are dictated by natural processes in the industry (such as lease negotiation, document signing, leasehold improvements, lease administration and accounting) and which are being driven by system deficiencies (such as passing paper invoices around for review and approval signatures). Natural processes are good, so keep those. You will want to research better solutions to address the system deficiencies.

Watch for discontinuities between workflows. For example, land development is its own process and has a distinct separation from ongoing leasing and property management activities. A single solution will not work for those two workflows.

Transactional versus relational processes

Consider the differences between transactional and relational processes. Lease negotiation is transactional. You will no longer require the leasing agent, lawyer or realty listing once the lease is executed. Property management and lease accounting are relational. There is an ongoing relationship between the landlord and the tenant that will exist for many years. The requirements of those types of workflows are too different to be effectively addressed in a single solution.

Your goal is to identify which solutions are already effective with widespread acceptance and see how they integrate into the systems you think will work best for your workflows. Build your processes to meet the requirements of your workflows.

Organize your current business processes

So, you know you need to automate your processes. You know that informal accounting processes, such as relying on stand-alone spreadsheets or using accounting programs that are too generic for net lease administration, hold your business back. Review your current system to understand what you need to do to prepare for a software migration.

The amount of effort to transition to a new system depends mainly on the state of your documentation and business processes. It will take you much longer to prepare for the change if your records are disorganized, duplicated or incomplete. Are your records stored in multiple formats, including Excel spreadsheets, Word documents, off-the-shelf accounting software and paper files? Are your lease agreements contradictory (we see this often) or otherwise unclear? Collect all leases and invoices, find missing information and correct any data inconsistencies and errors. Update them with any addendums and changes that may be required. Cleaning up and streamlining your data is the key to a smooth transition. While you’re at it, update tenant contacts and addresses for notifications and move tenants to online payment systems.

Moving to new property management software can dramatically improve your business systems. But it doesn’t magically happen with the click of a purchase button. It takes a little thought and time to transfer complete data into a database. The result is that inefficient internal processes upgrade to a fully efficient, transparent and accurate workflow. Smart commercial property management software will actually establish or improve your strategic business behaviours and decisions.

Are your timelines realistic?

Now you know that migrating to a new system that improves your business workflow will not be instantaneous and thought-free. Sophisticated and automated processing systems require some data migration and account setup. Block time for data collection and entry. You will need to validate, gather and enter a variety of data. Besides entering the primary business data, your clients’ information also needs to be input into the system.

Schedule in time to set up user roles for staff, owners, tenants and others. Think about your current workflows to identify the staff members who will work on the new system. Review each employee’s position to understand the objective of their work. Is each function assigned to the right person, or does it make sense for other people to be responsible for specific tasks more relevant to their actual job? Plan to provide some instruction on how they can access, use and benefit from the new software. Consider allotting time for employees to receive training on the optimized workflow and software use.

Now you’re ready to consider new commercial property management software

You’ve gathered your files and read through your leases. Your business records are organized. You understand the need for a reasonable setup process and timeline. You are ready to take the leap!

There are three main areas to consider when selecting a new property management software package. Here are some recommendations that can help you decide which is best suited to your business needs.

1. What’s included?

You’ve defined your requirements, so now you can assess your options based on this list of must-haves. Commercial net leasing is relatively similar in scope, regardless of business size. Every commercial property landlord needs to track capital and operating expenses, contracting costs, budgets, reconciliations, cost recoveries and various lease terms. However, each software vendor offers a variety of features.

For example, some key elements of property management software include:

  • Lease management
  • Document management
  • Standardized administration and documentation
  • Automated workflows
  • CAM allocation and recovery processing
  • Expense management
  • Searchable records
  • Automated notifications
  • Budgeting
  • Reporting functions
  • Digital “sticky notes”
  • Customized roles and permissions
  • Online service requests

Not all software programs may include these features, so take the time to identify the functionality you need to ensure optimal efficiencies. Also, ask whether the pricing plan provides everything you need. You don’t want to find out that you’ve paid for a basic package, but the functions you need most are only available for an extra fee or in a premium package.


One ultimate goal of using a property management software program is to automate your commercial net leasing workflow processes. A program with generalized automation cannot process unique transactions, and it creates more work for your staff. You want to make sure that you leave the Excel spreadsheets and the calculators behind once you migrate to a new system. It should automate the most complex calculations for you in an instant.

Your software must have capabilities that meet your management and reporting requirements. Otherwise, it’s not worth the investment. The most efficient software will offer automation of property data, leasing, budgeting, rent, CAM fees, reconciliations, property management fees and reporting. It should also support every kind of property in your net lease portfolio, including office, retail, warehouse and industrial. Additionally, it needs to integrate with an existing accounting system to achieve maximum workflow automation.

Cloud-based or desktop installation?

Another decision you will need to make is whether you want to buy software out of a box or move up to a cloud-based system. Cloud-based technology is generally more affordable than desktop software. It also makes it easier for staff to work remotely and keep data centralized and updated with the latest information. But some companies are still reluctant to trust the cloud for security reasons. That said, cloud-based systems typically utilize enterprise-level hosting services such as Microsoft Azure, Amazon or IBM, which provide a much stronger protection level than can be implemented at the local level.

Software installed on a desktop computer does not require an Internet connection and therefore is not affected by connectivity issues. Still, local users are responsible for backing up the data, and not all information updates simultaneously. Furthermore, desktop software can only be used on the computer it’s installed on, whereas cloud-based systems can be accessed from any device, anywhere. While this may be a personal choice for smaller shops, cloud-based solutions are typically more cost-effective and offer essential teamwork flexibility required by growing firms. If you’re still not sold on the benefits of cloud-based computing, this article may help.

Go for a test drive before you decide

Many vendors offer free demos or trial periods to use their software. Take advantage of this opportunity and choose two or three to evaluate. Demos and trial periods will allow you to see exactly how the software works and give you a feel for the functionality. Note that software that robustly automates your workflow requires some setup. Therefore, sophisticated software companies will offer demos rather than less-helpful trial periods.

Book demos to be sure the software automation will improve your workflow efficiency.

During this time, look for clues as to how intuitive the system is. Does it reduce steps, or does it seem more complicated than your existing processes? You want to choose something that makes the workflow as efficient as possible. Make a list of pros and cons for each and compare how each one satisfies your requirements. Doing your research will help you make an educated decision and give you a better sense of which features are most important to your workflow.

2. What value does it offer you?

Property management software is an investment in your business and should be treated as such. Do some research into property management software’s average cost and develop a realistic budget for software setup and ongoing licensing. Investigate the different plans available and what you get for them. Is the fee a one-time payment, or do you make ongoing monthly or annual payments? Does additional functionality mean additional fees?

Ask whether new versions and upgrades are included or whether your purchased version will get left behind. Does the investment increase team efficiency and make them available to be more productive? Is the software’s cost overshadowed by the financial gains such as eliminated slippage, faster annual audits and increased revenues? Is lease compliance instant and easy to validate? Do the math to make sure you are getting the most for your money.

How many licences do you need?

Many programs are licence-based, so knowing exactly how many licences you require will save you money. Make sure you take inventory of how many users need to access the program. Don’t forget external users such as tenants, accountants, lawyers and property managers.

However, bear in mind that it is easy to overestimate how many users need licenced access. For example, let’s consider a property management company that relies on 15 people. Two are property owners who only need access to reporting, one is an external accountant and three are realtors who use MLS and Argus for their daily tasks. Four others are maintenance staff. The remaining team members include three property managers, a lease administrator, a bookkeeper and one receptionist. With CRESSblue, the company actually only needs one professional and four standard licences instead of the 15 they initially assumed. Ask the vendor to break down the level of access provided for each licence type to help you calculate what you need. Investigate how much additional licences will cost if you do take on new employees at a later date.

A 15-member team may actually only need 5 to 6 primary user licences.

3. Are training and support available?

No matter which software you choose, the company should stand behind their product and lead your team in the setup and implementation phase. If the company expects you to execute it yourself, be wary. A trustworthy software provider should provide a setup plan for the rollout, and their support staff should be well-versed in the industry. They should also provide documentation, support and training. Do they offer after-hours on-call support for any emergency issues? Find out whether support is included or available for an additional fee.

How is support delivered? Can you access help via options such as online meetings, phone, chat, e-mail, built-in help, videos or one-on-one support? Are in-house training sessions available? The best software companies will offer a wide array of options to support you and your team throughout the transition period and beyond.

Now it’s time to get to work

As you can see, choosing a property management software requires planning and research to ensure that you select the best-suited program for your needs. The right software is the one that does everything you need and does it intuitively, effectively and efficiently. We’ve created a checklist that can help make your decision easier. Download the “How Do I Decide?” worksheet to evaluate the six critical areas to consider when evaluating software for your commercial property management business.

Choosing the right property management software can propel your business to a new level of efficiency and scalability. The long-term benefits—saved time, increased income and enhanced professionalism—far outweigh the time investment to set it up and the annual licensing cost. With a bit of research and careful evaluation of your options, you can find the best solution for your business and portfolio.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Three things you'll wish you knew before becoming a property manager.

Every Successful Property Manager Knows These 3 Things

Do you think you know enough to be a master-level property manager? Here’s how to step up your game, reduce your risks and actually turn a profit. We have picked the top three areas where you need to have real skills in order to be successful.

Key areas of knowledge you need to have including business, lease clauses and percentage rents

1. It’s a business, and you’re in charge

So you bought an investment property. That means you’re an investor now, right? Possibly. Buying a commercial building can be an investment, but buying and leasing a building doesn’t make you a property manager; it just makes you a landlord. Unlike any other major investment vehicles, real estate isn’t a buy-it-and-forget-it venture. Without understanding and following some key business processes, your investment is likely to underperform and could actually lose you a lot of money. Manage your properties poorly and you could end up in court as well.

So what are the keys to being a successful property manager? Let’s dive in!

Understanding financial investments

Most people understand the simple initial financial analysis. Often, investment property shows cover the basics, which are easy to follow. Additionally, there are plenty of free software tools you can download. Typically, the education stops there.

Asset management

Whether you are a building owner or managing someone else’s property, you need to understand building maintenance, basic construction management and capital expenses. Most commercial leases indicate all major capital expenses are the landlord’s responsibility. An unplanned early capital replacement can make your investment returns drop considerably or even lead to losses. Not making timely building repairs can lead to lawsuits from tenants for negligence and preventable losses.

Business structure

Owning a commercial building is a business. Managing a commercial property is also a business. Even though the owner—or a group of owners—may be the same for both, they are often separate businesses, regardless of whether they are owned independently or deal with each other at arm’s length. There is a common misunderstanding among inexperienced owners and property managers that accounting for the property-holding company and the third-party property management company can be merged. It’s important to keep the two separate and maintain organized, traceable financial records.


Business success depends on keeping up to date with your accounting and doing it correctly. With commercial net leasing comes a host of accounting requirements specific to allocating costs to tenants according to the terms of the lease agreement. There’s an excellent overview article here and a more in-depth article here to help you better understand these concepts. Your skills and performance in this area determine most of your value as a property manager. Competence in these fields relies on your expertise in asset management, lease administration and well-structured business relationships.

Build your skilled team

Knowing your business is a considerable challenge! To successfully make money on your commercial property investment requires a wealth of industry knowledge. For example, there is building construction knowledge, legal and accounting expertise, real estate market information and connections to keep current. It’s impossible to gain all the required skills in a short period of time. If you want to build wealth and manage well, you need to build your personal network of trusted business connections so that you have reliable experts you can depend on. Just remember that while you can delegate tasks to your team, you are still ultimately responsible for the operation of the business.

2. Lease administration for property managers

Commercial leases are mostly standard boilerplate clauses that rarely affect anything, right? Wrong. They all mean something significant; that’s why they were developed over time and included on most leases. You need to have a grasp of why those clauses are there and what triggers them. The lease terms are there to provide boundaries to acceptable behaviour from the tenant and the landlord. A good lease works like a flow chart, catching various problem conditions and funnelling the outcomes to predictable results. We covered the key points in more detail here.

Understanding commercial leases allows you, the property manager, to be a better negotiator. Lease clauses were developed over the years in response to situations that appeared in disputes and court cases, and from those, a set of semi-standard lease terms were constructed. They use language tested in courts and guided by case law to interpret those specific phrases. Collectively, these are known as “standard boilerplate” clauses. Boilerplate clauses are terms and conditions included in all lease documents to avoid potential legal cases. They also provide a sense of security to the lease parties. They understand they will have reasonably known outcomes if those situations arise. The trouble with the boilerplate is that it was developed—and used—assuming the future will be reasonably similar to the past. That assumption blew up with the pandemic in 2020.

Some lease clauses with significant impact

Here are just a few examples of clauses that need serious rethinking:

Restrictive use clauses

These show up in retail leases all the time. Essentially, they prevent one or more parties from engaging in the sale of certain products or services. They are by definition anti-competitive as they restrict the premises from being used for various banned uses. These are often called “radius clauses” because they apply to a circle around the leased premises with a defined radius or even several radii. The closer the infraction, the greater the repercussions for breaking the restriction.

Restrictive use clauses have one of three principal drivers for their inclusion:

  1. If the tenant signing the lease requests them, they are trying to prevent the landlord from leasing space to one of their competitors. The reasoning behind this is explained by game theory and the Nash equilibrium.
  2. If the landlord requests it from the tenant, there are at least two reasons. One, they have given exclusive rights to another tenant and need to make all new tenants comply with those previously agreed-to conditions. Two, they could be trying to prevent the tenant from taking its business elsewhere within the same proximity. To make sense of this, you’ll need to understand retail rents (coming up in the next section).
  3. The last type of restrictive use is where the property manager deems the business use to be undesirable. This type is most evident in shopping malls, for businesses such as gyms and service providers. Once forbidden, they now seem to be the saviours of many commercial retail properties.

Restrictive use clauses can cause headaches for property managers

The problems with restrictive use clauses are many. First, unless the tenant is the first in a cluster of retail locations, other tenants may already have restrictive use clauses enacted or may have the freedom to sell the products the new tenant wants to restrict. Second, the way the lists of products are written is often the issue. What appeared to be clearly defined limits when the lease was written becomes muddied when cross-over products are developed. Are those restricted or not? Third, the remedies stipulated in the lease may be very difficult or expensive to collect. This is especially true when the actual damages cannot be quantified, and the lease provisions seem illegally punitive as a result.

If you want to get into this more, there’s an excellent blog here that digs into this much further. Lastly, restrictive uses embedded in many leases can be difficult to remove as perspectives change on what is considered undesirable.

Expansion clauses

These come in a variety of forms: a Right of First Opportunity (ROFO) or a Right of First Refusal (ROFR). These can be one-time, ongoing or time-limited. They can refer to a specific space or any adjacent or nearby space in the same complex. In all cases, they are for the benefit of a tenant and restrict the landlord’s ability to lease the property.


A Right of First Opportunity allows a particular tenant to have the first opportunity to expand into some space that becomes vacant. This is generally preferable to a landlord than the other option, a ROFR.


A Right of First Refusal allows a tenant to make a last-minute attempt to match a competing lease offer on available expansion space. The prospective new tenant may find that all its negotiation efforts and costs benefit an existing tenant when this right is exercised. Having a ROFR lowers the interest of new tenants in the landlord’s property.

Problems with expansion clauses

Not understanding the implications of expansion clauses can lead to some tough and very costly situations for a landlord and subsequently for the property manager.

First, make sure the lease uses the correct terms. A ROFR is a lot less desirable to a landlord than a ROFO.

Second, make sure the time limits are clearly defined, both for the right itself and the timeframe a tenant has to exercise it. Is it a one-time right? If the tenant uses it, is it gone or can it be exercised repeatedly any time during the course of the lease term when any new space becomes vacant? Can it still be used later for another opportunity if it is refused once?

Third, what happens when more than one tenant has an expansion right over the same space? With ongoing rights, previously spaced tenants may become adjacent to the same open premises.

Finally, what constitutes a matching offer? Tenants are not identical, and a landlord may prefer one type of business over another. Additionally, the property manager may project that a lease with one tenant will be more lucrative, which—all else being equal—makes that offer better than lease rates alone describe.

Operating expenses and caps

We’ve seen all kinds of additional rent capping clauses. Most of them aren’t written well enough to be worth the paper they were written on.

The lease sections on operating costs are often one of the longer ones, but they almost invariably rely on two definitions that aren’t really definitions at all. They split property expenses into “operating costs” and “capital expenses” as if these words have no gray area between them. To an accountant, once these amounts are recorded in the journal, they are either one or the other. But in practice, property managers often see operating and maintenance costs where tenants see capital repairs.

Using two accounting words doesn’t make the definition any clearer to anyone. The best clauses include:

  • A schedule that lists specific details about equipment and asset classes
  • The type of maintenance or replacement
  • Whether it is deemed an operating expense or a capital expense
  • Who is responsible for having the maintenance done
  • Who pays for it
  • How it is paid for
  • The amortization period

At least then you have a hope of both parties having the same understanding of cost allocations.

Cost control caps

Precisely because the additional rent is such a practical mess in most leases, lawyers and negotiation teams look to simply cap those operating costs by putting an artificial limit on what the landlord can recover from that tenant. Let’s take a look at the various solutions we have encountered and the problems with each.

The straight-line cap

This is the simplest cap. It can have a variety of forms, from fixed amount annual increases to incremental percentage increases. The laziest implementation is what is known as the “base year” for additional rent. In this case, the net lease specifies a monthly rent, which includes the first year of the additional rent. Base year leases rarely get a proper reconciliation. Likewise, the amount for the base year additional rent is seldom specified in the lease. Moreover, the straight-line method fails to account for times when there are significant maintenance upgrades to the property, such as repainting or regenerating the landscaping plan. It either leads to the property manager missing out on additional rent recoveries or the more likely scenario where the property never gets any significant updates.

Year-over-year versus initial rates

Some leases cap the increases based on the previous year and some base the cap on the initial year. The year-over-year method penalizes the landlord every time they successfully bring in a lower budget, as they are forced to reset the cap lower for the next year. The initial rate method constrains the increases below a line that cannot be exceeded. This results in a fairer cap towards the landlord. Most often, the problem encountered is that the initial rate is rarely included in the lease document, making this cap impossible to enforce.

Controllable expenses

In an effort to negotiate an impasse over the additional rent cap, a common compromise is to insert the words “controllable expenses” into the cap clause language. While this sounds like reasonable language, applying it in practice is anything but. We can likely agree that the property taxes are out of the scope of the landlord’s control. What about property insurance? Winter maintenance costs or liability insurance? In one exercise, about 3% of additional rent was actually discretionary to the landlord. The rest was out of their jurisdiction or controlled by market forces that the landlord couldn’t influence.

Using controllable expenses can lead to complicated accounting procedures. Each of the expenses will need to be classified, applicable caps set and, for each expense class, the initial rate or amount must be recorded. It’s seldom worth the effort. For example, it could cost $1,500 of billable time to calculate a $300 annual savings on the tenant’s additional rent.

3. Understand percentage rents

Every property manager should understand how percentage rents work. Percentage rents are a complex rent calculation method for determining the rent based on a fixed minimum rent and a variable portion based on the tenant’s monthly sales. A percentage rent is rent applied above a minimum base rent and is a percentage of the gross sales that the tenant makes from the premises. The percentage is often estimated and reconciled on a monthly or annual basis and may be averaged over a period of time.


The percentage rent applies once gross sales meet a certain threshold. The point at which percentage rent is paid is called a “breakpoint” and can either be a natural or artificial breakpoint. If the breakpoint is never met, the tenant is only obligated to pay the minimum rent.

An artificial breakpoint is simply a dollar amount of sales, where a specified percentage of gross sales above an agreed-upon dollar amount is to be paid in percentage rent. For example, if the percentage rent is 25% of gross sales above $25,000 a month, then the percentage rent on $30,000 gross sales is $1,250.

To calculate the natural breakpoint, simply divide the base rent by the established percentage. The logic behind the natural breakpoint is that a retailer should only pay the percentage rent on sales over and above what is required to pay the minimum rent.

Natural versus artificial percentage rent breakpoints

Purpose of the percentage rent

The purpose of percentage rent is to tie the tenant’s success to the amount of rent it pays and, therefore, to the landlord’s success. From the tenant’s perspective, it functions as insurance against hard times, lowering the rent it must pay if sales go down. From the landlord’s perspective, if the tenant does well, the landlord can cash in on that success too.

Pitfalls of percentage rents

While percentage rents seem to benefit both the tenant and landlord, there are some risks associated with this method.

Online shopping

The most common issue in recent times has been the definition of which type of sales constitute the basis of the percentage rent calculation. Do online sales count? What about online sales that are picked up in-store? How should product returns be handled? What if the item was purchased online, picked up in one store but returned to a different store? Online sales could potentially have much lower margins for the retailer than in-store-only items. The possible scenarios get out of hand very quickly. And the rapid nature of change online makes predicting and accounting for changes years into the future impossible to record adequately in a lease document.

Property valuations

Lenders use property valuations for mortgage limits based on the cash flows for the property. Rental rates that allow for monthly variability will result in lower valuation for the property. This is particularly true if there is currently an economic downturn. Property owners may find there is less financing available to them for properties with percentage rent leases.

Cash flows

With percentage rents, the rental rates lower immediately on slower sales instead of in the next leasing cycle. Pandemic-related closures resulted in immediate loss of cash flows for retail property owners. Using a simpler method of fixed rent increases provides greater certainty.

Increased accounting work

Tracking each tenant’s sales, returns and losses for each rent period for multiple categories of goods is a time-consuming process. A portion of the rent paid in advance and a portion paid retroactively further complicates the monthly rent reporting. Receiving the sales information from the tenant in a timely manner can be another problem. As well, the landlord may need access to confidential information if an audit of the tenant’s sales figures is necessary. Unless they are large tenants with sales numbers to justify the additional accounting work, it’s best to use a simpler method. That is the primary reason that percentage rents have nearly disappeared from common use.

The bottom line

When working as a property manager, remember you are in an ongoing business relationship with your tenants. Your success in business depends on the success of your tenants. The property owner’s success depends on the ability to manage the properties (whether privately owned or financed). The owner only receives a return on their investment if the properties are profitable. More than ever, we are all in this together.

Be reasonable

There’s an old adage that says, “When you go to court, only the lawyers win.” Therefore, it is in your own best interest to be reasonable in your business deals. Seek to foster an atmosphere of cooperation with your tenants. In fact, you are on the same side of the table when you face the property owner. It’s often not worth the time to track and calculate arbitrary limits when spending time clarifying the underlying concerns is the far better solution.

Be flexible

If the pandemic taught us anything, it is that the past performance doesn’t predict the future. Avoid unnecessarily encumbering either party for low probability events, questionable gains or because “we always have those clauses in every lease.” Don’t try to capture every low probability scenario. Instead, work out the major issues and put a resolution mechanism in place for dealing with the unforeseen ones. This is especially relevant for smaller landlords and tenants where legal costs will quickly make combative approaches unprofitable.

Be transparent

The best way to deal with uncertainty is to be able to trust your business partners. Trust requires clarity and transparency. CRESSblue Commercial Property Management software is specifically designed to accurately record transactions, automatically break down costs and be transparent to tenants and owners alike with audit trail reporting on every transaction. The easiest way for a property manager to achieve their goals is by using CRESSblue Commercial Property Management.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Making better business decisions with accurate financial reporting

Accurate Financial Reporting Helps You Make Better Business Decisions

2020 has been full of challenges. It’s probably even more important than ever to take a look at how your property management company measured up. Analyzing your data and looking at new ways to improve your financial reporting processes now can lead to more robust returns in the coming year. Here are some tips for calculating your annual profitability and enhancing success in the coming year.

Plan for a successful year. Track expenses. See the big picture. Utilize reporting features.

Track your expenses

Financial reporting can be time-consuming and complicated, but you can eliminate some of the frustration at audit and tax time by regularly keeping on top of your accounting. It’s important to keep track of your expenses efficiently to differentiate recoverable expenses from non-recoverable operational costs. Using property management accounting software like CRESSblue will help you automate your workflow and efficiently manage your financial reporting. It will enable you to create leases and automatically manage many (often complicated) calculations for you. This ensures that you always have the most accurate and up-to-date snapshot of your finances. 

So, what do you need to track? Basically, you need to record all property expenditures in your accounting books. If you use online software, like CRESSblue, you can digitize your leases and supporting documents and automate expense tracking.

Define recoverable versus non-recoverable expenses

Operating expenses can be broken down into two categories: recoverable and non-recoverable. Recoverable expenses are costs that can be billed directly back to the tenant or through additional charges on top of the monthly payments. In commercial real estate, tenants are typically charged on a proportionate-share basis for their share of the costs. Recoveries are also known as TMI (for taxes, maintenance and insurance recoveries) or Additional Rent (for total cost recoveries). If the lease includes the taxes and insurance in the base rent, the maintenance portion is often called Common Area Maintenance (CAM) charges. Recoverable operating expenses can include utilities, services such as trash removal and building repairs, specific site maintenance, such as snow removal, and more. 

Non-recoverable expenses are, obviously, expenses that cannot be charged back to the tenant. Non-recoverables include leasing fees, accounting and legal fees, marketing and administrative expenses, postage and courier charges, and any other costs directly associated with running the business that are typically excluded from the pool of recoverable expenses.

It is important to note that the definitions of what is recoverable for a particular property are specific to each lease. Within each lease, the definitions often change depending on what period of the lease is being reviewed.

Don’t forget capital costs and depreciation

Capital expenses are typically investments that provide a benefit for the future. For example, capital expenses include major renovations to a building or unit, material upgrades for longer serviceability, lighting upgrades, or furnace and appliance purchases. It’s also important to note that capital expenses should appear on the company balance sheet rather than as an expense line on the income statement.

Of course, capital expenses must be depreciated (fixed assets) or amortized (intangible assets) over time and cannot be deducted all at once. It can be tricky to determine which expenses qualify as capital costs and which are operating costs, but the Canada Revenue Agency has a handy chart that might help. You can find a breakdown of U.S. capital cost allowance rates here.

How to tell the difference

There are three main criteria for differentiating capital costs from operating expenses:

  1. Does it provide additional benefits or functionality?
  2. Does it extend the life beyond the original life expectancy?
  3. Is it part of or separate from the original asset (i.e. does have a different salvage value)?

If you answer yes to any of those questions, it’s likely a capital cost and not an operating expense. There’s one other thing to consider. That is, whether the expenses were done at the time of, and for the purpose of, a purchase or sale. If they were, then they are deemed to be capital in nature. Another indicator is the cost of the work in comparison to the original cost. A rule of thumb is that repairs over 10% of the original cost are likely to be capital in nature, but this isn’t a reliable indicator on its own. Make sure to consult with your accountant to determine which expenses to deduct. 

You must also factor the depreciation of assets into the accounting of capital costs. Typically, a property management company will only depreciate the buildings. However, certain types of equipment may also be eligible for depreciation. Rental properties may be eligible for the capital cost allowance (CCA), which is depreciation that can be claimed on your tax return. CRA groups depreciable properties into various classes that determine the deduction rate. You can find a full list of Canadian property classes here. For our U.S. readers, here is a breakdown of the IRS’s property classifications.

Some commercial leases allow for the recovery of amortization and depreciation of assets serving the premises. To recover these expenses, you will need to track those assets and their expenses as well. CRESSblue includes this functionality in its asset management and lease administration workflows.

See the big picture

Many property managers only track rental income and some expense recoveries, but there’s a lot more that commercial property managers need to review regularly. You may be able to make improvements in certain areas by analyzing your data and implementing new processes in your workflow. Here are some areas that you may not have previously considered in your financial reporting that could help you improve your profitability.

Analyze your expenses

Apart from tracking income, you should also take a long hard look at your monthly expenses. Look for ways you can maximize efficiencies by reviewing your costs versus revenue. For example, can you automate workflows to reduce administrative costs? Are you paying for online subscriptions you don’t use or use infrequently? Are you paying for services that can be moved in-house for more significant cost savings? Talk to your employees as well. Chances are they can highlight workflow, communication and other pain points, and offer valuable insights into critical areas for improvement.

Manage your budgeting

Vendors provide contracts and quotes that are the basis of the budget numbers. Property managers can take the time to use general ledger (GL) accounts to prepare budgets. Unfortunately, this forces you to manually calculate and allocate the budget amounts correctly to the chart of accounts. This is a big dive into the unfamiliar realm of accounting.

The property budgeting process in CRESSblue is unique in that it uses vendor and office expense accounts directly to prepare a budget. Accounting personnel simply set up the vendor and office accounts to automatically link to the GL accounts for budgeting, transaction expanse allocations and the additional rent reconciliation process. It’s another area of property management where CRESSblue stands out. It makes the financial reporting workflow more natural and intuitive for all user groups while also eliminating whole areas where errors can be introduced.

Review your lease clauses

Do your standard lease template clauses need to be updated to the current industry standards? Are all of the lease terms actually being correctly enacted? Do your signed leases have handwritten modifications that introduce liability-creating confusion and contradiction?

Another area to review is the rent provisions clause. Most commercial leases have provisions for rental increases during the term of the lease. Increases may also be based on annual adjustments for inflation or additional percentages triggered at various intervals. Without a regular review of the leases, these increases may be applied late or missed entirely. Using industry-specific accounting software such as CRESSblue can help you stay on top of potential increases by providing notifications of these increases or automatically applying preset rent adjustments.

If you haven’t reviewed your leases in a while, it’s time now. Ensure that you have the best leases when renewing existing tenants and signing on new tenants. CRESSblue provides implementation logic for industry-standard clauses and terms to help you bring your lease compliance up to current industry standards. Our team of commercial property management professionals are also a great knowledge resource.

Beware of slippage

Slippage is defined as additional rent that would be otherwise recoverable if all vacancies were leased, plus costs not recovered for various reasons. Let’s consider several examples of where slippage is triggered. First, expense allocations were accidentally missed and not added to cost recovery calculations. Second, invoicing errors made them ineligible to be allocated and collected. Third, eligible expenses are too difficult to manually calculate correctly and are purposely omitted from the reconciliation. Fourth, lease terms exclude expenses that are normally eligible for recovery, such as fixturing or free rent periods. Fifth, going over budget can also lead to slippage, especially on leases with expense recovery caps.

Common slippage errors in expense allocations, invoicing, eligible expense calculations, lease terms and budget overages

Automation that eliminates all guesswork

Using CRESSblue can help avoid these mistakes with the following automation:

  • CRESSblue automatically allocates ALL expenses—whether from vendors or internal expenses—to specific categories at the invoice creation level. There are no separate processes to be run later that might allow an expense to be missed.
  • Additional rent categorization occurs as the invoices are entered. Thus, invoicing errors, discrepancies and inconsistencies are identified before the invoices are paid. Invoice corrections can be requested immediately.
  • Cost allocations are calculated automatically—including common area gross-up factors and vacancy or overuse gross-up factors—without requiring any math skills or spreadsheet manipulation.
  • Automatic cost recovery logic is present for every individual period of the lease term and any extensions when the lease is created. As a result, all eligible costs are recovered automatically, even if they span multiple lease periods. Per diem calculations are done automatically to split the expenses accurately.
  • The default cost recovery method uses proportionate share calculations for all selected premises. Alternatively, you can use an equal share calculation method. Costs can be allocated to common areas and automatically allocated to the leases with access to those common areas. A Building Transaction report will list all the transactions tagged to the building and also all the recoveries and the unrecovered slippage amounts. On the transaction level, the Additional Rent Distribution report will break down the cost allocation in detail and specifically identify the amounts and reasons for each allocation based on the property and lease period settings.

For a more in-depth overview of slippage and how to avoid it, read this article.

How much is that vacant property really costing you?

When an investment property or unit sits empty, it is not generating income. But you still incur other expenses while the property remains vacant, such as utilities even though no one is there to use them. For example, in winter, you must keep the heat on to avoid freezing pipes. In addition, insurance can be significantly higher when properties remain empty. Factor these expenses into your financial reporting to ensure you have a clear picture of where your business stands from a revenue perspective. 

What is the current average vacancy rate for similar properties? Are you within range, or is your vacancy rate higher than the market rate? If so, it’s essential to understand why.

Vacancies may be due to economic conditions, such as the current pandemic. The economic downturn has created a lack of demand for some retail spaces. However, other industries have had an uptick in need, such as healthcare and warehouses. Is there a way you can repurpose your vacant premises to better suit one of these types of tenants? 

Vacancies may also be due to poor property management or overpriced rent. If you see an ongoing vacancy pattern, consider taking a survey of your current tenants to assess whether they feel there could be improvements to the services you are offering. Ask a realtor to walk your property with you to get expert feedback from a fresh set of eyes. Determine whether your rents are pricing you out of the market by doing some market research and competitive benchmarking. To improve the situation, try to determine which factors are driving your vacancy rates. 

Tenant improvement allowances

Tenant improvement allowances are often incentives for commercial properties to encourage prospective tenants to lease a space. Tenants usually prefer to customize their offices to ensure the property suits their needs. As such, the improvement allowance provides an opportunity to make the space their own and create a fully functional space for them to work in. However, these allowances may end up being costly for property managers.

Alternatively, some tenants may request a turnkey buildout instead. In this case, the property owner is responsible for both financing and completing the negotiated improvements before the tenant moves in. This arrangement is often negotiated with a higher lease rate, which can help offset some of the renovation’s upfront costs. This article has a good explanation of how it works in Canada. Details on the U.S. tangible property regulations are available on the IRS website.

Leasehold improvements are accounted for differently depending on who pays for the upgrades and who owns them. There are several ways to assign costs, as well as numerous potential issues. For more detailed information about this subject, read this article here.

If you own the building, you may be able to claim these expenses as capital costs. Maintaining detailed financial reporting will ensure that you have the information you require to back up your expense claims. Software like CRESSblue makes financial reporting easy.

Tenant defaults

There are many reasons why a tenant may default on rent. Even a strong performing tenant may suddenly experience a downturn in business. And as we’ve seen throughout the pandemic, more and more companies have been forced to shut down due to drastically decreased income.

In normal circumstances, after a tenant misses several payments and communication breaks down, a landlord may decide to either enact distress or forfeiture.

However, with the unusual circumstances around the pandemic, you might wish to exercise more leniency and compassion for tenants, especially for small to medium-sized business owners who may end up losing their livelihoods as a result. As a temporary measure, you can seek out rent assistance.

The Canadian government established an emergency rent assistance program that benefits both tenants and property owners of commercial properties. The program will run until June 2021. A previous program, the Canada Emergency Commercial Rent Subsidy, was administered by CMHC but has since closed. To determine whether your business is eligible for the subsidy, visit the CRA website. Currently, there is no emergency assistance program for property owners in the U.S. that we are aware of.

Utilize financial reporting features

Most accounting software packages provide reports that you can use to analyze your data. Reports can show you profit and loss at a glance, cash flow trends, as well as where you stand with accounts receivable and accounts payable. 

Review reports monthly to ensure that you stay on top of your financial situation and make any necessary adjustments. For example, you can also identify how much you spend monthly and identify areas that should be scaled back or cut altogether if investments do not provide a solid return on investment as expected.

Property managers need more than basic accounting reporting

Critical report types

Beyond this basic accounting reporting, commercial property managers need comprehensive lease administration reporting. Report types that enable property managers to make better decisions include:

  • Budgeting reporting that delivers accurate projections based on vendor and office expense accounts.
  • Building transaction reporting that lists all transactions related to the building and both recovered and unrecovered slippage amounts.
  • Additional rent distribution reporting that breaks down cost allocation in detail and identifies amounts and reasons for each expense based on property and lease period settings. 
  • Additional rent annual reconciliations with automated reporting and invoicing. Never leave properties unreviewed and unreconciled again.
  • Leasing status reporting that provides data on leasing activities and building vacancies.
  • Rental advisory reporting that combines information on base rent, additional rent, property details, loan repayments and lease information.
  • Lease abstract reporting that provides lease details in a snapshot format. 

CRESSblue delivers this financial reporting automation and more. It provides several data areas and reports that collectively describe a comprehensive workflow and reporting process. With it you can eliminates the reasons for voluntary slippage and, as a resultant, avoid all avenues of accidental slippage. Also, CRESSblue can be customized to distribute reports automatically on any schedule. Establishing best accounting practices and financial reporting processes will help you stay organized and informed. Leveraging property management software like CRESSblue can help you capture all expense recoveries, increase productivity and reduce errors. Take the time now to review your finances and build a stronger, more resilient business in the coming year.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Data protection

Data Protection: Now More Important than Ever

Data protection is increasingly more important for businesses as cyber attacks become more frequent and more destructive. The number of attacks has increased as hackers have taken advantage of the work-from-home model adopted during the pandemic. According to Fintech News, 80% of businesses have seen an increase in attacks this year. Without reservation, hackers look for vulnerabilities between home and office networks to steal sensitive data. As we’ve discussed previously, remote work isn’t likely to be going anywhere soon, so it’s vital that you boost the security of your systems to defend against potential damage. And let’s be honest: if you are still using customized Excel spreadsheets and off-the-shelf accounting packages, your system is most likely at risk.  

One way to combat these threats is to move to cloud-based applications and storage. Depending on the foundational hosting platform, the cloud can offer increased protection from malicious forces. Business applications like CRESSblue provide additional security features to help secure your data by partnering with a strong, leading-edge hosting platform.  

While adoption of this trend continues to rise, it can still be nerve-wracking to make the leap. We know you probably have a lot of questions: What kind of protection does the cloud offer? Does the hosting service have access to my data? Can the cloud really protect from attacks?  

Let’s take a look at how CRESSblue and its built-in security features compare with a traditional in-house set-up.

Enterprise-level data protection at a fraction of the cost

Without a doubt, information sharing through Excel and email increases the risk of security leaks. With a cloud-based solution, the hosting platform features built-in data protection. CRESSblue uses Microsoft Azure’s cloud-computing platform to host our software. Microsoft is a trusted name and one of the top three major cloud-based hosting services in the technology industry. We selected Azure as a preferred service for our products due to their commitment to cyber security and robust protection features. Achieving such high-level security in-house would require a huge investment of both time and money. And even then, the strength of the data protection would only be as good as the weakest link in your system. While no security system is bulletproof, you will enjoy the benefits that come from partnering with an industry-leading giant in the technology field.

Control access to sensitive data with defined access and permissions

Roles ensure the right people see the right data

Manage your risk by ensuring that only authorized personnel have access to sensitive data. It’s easy to do with CRESSblue. How? Permissions control who has access and maintain a hierarchy of role-based security clearance. In fact, users may have varying levels of access depending on their level of responsibility. Every process is role-based and requires separate permissions for data entry and approvals. You can also set up separate permissions for viewing and editing.

Give careful thought to the designation of user roles. Review each employee’s role and the type of information they need to access daily. Think about the levels of access they require.

For example, different types of roles may include:

  • Administrative for general use
  • Management for approval processes
  • Tenant users for administration or accounting
  • Owners with access to property-specific reports
  • Technical support users

You can determine exactly how much data each user can view and edit by defining these roles. By implementing role-based access control, your company can save time and reduce red tape. This is especially true when new hires come on board or when an employee changes their role. You can easily revoke access when an employee leaves the company or buildings change ownership. In like manner, you can assign pre-determined roles and access through external portals to third-party users. This avoids the need to set them up on internal systems. Administrators can also provide multiple role permissions for users who may need specific data for a time-based project. And, later remove them once the project is complete.

Additional layers of data protection provide stronger security

Passwords alone will not keep hackers out. For that reason, multi-factor authentication is another feature that can provide added security. This requires the user to perform a second step of verification to complete the login process. This step may include answering a security question. Or, it may involve entering a personal identification number, biometric or token. CRESSblue also uses a second device and authentication app. In short, this reduces the risk of a single device being hacked or stolen to gain access to sensitive data systems. Once the user has been authorized, CRESSblue uses short-lifespan security tokens to confirm the identity of users. This is similar to the way a bank uses tokens to secure your session for online banking. It contains information about the user and the level of access permitted. Unauthorized users are denied access without a token.

You can configure the system in a variety of ways. It can remember the user device, so it does not require validation each time. It can have the authentication expire after a period of time or it can require two-factor identification every time the user logs on. Password strength is enforceable on several levels and a single password sign-on is disabled. You can also configure password change schedules, as well as trigger system lockouts after several failed sign-in attempts.

We’ve got your back(up)

Automatic and frequent cloud backups mean there is no need to schedule regular in-house system backups of your CRESSblue data. This means your IT department can focus on other tasks. Moreover, there’s no need to house physical storage units, saving your business time and money.

Cloud backups can reduce the risk of data loss

In the event of a data emergency, your systems can be easily and quickly restored. Your data is stored on the cloud and is mirrored to at least two physical locations. On the other hand, recovering files from a local office server may not be so simple. This is especially true if the storage units are physically damaged. In addition, data from individual devices may not be captured in the recovery. And this is assuming that you have a dedicated IT department. At smaller firms, staff may be backing up to easy-to-lose external hard drives. Or, worse, staff may not be making daily backups at all.

Privacy is not an issue

Your tenants trust you to keep their personal data safe. But are you confident that you can keep their information safe with your current systems? Similarly, proprietary corporate data is the lifeblood of the organization. Any breach of this data can be harmful to the business. With the data protection offered by CRESSblue, only those who have authorization can access your files. Your company holds all rights and interest in the data stored online. Equally important, the hosting service does not access your data in any way. Embedded privacy controls ensure that no unauthorized users can view your data. Multi-level authentication and access control enhance data protection.

Data protection from viruses and malicious attacks

Hackers are becoming more sophisticated, but security has also become stronger. The hosting platform uses a variety of security measures that work with browser security. Plus, our network architecture features multi-layered security features that provide robust protection against any external threats. The CRESSblue database is layered behind the hosting software. This means that unauthorized users can only interact with the front-end web browser portion; they do not directly access the database. 

Any data put into the CRESSblue software entry fields is validated before it is written to the database. This helps prevent any unusual or malicious uploads from infiltrating the databaseFurthermore, the hosting platform also includes real-time intrusion detection monitoring. The support centre is instantly alerted to any suspicious activity on our client accounts. If any threats are detected, automated steps are taken to react to the situation immediately.

Centralized data

Remote work is the new norm, and thus it is more important than ever to ensure all employees can access your systems anytime, anywhere. Truly, cloud-based solutions can make it easier for staff to work remotely because they are much easier to implement than on-site systems. Sure, remote workers can access in-house documents by VPN software. However, it often slows down the computer or experiences frequent connection breaks. Besides, not all VPN programs are compatible with different types of computer systems. You can easily use any device, including tablets and smartphones, to access cloud-based software.

Centralization keeps one set of data updated with the latest information. Consequently, this avoids duplication of work and increasing efficiency. Have you ever had an employee go off sick or leave the company, and no one could access their files because they didn’t know their computer password? With cloud-hosted files, that’s no longer an issue. Anyone with administrative permissions can access user files and assign them to a different staff member.

Data distribution

Unfortunately, security features can’t prevent staff from deliberately sharing information with external contacts. Similarly, it can’t stop them from using insecure methods of data transfer in their workflows. What does this look like in practice? It can be as simple as saving a file to their device and emailing it to a legitimate contact. In that simple process, multiple avenues of risk exposure may be created. Did they use a secure network or was it a public-access open network like an airport lounge? Was their device secure or was it a personal device without any protection, like their phone or family-use tablet? Also, email is not a secure or encrypted method for transferring personal or confidential data. Did the right recipient get the data, or was it accidentally sent to the wrong person? So many things could go wrong in that very common workflow!

CRESSblue uses document distribution systems to secure portals. This does several security tasks for you. One, document distribution rules can prevent documents from being sent by someone without the correct authorization, and to someone without the correct credentials. Two, documents can be restricted to internal use only. Three, if the documents are permitted to be shared externally, they are sent to a secure portal and the user gets a notification to access it, just like getting a notice your bank statement is available for viewing at your bank website. The entire workflow and document distribution process is secured within the system.

Secure document distribution systems protect your data

It’s important to do your part too

All the world’s security features won’t keep you safe in the cloud if you haven’t identified vulnerabilities on your own network. That’s why it’s crucial to ensure that you use preventative measures to safeguard your data. Think your business is too small to be targeted? Think again. Nearly half of all data breaches target small to medium-sized businesses.

It’s also important to note that not all threats are from external malicious forces. IBM’s recent “Cost of Data Breach Report 2020 showed that while 42% of Canadian data breaches were caused by malicious attacks and 35% were due to system glitches, 23% were also attributed to human error. Sharing confidential information with the wrong person, clicking on a phishing link, not updating internal security programs and incorrect authorizations can all expose the system to a data breach. That’s why it’s essential to make sure employees follow proper computer protocols to prevent breaches from happening in the first place.

There are several ways that you can reinforce data protection from the local level:

  1. Have employees update passwords to company systems regularly. According to the 2019 Verizon Data Breach Report, 80% of all cyber attacks involve a weak or stolen password. Changing passwords frequently reduces the chance that hackers can steal these credentials. Enforcing unique passwords with multiple character requirements will also help keep them secure. The best passwords are at least 10 characters long and include upper- and lower-case letters, symbols and numbers.  
  2. Install anti-malware software on all of your computers or your network. All it takes is one employee to accidentally click on a very real-looking email that contains a virus to bring the whole system down. Anti-malware software identifies threats and removes them before they have a chance to infect your computers.
  3. Keep your software updated to ensure you have the latest version of the programs you use regularly. Updates often include security fixes as well, thus eliminating potential wormholes for attackers to enter. Don’t forget to install patches when required to eliminate bugs that may make weaken the system.
  4. Make sure all devices are updated too. Any device used to access your systems – from desktops and laptops to smartphones and tablets – needs to be patched and updated regularly. An insecure device has the potential to expose a hole in your security.
  5. Secure your Wi-Fi systems. And that doesn’t mean just adding password protection. It should also be both encrypted and hidden. Leaving your Wi-Fi open provides a gateway to your network and leaves the system vulnerable to cyber attacks. Activating network encryption, adding a firewall and changing the router’s default settings will all help to secure the network.
  6. Provide training for your employees to help them recognize security threats. Likewise, make them aware of best practices to keep your clients’ data safe. Training should include how to identify phishing scams, ransomware, spam and malware. Further, it should cover avoiding the use of open public-access Wi-Fi networks, as well as the importance of password security. Consider integrating cyber security training into your onboarding processes and running a refresher every couple of years.
  7. Create a computer use policy covering rules and guidelines for password protection, Internet access, data transfer, email precautions and compliance or legal concerns. Outline clear expectations and provide details as to what constitutes appropriate use and what does not. Employees are on the frontline of defence. Further, make sure you engage them in the policy’s development so they feel like they are part of the process and want to protect your assets. Instilling the right mindset from the top down will go a long way to encouraging employees to do the right thing.

Taking these precautions will help mitigate the risk of a threat to your computer systems. And moving your business processes to a cloud-based application will vastly improve your security.

Don’t take chances with your data. With CRESSblue, you can rest assured that you are upgrading your business systems to a world-class technology solution backed by enterprise-level data protection. Book a demo or schedule a call to learn more about our security features.   


This article was accurate as of December 2020. Technology is always advancing. CRESSblue specifications are subject to change without notice. Always check with your CRESSblue account administrator and your contract terms for the most current specifications. This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

CAM Slippage and how to avoid it.

What are CAMs and How to Avoid CAM Slippage

What are CAMs?

Before we dig into CAM slippage, let’s get clear on exactly what CAMs are. CAM stands for common area maintenance. Property managers of multi-tenant office, retail, industrial and warehouse properties typically use net leases. Such net leases recover from the tenants the operating costs for shared common areas separately from the base or minimum rent. These operating costs for shared common areas are the “net” portion of the lease. They include taxes, maintenance and insurance (TMI) that cover the property and building, as well as other overhead expenses and depreciation. CAM (again, the common area maintenance) is part of this TMI (though CAM is sometimes used to refer to TMI). While CAM costs are primarily operational expenses, portions of capital expenses are sometimes also recovered from tenants. The total cost recoveries are often referred to as Additional Rent in the lease agreement.  

What is CAM slippage?

Slippage is the difference between the total operating cost of the property and the amount recovered from tenants. It represents the often-preventable losses incurred from various sources. What causes CAM slippage, and how can you avoid those losses?

There are two broad causes of CAM slippage: voluntary and involuntary. Surprisingly, much of the slippage occurs directly from voluntary actions on the part of the property manager. We will look at the voluntary reasons first.

Voluntary reasons you’re experiencing CAM slippage

1. Going over budget

Ideally, as a property manager, you want to hit your property budget exactly. That way, the annual reconciliation statement and accompanying invoice for the shortfall in their instalment payments won’t surprise your tenants. Property managers may look for ways to avoid confrontation when budgets exceed targets by large amounts. They may simply elect to not recover the excess over the instalment payments. In other cases, annual reconciliations remain incomplete. This often occurs for leases that use a Base Year of CAM expenses to determine the annual additional rent that will be typical for the lease term. While provisions are included in the lease to recover any costs in excess of the base year, very often no reconciliations are made. Leases that use a base year for additional rent invite lazy property management behaviour that is costly. 

So why are budgets missed?

  • No budget was made. More accurately, no budget planning was done at all.
  • Budget items were missed. It’s relatively easy to miss an expense item, even if you normally incur that expense. This type of error is easily introduced when using spreadsheets; all it takes is a missed cell in a formula calculation range.


Use software that automatically builds a property budget based on previous expenses for that property. The entire budgeting process is greatly simplified, no previous expense items are missed, and no calculation errors are possible. There is no need to avoid budget excess embarrassment and take a voluntary hit on CAM recoveries.

2. Unallocated costs

Annual reconciliations of additional rent are supposed to determine the difference between the actual expenses incurred and the tenant instalment payments estimated in the property budget. So how do reconciliations expose the property manager to slippage?

Quite simply, if the expense allocations are only looked at annually, it can be difficult to figure out what the invoices are for and who should be paying for the expense. Typical examples are:

  • Service invoices without a service address. This is especially problematic when a contractor provides services at more than one property. Where was the service performed? Which property does it apply to?
  • Invoices with mismatched data. What happens with an invoice where the tenant name and the service address aren’t consistent? Which is correct?
  • Invoices where the services description is not clear, and it cannot be determined if the cost recovery is allowed under the terms of the lease(s).
A service invoice with errors that may result in incorrect tenant billing and CAM slippage
Above is one example of a real-life invoicing error. The service tenant name and address are incorrect at the top, while the correct tenant unit number shows in the description area. How likely is it that the wrong tenant would have been billed for the service call? Had the property manager entered it into the system right away, this error could have been corrected quickly. Instead, the tenant may eventually dispute it, and it will be difficult to correctly sort out months from now.

In cases like these, property management companies often take voluntary slippage on sloppy paperwork or lose out on disallowed expense claims as a result of a tenant’s expense audit.


Cost allocations should be made when the bill is entered into the Accounts Payable ledger. That is when the memories are still fresh. Moreover, vendors will correct the bills so that the information is clear before payment is made.

3. Difficult CAM breakdown calculations

While the base rent is a relatively straightforward calculation, the CAM allocations are anything but. We’ve previously covered the complexity in another article. Typical complications are variable expense gross-ups, partial expense periods due to lease commencement and expiry, area gross-ups and rentable area changes.

When the CAM allocations are very complex, property managers often use low-ball estimates to include a “safe” amount of the expense in the CAM statement “that will surely be acceptable” to the tenant as it is obviously below the correct amount.


Our CRESSblue team finds these types of voluntary slippage decisions frequently. Interestingly, the slippage amount is often more than the annual cost of using software to automatically do the calculations. Your property management software solution should do the math for you without requiring spreadsheets or calculators.

Involuntary reasons you’re suffering from CAM slippage

4. Missed expenses

Simply missing expenses for recovery as additional rent is a type of involuntary slippage. Indeed, this easily occurs when the property management system does not tie invoices to properties. Recurring transactions are relatively easy to track, but one-off expenses are easy to miss in manual spreadsheet-based systems.

Credit card receipts are good candidates for accidentally missed expenses. They typically do not have enough information to identify the items and do not include a service address or a tenant name. The receipts end up being overhead expenses rather than additional rent. Also, they often get lost.


Firstly, make sure billing is detailed enough to serve as a receipt that can stand up to audit scrutiny. Use commercial vendor accounts that require additional information such as the service address and full descriptions of the items and services purchased. Secondly, use a property management software solution that requires categorizing the expenses at the time of entry. As a result, this makes it impossible to pay a bill and forget to recover the expense. CRESSblue has both a simple-to-use system for allocating costs and an automatic rebilling function for direct expense recovery from a tenant.

5. Lease language

Leases often contain language that lease administrators don’t actually understand. As a result, they never utilize and realize the benefits of many of the lease document’s negotiated terms.

Grossing-up of variable costs

A frequently occurring example of this is when the additional rent allows for the variable costs to be grossed-up to account for disproportionate usage when the subject property is not fully occupied:

In computing Operating Costs, if less than one hundred percent (100%) of the Rentable Area of the Property is completed or occupied during any period for which a computation must be made, the amount of Operating Costs will be increased by the amount of the additional costs determined by the Landlord, acting reasonably, that would have been incurred had one hundred percent (100%) of the Rentable Area of the Property been completed or occupied during that period, provided that, for greater certainty, it is confirmed that in no event shall the Tenant’s Proportionate Share of Operating Costs be increased pursuant to this section beyond the amount that would be payable if the Property had been fully rented.

Even though most commercial leases contain similar language for the same effect, administrators often do not separately track the variable expense portions. Moreover, no accounting is made to recover these costs solely from the occupied areas. As a result, they are allocated to unleased portions of the building as vacancy expenses when, in fact, they are legitimately recoverable from the tenants using those services and utilities.

Expense caps

Negotiators often use complicated verbal formulas and expense caps to reach some consensus on what an equitable distribution of costs should look like. Essentially this is a trust issue. The tenant does not believe that clear documentation is available to them to ascertain the costs’ correct calculation. However, very often, the documentation that enables the use of the lease formula is missing. Indeed, consider this example:

The Tenant’s proportionate share of the operating costs that are under the Landlord’s control shall not exceed 105% of the payment for such costs the previous year.

This statement requires that the landlord track the operating costs under its control separately from those that are not. One would suppose that those not under the landlord’s control would be realty taxes and property insurance. There are numerous ambiguities with that clause. Does “such cost” include only the similar costs year after year? To put it another way, how do you handle an additional required service that isn’t in the prior year’s basket of costs? Alternatively, what if a union strike unilaterally forces wage increases on the landlord above the 5% increase limit? Are those included in the cap as well?


Without reservation, negotiate lease terms from a practical standpoint. When the labour to track and calculate the amounts cost more than the additional rent recovered, you may incur losses negotiating for extra rent. Use lease administration software that automatically tracks and recovers, or limits the recoveries. Lease abstracts don’t include boilerplate lease terms. So, they can slip by unnoticed. Your software solution should have the accounting logic and mathematical ability to conform to your lease agreements’ terms.

6. Asset tracking

While similar to the lease language issue, this one deserves a separate mention due to the solution’s scope and the large cost recoveries that it implies. The language included in the typical lease definition of the operating costs look like this:

… depreciation or amortization of any capital repairs and/or replacements made by the Landlord to the Property and or Premises, …

What does the inclusion of this language imply? Asset tracking. Capital repairs and replacements are added to the property’s asset value and amortized over that equipment’s expected lifetime. The landlord needs to track those assets and calculate the amortization to add the depreciation and amortization to the tenant’s operating costs recoveries. The tenant in this lease expects charges for capital costs made for or during its own tenancy, but not for those associated with the previous tenants. Are those costs significant enough to warrant the effort to track and calculate the depreciation and amortization expenses? For a rooftop HVAC unit, installed costs of $15,000 over a 15-year lifecycle would amount to a straight-line depreciation cost of $1,000 per year that could be recovered.


Use a property management software system with asset tracking that can automatically invoice for the amortization expenses permitted in the terms of the lease agreement on the monthly rent invoice.

Property management solutions

Evidently, CAM slippage is easy to incur both voluntarily and involuntarily. Specialized commercial property management software can significantly improve these situations. Is the software expensive to licence? Not at all in comparison to the CAM slippage costs. In fact, using dedicated software can increase profitability. Also, it provides peace-of-mind with clear documentation and accurate calculations.

Likely, active leases are not alterable. However, you can take action to implement the current agreements’ terms. Additionally, understanding how to fully realize lease clauses’ implications enables you to better negotiate for future leases. What is holding you back from being better?


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Work From Home For Property Managers.

Work From Home for Property Managers

It seems that to be truly relevant, back in 2020, every communication must include the words “unprecedented” and “global pandemic.” This has certainly been the case for news articles of recent. We sincerely hope that those words become less frequently used as time passes. With some pandemic life experience under our belts, we can now regather and reprioritize as we look forward with somewhat more experience and context.

While the impact of the pandemic on the working environment was sudden, all indications are that the effects will be with us for at least a year. Some are likely here to stay. Let’s take a look at those impacts and what we can do about them as commercial property management companies.

Immediate impact

The immediate effect has been the Work From Home (WFH) policy implemented nearly universally. This has done several things right away:

  • There is a need for digital online systems. Work From Home had a paralyzing impact on those that didn’t already have cloud-based systems in place. On the other hand, those that did transitioned much more easily into remote workflows.
  • Larger companies have frozen travel and group training budgets.
  • Forced business closures impacted commercial property management revenues by about 5% in the first month of the shutdown alone.
  • Most property management companies have put new capital projects on hold for the remainder of the year.

Middle-term impact

Not everyone will be returning to an office workplace

The initial response in various social media and news outlets was that the shutdown is just temporary, and things will revert to normal as soon as the shutdown is declared over. It is now apparent that the shutdown situation will end in phases. This will have several middle-term effects:

  • Revenues will continue to decline and will likely accelerate as the cascading economic effects impact more businesses and individuals.
  • There will be a strong realization that waiting this out is not a viable strategy. There will be months of people working from home still, and there will need to be greater efficiency and online capabilities for companies to survive this environment.
  • Not everyone will be returning to an office workplace. Some of the population will have significant fears about crowded workplaces and will refuse to go back.
  • High traffic events like trade shows and group training will be cancelled farther out as event attendance budgets are withdrawn for both presenters and attendees.
  • Print media will be refused in favour of contactless digital media to avoid spreading the virus.
  • Some previously crowded offices will not be able to fit everyone back in due to the social distancing in the workplace requirements. Shared workspace policies like “hot-desking” will end.

Long-term impact

Just as generals always prepare to fight the last war, companies will plan for the next crisis in response to this one. We expect to see a strong push for online software, with full capabilities for document creation and handling. There will be a need for role-based permissions within the software so that workflow processes and authorizations can be completed without physical presence requirements.

Let’s review a few of the critical aspects that a digital solution must provide.

External communications

Companies “going digital” used to mean scanning paper documents and storing them on hard drives. Interestingly, for property management companies, the original signed copy of a lease is still considered the only official version of the document, and it is kept in a “safe place” like a filing cabinet or at a lawyer’s office. A short lease abstract is referred to for daily tasks such as rent payments and lease dates referencing.


Although many professionals, such as realtors and lawyers, now support digital documents, these materials are nearly universally transmitted by email. However, as email is not a secure form of communication, this opens up opportunities for fraud. What is needed are online portals whereby authorized users can log in and access documents securely. Tenant and property owner portals can support secure document access. A tenant portal should include two types of user roles: an administrative role and an accounting role. This allows for the separation of access for accounting related items like bills and payments and administrative tasks such as lease options and extension notifications.


Handling service requests from tenants has become significantly more difficult with the shutdowns and Work From Home policies. Many service requests for non-critical repairs are unable to be fulfilled as nonessential companies are not operating or operating at decreased capacity. This has resulted in a backlog of open service requests that need to be maintained and eventually prioritized for the service crews when nonessential work is permitted to resume. Also, service requests that were previously phoned into the main office are no longer able to be physically distributed to maintenance staff if everyone is working from home. In general, all direct communication has been replaced by other methods that were readily available such as email and online meetings. The critical solution is an internal messaging and portal system. Such a system allows tenants to create service requests that can be prioritized by your staff and shared internally with other users.

Interoffice workflows

Internal document management

Many service providers have previously switched over to emailing PDF versions of their completed work orders and service invoices. Some progressive companies also email before and after pictures of the work areas to prove they completed the required work. These enhanced services have been handy in reducing the number of follow-up site visits required of building managers.

What happens to these documents when no one shows up in an office? How do cost allocations get assigned, and how are approvals given if no one physically stamps or signs off on the invoice? This is where role-based permissions are required. CRESSblue, for example, allows for the entry of accounts payable invoices, automatic allocation of expenses and attachment of all original supporting documents with a simple drag-and-drop upload to the cloud. Notification systems alert the appropriate users to let them know there is work in their queue awaiting their review and approval. Go ahead and score yourself some bonus points for having every bit of the document processing available for an audit.

Your business system should include document management for leases and property data. On the property level, design drawings, equipment manuals, finish specifications, furniture layouts and photographs can all be stored and catalogued on the internal file storage system. For leases, scans of original signed documents, digital versions, notices, letters, lease extensions, addendums, anything and everything you used to keep in a filing cabinet can now be stored securely and accessed from anywhere by anyone with the correct user permissions. The digital workspace can be as distributed as everywhere and still fully connected. The significant advantage is that digital systems are far more efficient. The result is no lost documents and uses far fewer employee hours than processing paper files.

Digital document distribution supports efficient remote work

Staff communication

While messaging apps are ubiquitous on phones and computers, what they lack is the ability to link to office workflows centrally. Property management software that has internal messaging systems to coordinate and direct remote office staff has a clear advantage. Messages are secured within your company, and all staff can communicate together easily without disclosing personal information to co-workers.

Software with a complete, built-in messaging and notification system supports Work From Home.  This functionality allows for communication between remote staff, property owners and tenants, all contained within a secure company environment. While accidentally shared files and correspondence may make for funny social media posts, they can be disastrous on both a personal and a corporate level. Take confidentiality seriously and use professional systems to facilitate your office communications.

Another advantage of using integrated messaging systems is that they can also incorporate system notifications. In addition to automatically triggering notifications to specific workflow events, they can provide timely reminders of lease events to both lease administrators and tenants.

Work reassignment

A global pandemic can create unique challenges when large percentages of the workforce are suddenly unavailable. While actually getting sick is the most severe case, many other situations can cause disruptions in staff availability. Caring for others who are sick, those who are high-risk and self-isolating and children unable to go to school or daycare can make healthy employees unable to work their usual hours. This can create stressful bottlenecks in integrated workflows and results in significantly slower processes.

The beauty of online systems is that you can easily redistribute work. There is no need to email files or share spreadsheets and keep your fingers crossed that the changes will merge correctly. As a manager, you can easily reassign permissions and notifications to redistribute the work among available staff. When fewer people are required to be more efficient than they were previously in a physical office environment, a smart online system is essential.

But can your team learn the necessary skills and procedures quickly to complete the newly reassigned work? A well-designed system includes integrated help and training systems with definitions, explanations and best practices. In addition, it has a parallel user-enabled system whereby you can add your company policies and procedures in the same context-sensitive way.

Integrated systems

As we have seen so far, the key to Work From Home is to have everyone connected digitally for their workflows. This is also true for software systems.

Orphaned data

Paper-based systems and stand-alone applications are examples of siloed systems. The data contained within each silo is difficult to share and, once separated from its source, is impossible to update or verify. Each piece of data becomes an untraceable orphaned copy of the original. Any error introduced at any point will propagate through to all decisions based on that data. Centralized, single-source data systems combined with the original documentation permits the data to be much more valuable and to maintain its credibility.

Centralized data systems support easier sharing and verification

There isn’t one single software application that does everything for any company size or specialization. Often industry-standard systems like QuickBooks are used for the accounting portions of business operations. This specialization permits accountants to work on a limited number of familiar systems and increases their efficiency. Other systems, such as online banking, have security requirements that make them the only provider of their banking services.

Automation through integration

Thus, various software systems must be able to integrate. This compatibility eliminates the need for a human to be the sole interface between them and results in greater efficiency. QuickBooks Online is doing an ever-increasing good job of integrating with online banking software. Bill payments, payment receipts and reconciliations for bank accounts and credit cards are all possible. Automation is increasing the speed and accuracy of the banking/accounting work.

By switching to a business system that has built-in integration with accounting systems, you will vastly improve data quality and workflow efficiency. Specialized applications within CRESSblue, for example, permit automated processing of tenant rent invoices and third-party property management fee invoices. These are transmitted live to the online accounting software, and payment statuses are updated in real-time. From a user perspective, these functions occur as if they were one system. Effective integrations allow each user to perform at peak efficiency on their native software choice.

Work From Home is here to stay

The recent abrupt changes have surprised everyone. Aside from the terrible impacts of the disease itself, social distancing and shutdowns are our new reality. The Work From Home environment is here to stay for a while. The overall economic impact is very uncertain.

The impetus for changing business environments is here. We already face economic hardship, uncertainty and fear. These things are part of any major change in business operations. The question, therefore, is not when will we respond, but what will we do now to survive? The companies that will withstand the current situation are those that promptly adapt and change to meet the new requirements. The stress is already present. Moving to more capable systems will only make the stress go away sooner. Move quickly to position yourself for survival, and you may also find that you also have the opportunity for growth.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Better Software-as-a-Service technology equals happier customers.

5 Ways Software-as-a-Service Can Enhance Customer Service

If you are a small to medium-sized CRE PM business owner, no one knows your customers as you do. So, it should come as no surprise that technology is disrupting traditional customer service models – in a big way. Cloud-based Software-as-a-Service (SaaS) is making its biggest splash ever. But going digital does not mean getting less personal.

Digital technology is drastically altering the power balance between customers and companies. According to Forbes, digital transformation with a focus on customer experience can generate a 20-30% increase in customer satisfaction and economic gains of 20-50%. Sounds like a win-win, right? Digital technology allows customers to gain the power of information and choice while increasing business revenue.

Property managers have even more of an incentive to make the digital leap. Digital workflows can reduce overhead costs, speed up leasing processes and increase response time – just to name a few advantages.

So, how do you offer quality personal customer service in the digital age? Let’s explore 5 ways property management Software-as-a-Service can enhance customer experience.

1. Access data anytime, anywhere

Even if you’re the sole property owner of one building, it’s likely you still have a stockpile of data. Think about all the information you’re given on an annual basis. Leases, legal contracts, utility bills and receipts must be readily available on hand. Companies of all sizes can reap the benefits of asset management software.

Property management systems offer unparalleled access to accurate, up-to-date, real-time data about your buildings. Common in old-style business workflows, personal data sets are typically on individual computers manipulated by a single person with their complex spreadsheets. This produces single-source, unverifiable data that easily propagates errors throughout the entire company. Eliminate the round trip of individual departments producing piecemeal paperwork in scheduled increments. Expedite the customer experience with centralized systems that provide immediate access to all data sets simultaneously.

In times of uncertainty, the speed of access to data is vital to decision-makers and stakeholders.  Landlords using property management software can respond faster to changing conditions and benefit from automated tools and reporting features. CRESSblue is an example of a specialized Software-as-a-Service system that offers tenant and owner portals. The tenant portal allows tenants to easily access invoices and statements through an online system. The owner portal functions similarly, enabling property managers to access invoices and statements and see property management reports.

Ability to access data anywhere at anytime

Furthermore, forward-thinking owners get the insights stakeholders need with access to comprehensive reports and ROI analytics. By applying business intelligence technology to these sources of data, you can mine them for patterns you never knew existed.

2. Take human error out of the equation

Looking to build a loyal customer base? Transparent and accurate reporting is non-negotiable. Who would want to do business with a landlord that fudges numbers on spreadsheets? Smart tenants demand more transparency from landlords on CAM cost allocations and calculations.

Manually tracking expenses leaves too much room for error. When it comes to managing other people’s money, you can’t afford to make mistakes. If you’re a landlord that runs multi-tenant properties, then you know all too well how difficult it can be to track financial information. Add custom lease terms, tenant inclusions/exclusions and cost recoveries to the mix – and the paperwork can pile up fast.  Here is an example of some of the lease errors that we’ve come across in paper-based systems:

Paper leases leave room for error.
The lease Basic Terms Sheet shows 1,050 included square feet.
There is more room for human error on paper.
But later in the lease, in Section 2, two other numbers are provided for the included square feet.

Landlords using accounting software have the clear advantage. Automation reduces the risk of human error, so you don’t have to dig through files to identify (and correct) mistakes. Digital workflows give you the option of automatically logging financial data, which takes all the guesswork out of the task.

Commercial leases are complex. Commercial property accounting software offers ease-of-use when managing cost allocations, requiring less customer involvement and accurate results. Unique tenant circumstances can be reconciled efficiently and painlessly. Deliver information confidently and professionally, with internal audit capabilities to assure tenants that their finances are in safe hands.

3. Self-service optimization

At one time, ‘self-serve’ was a dirty word. But in an age where technology offers instant access to information, self-service is an integral part of customer experience. Streamlined, user-friendly portals empower customers to get the answers they need without enduring long wait times and dreadful hold music.

What’s more, services like online payment and maintenance request submission can cut out the middleman. Landlords can promptly respond to tenant concerns. Cloud-based software, like CRESSblue, offers tenant portals with messaging systems that can alert landlords to a problem immediately. Owners can respond to tenants, message team members, schedule work orders and track maintenance tickets to ensure timely service is delivered.

Companies that embrace technology allow for greater communication amongst the team. Effective internal communication boosts morale, employee engagement and information sharing. Coupled with these benefits, integrated workflows that centralize and standardize your data also reduce customer follow-ups for additional information. In turn, this results in fewer direct calls, fewer tickets and happier customers.

The best part of all? It’s cost-effective. Keeping investors, landlords and tenants happy improves retention, minimizes vacancy and maximizes revenue.  

4. Customers want to make green choices

Consumer research shows that customers find it important for businesses to demonstrate social responsibility and take stances on current social movements. According to Business Insider, a recent survey found that 47% of internet users worldwide had ditched products and services from a brand that violated their personal values. Protecting the environment tops the list.

Not only does going paperless help the environment, but it also significantly reduces operating costs. You can cut out the expense of printing, storage and the transportation of paper itself. No checks to print, stamps to lick or envelopes to stuff. Swap the unnecessary administration time – in favour of secure, digital files that are easy to search. Still not convinced? As a tenant, would you prefer a firm that constantly delivers notices through your mailbox or one that simply sends emails straight to your phone?

Most important, digital information storage greatly reduces the risk of paper documents ending up in the wrong hands. Enterprise-level Software-as-a-Service systems like CRESSblue, lock sensitive information down and control access to files with user credentials. Real-time monitoring of the system health and intrusion detection ensure that records are securely backed-up and intact. Unlike paper, which can be destroyed, lost and never returned.

Lock down sensitive information and go paperless

As businesses plan for the post-coronavirus future, more owners are converting physical offices into remote property management teams. Remote working is an opportunity for companies to work more sustainably and increase productivity. Think less office space, less commuting, fewer business trips, shorter breaks and greater focus for employees.

5. Increased productivity equals more time for better service

Companies that leverage data-driven decision-making are far more productive than companies that rely on low-tech solutions. By investing in technology, owners are free to look beyond day-to-day operations and focus instead on property management leadership.

Automating complex processes and repetitive tasks saves valuable personnel hours. Adopting cloud-based Software-as-a-Service technologies increases business intelligence while decreasing administration time. These tools will enable you to effectively and productively improve internal processes and deliver professional service.

Phone calls, faxes and paperwork will only slow you down. And that will ultimately hinder your stakeholders. With smart business systems, you can automate e-notifications and reminder emails, as well as digital reports and documents.

The benefits of the cloud go beyond increased productivity. Digital and analytic tools can reduce the cost of operations while fostering flexibility. Smart business systems do the heavy lifting, so you can focus on strategies to boost your service level and ROI. Take pride in knowing your business is using tools to accelerate and scale. 

Start with your customers

The rules of business are being rewritten nearly every day with this imperative for digital transformation. There’s no denying that customer service is changing too. The current global climate has forced companies to rethink how customer interactions are handled, performed and tracked.

Emerging Software-as-a-Service technologies present an incredible opportunity to make customer service more natural, authentic and emotionally intelligent. Not surprisingly, customers value total convenience. What systems can you leverage to meet their evolving needs?

Commercial property management software rewards customers with easier, more efficient and ultimately, more responsive service. It’s your job as a business leader to apply tools to engage, connect and grow relationships. You owe it to your customers.

Investing in technology allows you to focus on customer service leadership

Embrace Software-as-a-Service

“Digital transformation” was a buzz phrase before the coronavirus crisis. Since then, it has become a necessity. Leaders must continuously reinvent their customer service model – with technology at its core. Otherwise, watch from the sidelines as tech-savvy customers are swept up by high-tech competitors using innovative Software-as-a-Service solutions.

Customers have already become accustomed to the digital experience. The demand is growing strong. They expect new standards of excellence, performance and just about everything in between. Failure to adapt will risk a loss of efficiency and frustration among your stakeholders.

Digital transformation is modernizing how companies work and compete in an evolving digital economy. What’s also evident is that executives are, by and large, prioritizing technology in their business goals. Not investing in remote systems will have far-reaching consequences on the way you work when the pandemic dust settles. Are you ready for a fresh customer service strategy?

Book a demo to learn how CRESSblue cloud-based property management software can help increase your profitability while cutting costs and positioning your business as an industry leader.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Changing workplaces - post-pandemic workspaces.

Changing Workplaces – Thoughts on Post-Pandemic Workspaces

We share a few thoughts on workplaces becoming non-tactile and managing environments in the post-pandemic period, and invite you to comment and share your insights.

Assessing the scope

There are two main areas of concern in workplaces: tactile surfaces and managing the air in the work environment. Both are directly related to containing the spread of viral infections through engineering controls. Behaviour modifications will be primarily outside of the scope of this article except concerning how they can be manipulated by means of building and environmental design changes.

There are broad implications when addressing these two areas. We will only touch on some of them superficially. Our goal here isn’t to provide answers. Instead, we first seek to provoke thoughtful consideration and secondly a reasoned discussion of possibilities.

Employee density

As employers are permitted to allow workers to return to office, retail and other commercial workplaces, the issue of maintaining physical distancing must be addressed. Some will not return for a myriad of reasons, including elevated risk factors for themselves or dependents, personal anxiety, loss of employment or the ability to work from home with ease and efficiency. These factors will serve to reduce employee density.

However, this does not automatically make workplaces suitable for returning employees to maintain physical distancing. Many shared workspaces were designed to maximize density, and these spaces will still be unsuitable for returning employees. It is estimated those office environments will lose 50% of their previous capacity. Workstations that are less than two metres apart, or those that face each other may only allow for every other workstation to be occupied diagonally to those across from them.

Reducing workplace density.

High-density workplaces also increase the demand placed on cleaning crews. Daily cleaning of elevators may still leave hundreds of people exposed to contaminated surfaces. The same for cafeterias and washrooms, meeting rooms and doors. Elevators, designed to hold many people in close proximity, will now have reduced capacity to one or two persons.

The increased use of aerosol disinfectants will inevitably give rise to respiratory irritation with increased exposure to harsh chemicals. Reducing the risk of contact contamination will have other side effects on human health.


Social distancing and work from home (WFH) have reduced public transit ridership to a mere fraction of its former use. It is difficult to see how social distancing and surface disinfection can be maintained on busses and trains. There are so many surfaces and hand-holds that are required for safety while standing or moving on these vehicles.

Will the risks of infection on public transit drive people back to personal vehicles? What impacts will this have on traffic congestion and parking in our cities? Will we see increased environmental impacts if more people choose to return to work using cars?

City planning

City designs may change to having wider sidewalks and pedestrian pathways to facilitate separation between people. This, of course, is much easier to write into building codes and city planning policies than it is to retrofit in existing infrastructure. There may not be enough space to accommodate both roads and wider walkways. One proposal is to reduce roadways in favour of broader pedestrian pathways while at the same time changing zoning regulations to permit a much greater range of mixed uses. The idea is to create mini-communities of residential, retail and office, and supply all within walking distance.

The concept of small communities where all necessary amenities are within walking distance is not at all new. In fact, before the invention of the personal automobile, that was the norm for all communities. It will be interesting to see a return to the old ways of city community design combined with online shopping providing worldwide access to goods. This concept could provide many benefits, including shopping local, reduced commuting and related environmental effects, a physically healthier population and a greater sense of community. All the while, helping reduce the spread of infectious diseases.

Reducing tactile surfaces

Workplaces contain an amazing number of tactile surfaces: light switches, keyboards, coffee and vending machines and serving utensils. Nearly every piece of office equipment has a button keypad. Handles are on everything: washrooms, closets, cupboards, entrances, drawers and cabinets. Humans use their hands for everything!

Sensor technology has enabled us to reduce the number of tactile surfaces we need to touch. Occupancy sensors have replaced light switches while simultaneously reducing energy consumption, and motion sensors have replaced faucet handles in washrooms. Fobs can replace keys and keypads for access systems. New technology is demonstrating that contactless holographic projections can be used instead of metal elevator buttons. While these systems can be expensive, the engineering difficulty is quite low for the implementation.

New contactless technology.

We will likely see a redesign of office equipment used by more than one person that further reduces the need for contact. Buttons on multifunction office printers/scanners/copiers may be removed and replaced by touchless technology or alternative processes. This may finally drive paper use down to near zero in offices, something that was predicted long ago that hasn’t happened yet.

Building design

Building codes invariably get more complex and all-encompassing over time. Over the last decade, the primary driving forces of change have been the reduction of building energy usage and internal environment conditions. Expect to see numerous changes to building design requirements and allowable capacities as a result of the knowledge gained during this pandemic.

Designing buildings for less touching and wider separation is possible. Many large facilities, such as stadiums and airports, have washrooms without doors by using winding entrances. For large buildings, the space penalty isn’t significant. However, the predominantly smaller workplaces simply do not have the space to rework the interior to meet those designs. It will be economically infeasible to reconfigure and rebuild many older compact layouts to meet the new standards. Add to that the reduced permissible occupant load and the market rents and value of older buildings will decline significantly. Low-valued buildings in good locations will lead to an increase in redevelopment. Combine these opportunities with changes in city planning bylaws and policies, and we could see significant progress towards the small community proposal outlined earlier.

Internal air quality will likely become a focal point. Already we see an increase in interest in HVAC disinfection systems through UV lights and better filtration media. With the increased use of aerosol disinfectants and airborne viruses, the number of air changes per hour will also be increased to improve the indoor air quality.

Internal traffic patterns

Traffic patterns within buildings have already been altered to prevent people from passing close or bunching up. This is accomplished through the use of arrows and spacing indicators in lines and waiting areas. Expect to see wider hallways or even unidirectional hallways and traffic patterns designed into new buildings. Mats with circles indicating personal space areas are already available and are showing up in office opening plans across Europe and North America. With separated workspace fixtures becoming firmly in favour, the purchase price of densifying office furniture is now steeply discounted. The pandemic regulations have reversed a decade long trend of workplace densification in mere months.

Reduced workspace densification.

What are your thoughts?

These are just some of the current thoughts on the changing workplaces in the near future. Doubtlessly politics, legislation, engineering, economics and human behaviour will play important parts in the developing story over the coming months and even years. While disruptive, the circumstances also provide the opportunity to innovate and improve. Let’s choose to be positive and use the forces that have been unleashed to make the world, our world, a better place for all. We invite you to add to these topics. What things did we miss? Are there other solutions that can address multiple facets simultaneously? Share your insights and join the discussion.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Remote asset management during COVID.

This is why COVID Makes Remote Asset Management Essential

Virtual offices, rent deferrals, building closures. As coronavirus sweeps the globe, property managers face new daily challenges in a rapidly evolving economy and remote work requirements. Companies that haven’t already moved to remote asset management are experiencing significant disruption and inefficiency.

How long this “new normal” will last is anyone’s guess. In response to COVID-19, local and federal governments remain fluid in rolling out relief and stimulus programs for small-to-medium size businesses. The Government of Canada introduced the Canada Emergency Commercial Rent Assistance (CECRA), which will lower rent by 75 percent for small businesses. In addition, the Business Credit Availability Program (BCAP) supports financing for Canadian companies in all sectors and regions. Comparatively, through the CARES Act, the U.S. Federal Government will send a one-time stimulus check to many Americans and make low-interest loans available to small businesses.

One thing remains clear – the pandemic has changed how we do business. Companies must understand their limitations and then act on that knowledge wisely and aggressively if they are to survive. Is your company positioned to survive? Is it possible to actually come out stronger on the other side of this current crisis?

Work-from-home technology, and empathy, enable you to care for your properties, staff and tenants safely and effectively. Here’s a look into how now moving to remote asset management can future-proof your property management business.

Take a page from history

Pivoting a business model in times of crisis is not new. It has long been an integral part of business innovation. Historically, during recessions and downturns, companies survive and outperform competitors when they invest in new growth areas and improve efficiency.

While it may be true that industry experts had forecast some turbulence in the markets, none of us saw COVID-19 coming. Then again, market disruption – while uncomfortable and anxiety-producing – generally creates opportunity.

Already we have witnessed companies quickly pivot to support immediate needs. Gap, Nike, Zara, Brooks Brothers and smaller manufacturers are using their factories to make masks, gowns and scrubs. On a smaller scale, some businesses have introduced new services and technologies to expand market reach.

Property managers, too, must pivot in real-time to deal with a rapidly evolving crisis. Businesses must ramp up with current technology to compete efficiently and support work-from-home staff and stakeholders. Now is the time to think fiercely about every resource available. Ad hoc responses won’t be enough. Property managers must implement new remote asset management tools and lay the groundwork for their recoveries now. How you restructure your business model will be crucial in optimizing solutions to problems that seem impossible to solve.

Why risk-averse leadership is reckless in a pandemic

Pivots generally bring significant risks, but strong leadership recognizes that the potential benefits outweigh the risks. Strong leaders see that paralysis in the face of danger can result in the most devastation. Indeed, it requires a unique type of leader to take risks during an economic crisis. The coronavirus pandemic is plunging the global economy into its deepest slump since the Great Depression.

When the situation is uncertain, human instinct can cause leaders to avoid action until the threat becomes clearer. But according to The New York Times, this means failing the “coronavirus leadership test.” Passing the test requires leaders to act in an urgent, transparent and consistent manner. All the while understanding that mistakes are inevitable and course correction is the best path to survival.

But where to begin?

You’re probably wondering which fire to put out first. This is an unprecedented time for a commercial property owner. From rent deferrals, to being unable to complete service requests due to shutdowns, to implementing new technologies – property managers have a great deal of stress on their hands.

However, the lack of strategic action only exacerbates disorientation. To start, carve out time to reflect on mistakes and take a long view at where you want to be post-pandemic. How prepared was your business to work remotely? Are there systems that could have increased efficiencies and productivity? How will your stakeholders see your business when this crisis is over?

Digital property asset and lease management is no longer a luxury

The stakes for digital transformation are higher than ever before. Property managers are being forced to consider contactless systems. Virtual business systems have become the most logical choice and, more importantly, the safest choice.

Property owners already leveraging integrated systems are far better equipped to respond to the rapidly changing market. Unfortunately, those still living in the digital dark ages will be left behind. Let’s take a deeper look at how property management software can increase efficiency in times of crisis.

Remote asset management and document sharing

At this point, the pandemic lockdown has likely exposed the shortcomings of entry-level software – or even worse manual workflows. Handwritten invoices and property details in filing cabinets make document sharing difficult on a good day, let alone amidst a global war against infectious disease.

Landlords face the challenge of responding to uncertain owners, accountants, realtors and tenants quickly, safely and accurately. All the while, they are juggling the collapse of customer demand, significant regulatory changes, supply chain interruptions, unemployment and economic recession. Fragmented, inaccessible data management is just another critical problem to solve.

With revenue dropping and budgets getting tighter, fewer people must do the same work as before. The new reality is, working from home now must be more efficient than working in the office was previously.

Online business systems give you instant access and control over your data. Centralized data storage is critical for tracking and moving information while providing a holistic view of records and the transition of people and properties. It is the only way to efficiently access information at all levels and in all areas – without the worry of passing paperwork by hand. CRESSblue significantly increases efficiency and supports remote working. It enables your company to be more productive than ever.

WFH must, and can, be more efficient than before

With CRESSblue, your team can seamlessly work from home or the office as needed. To illustration, one at-home worker can enter an invoice while another can review and approve it for payment – all without being in the same building. The right technology is now a lifeline for businesses.

Keep digital security concerns at bay

The pandemic has made it harder for companies to maintain security and business continuity. With work-from-home orders at an unprecedented scale, executives must prioritize initiatives to safeguard sensitive information.

Information sharing through excel and email only increase the risk of security leaks and human error. Cloud-based solutions can make it easier for staff to work remotely because they can be implemented faster than on-site systems. Also, software systems with configurable user restrictions will allow you to control both viewing and editing permissions. CRESSblue is a cloud-based software with role-based permissions for each user type. It enables you to distribute documents and be confident knowing your data is safely centralized and backed up.

Now is the time to automate complex calculations

Economists warn that it may take years to recover from the COVID-19 lockdown financially. Therefore, executives must maintain strict discipline in monitoring cash-flow with special attention given to capturing and collecting receivables.

There are emerging government exemptions and refunds available for companies aiding in the prevention and treatment of the epidemic. For example, in compliance with infectious disease control, multi-unit building owners may be required to invest in changing building security systems from a keypad to a touchless key fob system. If contributions to these types of leasehold improvements are rolled into the rents, the capital expenses should be clearly identified in new/renewed lease negotiations and in calculations to avoid paying income tax on money that isn’t really revenue. We covered more about leasehold improvements in a previous article.

Asset management software automatically captures recoveries

With the right asset management software capturing recoveries can be easy. Capital costs can be automatically classified and added to the building capitalization. Along with the appropriate depreciation values for annual tax returns and financial statements.

Let property management software do the math

While the coronavirus lockdown holds grip, landlords can expect to see more vacancies, tenant changes and rent exemptions. Multi-tenant property owners must prepare now for increased complexities when it comes time to calculate the proportionate share of CAM expenses.

Let’s consider a scenario in which a first-floor tenant in a multi-tenant office building institutes work-from-home orders, leaving their space vacant. In this hypothetical example, tenants on the second floor remain operational. Naturally, vacant spaces will have lower water and heating/cooling costs. Expenses are allocated to those tenants based on proportional areas, but now the usage varies widely for the period covered by the invoice. Work from home policies are creating vacancy-like conditions for calculating fair and accurate expense allocations. Imagine trying to track and reconcile intricate expenses and invoices on spreadsheets? Not a very efficient use of time.

Commercial software, such as CRESSblue, can automatically calculate the proportionate share for each tenant including occupancy/vacancy expense gross-ups and provide an audit trail for each invoice. This one-stop-solution will increase efficiency in your business and ensure nothing is overlooked. Perform complex calculations with automated actions that do the work for you – quickly and accurately.

Customers will remember how you react during the crisis

The best way for property managers to protect their revenue is to provide superior customer service, despite catastrophic circumstances. As we learned earlier, coronavirus leadership requires one to behave in an urgent, transparent and consistent fashion.

Consequently, it might be time to step-up your accounting game. Scrambling to gather invoices and lease agreements and amendments will only delay delivery, increase stress and leave room for error. An automated accounting system, like CRESSblue will increase reporting speed and accuracy for anxious stakeholders. What’s more, its internal audit capabilities can prove that accounting documents comply with the lease documents terms. In turn, the company can be confidently transparent in its dealings with tenants and prompt with auditors.

Plan for recovery now, not later

The COVID-19 crisis was impossible to exactly predict. But all crises contain the seeds of opportunity. The question is not if we can avoid uncertainty and crisis. That has already happened. Seeing that that disruption has already been forced upon us, what positive changes will we apply that driving force to?

Leaders must take action during a crisis with recovery in mind. Think broadly about where you see your property management business once the dust settles. More importantly, how do you want your investors and customers to see your business?

There is some speculation that this crisis may last for a year or more and may reoccur in the future. Post-pandemic, some people may need to continue to work from home at least part-time. How will you adapt if laws are passed requiring more space between work stations, but you don’t have more space available? What if key talent requests to continue to work from home 1 or 2 days per week? How will you ensure your company is capable of expanding and contracting as needed? Companies that are flexible and agile are the ones that can thrive during change.

Remote document management protects during this and future crises

Now more than ever, there is the need for innovative ideas and solutions to tackle unprecedented problems. It’s important to remember that technology-driven change and digital disruption are here to stay. When the crisis is over, it will be clear which companies have the resilience and agility to reshape their business model to thrive in the future.

Remote asset management is here to stay

You know it. We know it. The old way is no longer good enough in this new reality. Not quickly adapting is too risky and costly. Be the company that survived, no, thrived in the pandemic. When they ask in the future, tell them, yes, we survived AND grew. Your company and leadership will be more valuable than it was before the crisis.

CRESSblue can help you streamline your productivity and bounce-back stronger than ever before. Book a demo for a guided tour through the automated, time-saving features. It only makes sense to use a system that lets you do more with less when it matters the most.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Commercial net leasing 101 terms and definitions.

Commercial Leasing 101: Here are the Industry Terms You Should Know

Whether you’re a first-time investor or a veteran looking to brush up on your commercial leasing terms, we’ve got you covered. This article defines the various lease agreements and industry jargon to help you better understand what they mean to landlords and tenants – and the relationships between them. In the simplest terms, a lease agreement is a document that lays out the allocation of risk and responsibility for the use of property in exchange for money. Now, let’s dig into the terms and definitions.

Gross lease vs. net lease

There is no one-size-fits-all approach to commercial leasing. Lease agreements between landlords and tenants can take many different forms. To start, let’s define the difference between a gross lease and a net lease.

Gross lease

A gross lease is a lease in which the landlord pays all (or most) expenses associated with owning and operating the property. This ‘all-inclusive’ lease agreement is sometimes perceived as the most tenant-friendly lease type as the tenant can budget for a regular flat fee. However, the gross lease may be higher than necessary in order to protect the landlord from cost increases over time.

Most often used in office buildings, industrial and some retail properties, a gross lease eliminates tenant responsibility for the variable expenses associated to the property. Typically, gross leases are easier for small spaces, very short lease terms or unsophisticated tenants where convenience is paramount. However, there are instances when an overconsuming tenant may be on the hook for overage charges. For example, if a tenant exceeds electricity consumption beyond building standards, additional fees are often charged back to the tenant.

So, what is a net lease?

A commercial net lease, or N lease, is a lease agreement in which the tenant pays base rent plus additional expenses such as insurance premiums, maintenance costs and property taxes.

From a landlord’s perspective, the advantage of a net lease is that it offsets the variable costs of property ownership to the tenant. For example, if property taxes increase by 2% next year, it is the tenant’s responsibility to cover the additional rate in a net lease arrangement.

At the same time, net lease agreements can also be risky for the landlord if the tenant is responsible for making all the net lease payments. Let’s imagine the tenant fails to keep their property tax payments up to date; this may result in additional fees and fines that the landlord is responsible to pay. Even public utilities are often charged against the property title if the tenant defaults on the payments, resulting in an additional surprise for an unaware landlord. Therefore, most landlords prefer to file their own property taxes to ensure payments are made on time and in the correct amount.

Net lease tenants typically have the advantage of lower rental rates than that of a comparable gross lease. This is true even when factoring in the taxes and other operating expenses. Since the tenant is accepting a higher risk level, the compromise is that the commercial leasing landlord accepts a slightly lower income in exchange for consistency.

A gross lease versus a net lease.

Single, double and triple net leases

Let’s dive deeper into the different types of net leases. As a disclaimer, it’s important to note that net lease terms are often used interchangeably. Commercial leasing landlords and tenants will want to avoid making any assumptions based on how a lease is characterized. Lease documents should always be carefully reviewed to understand the obligations and the expenses for which each party is responsible.

Where net leases can differ is dependent on how the operating costs and expenses are allocated. This presents landlords and tenants with an array of choices for various scenarios (we’ll cover more about operating costs a little later in the article).

There are three basic types of net leases: single, double and triple net.

Single net lease

Single net lease properties are the least common of the bunch. In these leases, the tenant is responsible for paying base rent, plus all or a portion of the property taxes. In these leases, the tenant becomes responsible for the property taxes, whereas all other expenses such as operating costs, maintenance costs and insurance costs are managed by the landlord. Usually, tenants with a single net lease pay a lower base rent because of the added responsibility of property taxes.

Double net lease

Double net leases, also known as net-net or NN leases, is an agreement in which the tenant pays the property taxes and insurance premiums in addition to the base rent. All other expenses, such as maintenance and repairs, are paid directly by the property owner. Most commonly used in commercial real estate like shopping malls or expansive office complexes, landlords will charge double net lease expenses proportionally to the size of the leased space. A single or double net lease may also be called a semi-gross lease.

Triple net lease

A triple net lease removes the landlord from the equation entirely, as tenants pay most if not all property expenses. Much different than the ‘all-inclusive’ gross lease agreement, under a triple net lease the landlord is ‘hands-off’ as the tenant is responsible for all property taxes, insurance, maintenance and repairs in addition to the base rent.

Historically, triple net refers to leases where one tenant rents an entire commercial building and pays all property expenses for a longer-term (ten years or more). As leasing practices have evolved, the term triple net lease now also describes leases for a multi-tenant building where each tenant pays its proportionate share of expenses.

The types of commercial net leases.

Single-tenant and multi-tenant leases

By now, hopefully, we have demonstrated that commercial real estate can offer opportunities in a variety of arrangements. Whether an investor is looking to establish a single-tenant net lease property or a multi-tenant net lease property, both types of options have their pros and cons.

First, let’s enhance our understanding of single-tenant and multi-tenant net leases.

Single-tenant net lease

A single-tenant net lease is a rental agreement between the one sole occupant of a space and its owner or landlord.

Due to their simplicity, single-tenant net leases are often a good fit for first-time commercial leasing investors. With only one tenant to attend to, the property investor encounters less of a burden in comparison to managing the needs of multiple tenants. Imagine a scenario in which an investor has a single-tenant agreement with a triple net lease; the landlord could be alleviated of almost all property obligations.

Of course, investing in a single tenant property heavily relies on the quality of one sole tenant. The investor’s primary source of income significantly depends on the occupant’s financial contribution. If the tenant unexpectedly vacates, there could be detrimental financial and maintenance implications the longer the property remains unoccupied.

Multi-tenant net lease

Comparatively, in a multi-tenant net lease the odds of total vacancy are very low. A multi-tenant net lease is a lease between a landlord and a tenant where there are also other lease agreements within the same building complex, typically in a larger commercial retail property.

Investors might favour a multi-tenant property because they prefer to manage several units simultaneously instead of several individual projects. Contrarily, it may increase duties as multi-tenant buildings usually require more structural maintenance and repairs, and additional provisions to consider.

Retail lease agreement: common clauses

Retail lease agreements have various provisions to ensure both landlords and tenants are protected. The following terms are just the tip of the iceberg when analyzing the multiple permutations that can inform a retail lease agreement.

Retail anchor tenants

For many retail tenants, success is dependent on their neighbours. Anchor tenants is a term that refers to the key retailers that play a critical role in bringing crowds and human traffic to malls. Landlords are very likely to provide favourable rental rates and terms to anchor tenants, as they help sustain the business of smaller retailers.

In some leases, an anchor tenant agrees to a “continuous occupancy clause” which is a provision in a lease that requires the tenant to stay open during specified hours and operational throughout the period of tenancy.

Strength in numbers

Another negotiable lease agreement provision for retail tenants is the “go dark” clause. Under the go dark clause, tenants can stop operations in an unprofitable space while still paying rent for it. A tenant may choose to go dark for a few hours, days or weeks. They may wish to focus their resource on more profitable locations, or they may need time to overhaul the space decor.

Consequently, if anchor tenants or multiple anchor tenants leave the retail space, it is likely to result in a drawback of foot traffic and less business for the remaining tenants. Thus, the need for a co-tenancy clause. A co-tenancy clause is a retail lease provision which provides the tenant with protection in the form of reduced rent to compensate for traffic loss.

A provision that is advantageous for both property owners and tenants is known as “percentage rent.” Simply put, percentage rent is additional rent paid by the tenant based on a percentage of gross sales. The idea behind percentage rent is to give the owner the opportunity to negotiate the placement of a retailer in exchange for a percentage of their sales. If a tenant is experiencing periods of slower sales, the rent adjusts lower to accommodate the lower cash flow the tenant is experiencing. It provides a method to make the rent representative of the value the space has to the tenant over a wide range of profitability experiences.

Percentage rent, operating costs, capital costs and CAM fees

Now that we have a baseline understanding of the various lease agreements and clauses, we’ll conclude by exploring different lease expenses and how they are calculated.

How is percentage rent calculated?

With a percentage rent lease, a tenant must first pay a minimum rent. Once gross sales surpass a specified mark known as a ‘breakpoint’ the tenant is required to pay the owner a certain percent of every additional dollar in sales as additional rent. The percentage rent is often estimated and reconciled on a monthly or annual basis and may be averaged over a period of time. In some cases, the percent is industry standard and isn’t subject to much negotiation.

How percentage rent is calculated.

Natural vs. artificial breakpoint

The breakpoint is an important negotiated method, as there can either be a natural or artificial breakpoint.

A natural breakpoint is calculated by dividing the base rent by an agreed percentage.

Whereas, an artificial breakpoint may be determined by the bargaining power of the parties or specifics of the transaction. For example, a landlord may negotiate a breakpoint below the natural breakpoint, while a tenant with more clout may be able to negotiate a higher breakpoint.

Operating costs

Operating costs are common expenses that are paid frequently as they are necessary to operate and maintain a property. As noted throughout the article, operating expenses are often tacked onto a lease agreement in various forms. Some examples of operating expenses include property taxes, property insurance, maintenance expenses, utilities and administrative expenses. Operating costs do not include capital expenditures, debt or amortized cost recovery.

Capital costs

Unlike operating costs that are frequent and relatively low-cost, capital costs in a commercial lease are intermittent, expensive upgrades to the property that provide long term value. Some examples of capital costs include the installation of a new security system, a new parking lot or HVAC repairs.

These expenses are paid by the landlord and then amortized over a period of years. Some leases allow these costs to be recovered under specific conditions and over a period that is specified in the lease agreement. Typically, the amortized amount is charged monthly along with the rent and additional rent on an invoice for a specified period after the first replacement has occurred.

Common area maintenance

Common area maintenance charges, also known as CAM expenses, are the fees paid for the upkeep of areas designated for use and benefit of all tenants in a shared space. CAM expenses are common in multi-tenant lease agreements such as shopping centers and can include charges for parking lot maintenance, snow removal, utilities and more.

There are two basic calculations for CAM fees: variable CAM fees, where the amount charged to the tenant can vary based on expenses that may fluctuate monthly, and flat CAM fees, where the fees are a fixed amount.

CAM cap refers to the maximum amount for which the tenant pays its share of common area maintenance costs, and the owner pays for any CAM expenses that exceed that amount. For larger shopping centres, the anchor tenants may negotiate a flat CAM rate or CAM cap, and the remainder of the tenants will proportionally pay the balance of the CAM charges.

Optimal commercial leasing

The best way to understand the ins and outs of commercial leasing and manage optimal lease terms is to work with a team of experienced professionals, including realtors, lawyers, accountants and tech partners. When it comes to calculating complex multi-tenant expenses, leveraging property management software like CRESSblue can help commercial leasing landlords automate cost-recovery calculations for more accurate and professional results. CRESSblue is designed and backed by experienced commercial real estate professionals. This specialized net lease software efficiently handles custom leases for various unique circumstances – from multi-tenant to single-tenant, or any combination in between.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

Formalizing processes for maximum wealth with asset management software.

Formalizing Business Processes with Asset Management Software for Maximum Wealth Creation

Small landlords with just a few buildings own most commercial property. Often, these landlords share a similar pathway to becoming landlords. Initially, they purchase real estate assets for their business operations. Over the years, they add a few more properties as their business and personal wealth increases. Their idea is to use real estate assets to diversify their investment portfolio, but their original business operations remain their primary interests. The property acquisitions are of secondary importance, valued as passive investments and loosely managed. They haven’t yet invested in asset management software.

And therein lies an important – and costly – gap. 

The fact is, there is a significant difference between real estate and other forms of investing. Financial investments such as stocks, funds and REITs have people that can manage all aspects of the investment independent of the owners. Real estate, on the other hand, is more like a business than a simple financial instrument. Commercial real estate is much more complex and requires active management by a variety of professionals, as well as dedicated asset management software and systems, to achieve full yields. It’s worth it, though, as correctly managed real estate can potentially provide higher returns than the other investment types.

What is an informal landlord?

Let’s get clear on what an “informal” landlord is. It’s not about size. The informal label refers to the management style. For example, a large company might lack formal procedures and comprehensive data management. Meanwhile, a smaller property management company might run with precise data control and efficient vertical integration. In this scenario, the larger company is actually the informal landlord.

Your team of industry professionals is vital

Every business uses industry professionals to meet the need for particular expertise and licensing. Small and even mid-sized companies rarely have all the required professional associations represented internally. Licensed professional agents and brokers assist with securing the best commercial real estate lease opportunities. Lawyers draft and review lease agreements that provide the best protections. Accountants prepare essential financial statements and file the annual corporate taxes. Property owners contract these external specialists when required and often view them as long-term, trusted business associates.

Professional engagement with external PM industry experts opens you to better opportunities.

But these industry professionals can’t replace you

These professionals are essential in the success of your property management business. But they can’t provide the kind of central leadership that maximizes your wealth creation. Only the business owner can meet the business responsibility to lead, ensure the use of proper asset management software and processes and bind all these various responsibilities together. If the real estate is being passively owned like an investment rather than a business, the generation of wealth will be limited.

How the informal management style limits your wealth creation

Let’s peek inside the operations of a hypothetical (but very common!) informal landlord. We see that the owner has internal staff that run the primary business. With the acquisition of properties, they inherit the added responsibility of administering the daily operations of the properties. None are specifically trained or experienced in commercial property management.

Sure, this has immediate cost savings in terms of paid labour. Unfortunately, it creates far greater losses in other areas, to the point of making the investment neutral or even a loss to own. Moreover, the informal landlord may have no idea how their properties are actually performing. How could they? A line or two in the business annual financial statements contain no relevant information on the state of the property management operations. 

Some losses incurred by the informal landlord include incorrect calculations, costly administration and audits, and lost recoveries.

So, what are these great losses that the informal landlord is suffering? Let’s now consider each of the key gaps that exist in informal real estate management. (We assume that our readers have some experience with owning commercial property. If you are new to commercial property ownership, you can read about the basics here.)

Let’s talk about CAM slippage

The primary factor in the annual performance of commercial real estate is the handling of the operational costs for the property. For the informal landlord, the problems with recovering costs occur long before the calculations start. The biggest issue is trying to make sure the invoices for the year are all included. Often significant recoverable expenses are simply overlooked. Even some as large as the property taxes – which typically comprise most of the additional rent amount – are missed. 

Dedicated asset management software, such as CRESSblue, prevents missed recoveries in two ways. One, the invoices are tagged to the property and tenant when they are entered for payment. That means nothing is overlooked. There is no hunting for the expense documents when it’s time to do the year-end annual reconciliation. There is no mad scramble when lenders or governing bodies request reports. Two, the software automatically performs the calculations. With this kind of professional system, there are no miscalculations or missing expenses that result in slippage.

Knowing who pays

Aside from missing invoices, there are a few other ways legitimate CAM expense recoveries go missing on the statements. Invoices often have poor work descriptions. They also can have mismatched addresses, where the tenant name doesn’t match the unit number. Nearly a year later, can the person doing the reconciliation remember what the invoices were for? What happens to invoices where you cannot figure out whose CAM statement they belong on? They get left out of the calculations to avoid embarrassing questions from the tenants. It feels safer to forget about them rather than respond to questions over poor paperwork. 

Knowing which expenses are recoverable

Another common problem in an informal system is the separation between the various parties involved in business operations. The property owner decides on the maintenance work to be done. The company bookkeeper, although skilled in the primary business activities, often has little or no experience in commercial property management. 

That person rarely has access to the leases or understands the legal language. Who interprets what expenses are permitted to be recovered based on the lease agreement terms? Small landlords rarely have skilled internal staff that commercial leases require to make this type of decision and effectively manage the business. 

Sure, successful property management comes with procedural and document complexity. But the right asset management software makes it much easier. Alternatively, ignoring the entire issue and neglecting proper data management because it just looks too complicated results in significantly reduced potential return on the investment.

Knowing how to split shared costs across multiple tenants

Even if the invoices clearly describe the work and where it was done, further complexity lies ahead. Proportional expense allocations for multi-tenant properties can be complicated, especially when there are renovations, vacancies, tenant changes and a variety of free rent exemptions during the budget period. We won’t get into the details of how to calculate the proportional cost allocations for multi-tenant properties here. We covered that in another article.

The right asset management software makes expense allocation easy 

Dedicated asset management software makes a huge difference here. Vendor accounts can be linked to specific property locations. This is especially useful for accounts that never change, such as utility accounts. It also provides significant time savings as well as eliminating the potential for allocation errors. The software can automatically calculate the proportional share of the expenses for each tenant based on the premise’s areas. 

Going one step further, CRESSblue software will screen the expense allocations for eligibility as defined in each lease setup. The combination of the linked vendor accounts, automated calculations and lease screening eliminates all losses previously incurred from those sources. These losses alone are often three to four times the annual costs for the software, making the financial decision an easy one. 

Keeping track of lease dates

Rental increases

Most commercial leases have provisions for rent increases during the term of the lease, either specified step-up amounts at various intervals or annual adjustments for inflation tied to a consumer price index. These rent increases are often applied late or missed entirely. Without a system to provide notifications about upcoming rent adjustments, the same rental invoice goes out each month without anyone checking the leases left in a filing cabinet. Good luck trying to collect all that missed rent when the lease term has expired, and someone finally notices the initial rent was never changed. 

Lease management

Aside from missed rent money, how about letting tenants and realtors know when the lease term is up? What about notifications about upcoming extension options? Proper commercial asset management software has all these features built-in, providing timely lease management notices to landlords and tenants alike.

Knowing where stuff is

Document management is another crucial feature of any professional business software solution. It is easy to add documents to a tenant’s records library, as most documents are exchanged digitally now. Combined with online software services, anyone who needs access to the documents can do it at any time. Property records are handled the same way, with drawings and tenant fit-up specifications available for the realtor listings and maintenance personnel. Online document storage means you no longer need to remember to look something up when you get to the office as you have access anytime and anywhere. You can also send copies to your lawyer, accountant; you get the picture. Documents are there, and they are available.

Letting people know

Of course, good commercial asset management software solutions provide multiple user roles. With CRESSblue, it isn’t one-size-fits-most. The access and editing rights of each role are customizable. A large company can establish access parameters for roles such as building managers, property managers, portfolio managers, regional managers, asset managers, capital expense managers, department managers and division VPs. A smaller company will have most of these positions vertically integrated into a handful of people and can assign accesses accordingly.

Remember those transaction records your accountant wanted to see? You don’t need to send them; they can log in and get what they need. Customization is standard, with specified roles and permissions giving advances in efficiency other methods can never achieve.


If only you had professional reports! Perhaps it would save some time on the telephone, trying to explain what you meant on that annual statement you had sent over to your tenants. What is on a “standard” statement anyway? What do other landlords have on theirs? These are common questions, and they indicate that you could use professionally laid out statements and standardized reporting.

Keeping lenders happy

While we are talking about reporting, what about the property rent rolls and operating statements your mortgager asks for every year? Commercial property management systems also instantly generate those. Property reports are also useful for getting insurance quotes. 

Say no to avoidable loss

None of the above is news to anyone who has worked in property management. At one time or another, most of us have experienced at least one of those slip-ups. Commercial property leasing involves large sums of money, and any mistake, whether accidental or deliberately taking losses, is costly.

The larger the informally-managed PM portfolio, the greater the total loss.

As odd as it seems, informal landlords normally accept recoverable expense losses every single year! Those losses are typically several times more than it would cost to implement a professional commercial software system. 

At some point in the decision to purchase commercial real estate, consideration was given to the investment potential of the property. How does an otherwise successful business person end up taking avoidable losses on their real estate investment year after year?

Understanding systems inertia

Small commercial landlords typically acquire their real estate portfolio scale later in life. Understandably, they do not want to invest significant time in learning an entirely new industry at the time they would be expecting to enjoy the rewards of their business growth and investment wealth strategies. 

The business systems of their primary business now serve secondary duty as real estate management systems. This is despite the fact that they are clearly inefficient and ineffective for that purpose. Perhaps the landlord doesn’t know the scale of loss. However, the recognition that it isn’t working well is no mystery to anyone.

Effective and efficient enterprise-level business systems able to automate critical business functions require quite extensive initial setup. Any business system looking to provide software services to smaller landlords must also include a significant amount of the initial setup as part of the package deal to ease clients through that transitional period. Look for a software company that is relational rather than transactional in the sales process. The days of boxed asset management software are long gone. Today’s software continually receives upgrades and updates. Your solution provider should be a business partner with an ongoing support relationship. 

Professionals want to work with other professionals

Compounding the above-mentioned risks is another significant gap for informal landlords not using professional commercial business systems. As we touched on, your commercial property management company relies on external industry professionals that offer unique expertise. The main three main types are realtors, lawyers and accountants. To be confident in the performance of their responsibilities, each needs specific types of information. Giving them what they need, how they need it, lets them spend their time more efficiently, opens you to better opportunities to which they have access and improves your credibility with them.

What real estate professionals want from landlords

Real estate professionals want their landlord clients to have information available and accessible. They need to know:

  • That the landlord has the lease agreements, is familiar with them and adheres to them
  • They are getting timely notifications of lease terms expiration, extensions options and new listings
  • The policies for the property, such as signage, security, waste handling and package deliveries 
  • The specifications on the premises, such as:
    • Supplied utilities like heating and cooling, electrical power and communications
    • Door sizes, numbers and types; and dock levellers
    • Zoning, permitted uses and prohibited uses
    • Exterior storage
    • Hours of operation
    • Drawings, space designs, space layouts and finish schedules

Having accurate and current information readily available makes the realtors work much easier. People like to work with other people that reduce stress and required effort. Be one of those people.

Realtors also look at potential landlords’ professional standards to see if they will impact the realtor-tenant relationship. This is especially important if the tenant is a national or multi-national client, and there is an opportunity for repeat business. Landlords that fail to meet professional standards for accuracy, timeliness and reporting create lost opportunity. The tenant account may go to a competitor if the tenant feels the realtor misrepresented its interests in a deal.

Missing out on high-value tenants means the landlord must take higher risk tenants. National and multi-national tenants have good covenants. They are low risk for defaults and pay their rent on time. Missing out on the opportunity to attract these kinds of tenants significantly increases the landlord’s overall default risk. For a landlord with a small portfolio, this can wipe out the returns on the real estate investments for an entire year.

What lawyers want to see

Lawyers like clients that, at the very least, know where their legal documents are. Do you know what is even better? Clients that operate within the scope of their agreements and meet their commitments. 

What is the area of highest tension between landlords and tenants? Operating costs. Defaults are rare. So are insurance claims. But everyone constantly deals with operating costs. No one enjoys conflicts over which expenses are legitimately charged back to the tenants.

This is where CRESSblue makes a notable difference. The terms of the operating expense recoveries in the lease agreement exist in a logical framework for processing expenses. The lease moves from being a static document in a filing cabinet to an active system automatically applying and adhering to the commitments made by the landlord. Any changes to the original lease setup automatically trigger a flag for review, so nothing slips by unnoticed.

If you want to avoid conflict over expense recoveries, put a system in place that automatically makes the best practices your default workflow.

What accountants need to know

Of course, all accountants want to see complete and accurate accounting. Rental income and expenses are the core of every financial statement, and CRESSblue links those to the tenant and property. External accountant professionals preparing financial statements under a review engagement commitment for a client will want to see the documentation for anything that creates a significant change to the balance sheet.

CRESSblue has a complete asset management capability with the ability to track assets and associated equipment. It also has fully customizable capital cost allowance functionality to track depreciation per federal and provincial or state regulations.

You create capital assets in the property database. In addition to calculating and tracking depreciation for tax purposes, you can link properties to individual leases. If the lease agreement permits capital cost recovery, the software can automatically add them to the expense recoveries similar to the operating expense recoveries.

Information access is greatly simplified for external accountants. As CRESSblue is an online application, accessing the data live from the server is simple. Depending on the level of service provided, access can be read-only or include full editing rights. Accounting review engagements requiring data verification and validation have never been so easy.

Formalizing property management for maximum wealth creation

Only you can effectively fill the responsibility to lead in the management of your property portfolio. Owning real estate investments is not as simple as holding a stock fund. If you view your real estate as a passive investment rather than a business, your potential wealth generation is lower than it could be. These case studies demonstrate how formalizing property management with better business systems results in significant gains.

Formal property management systems optimize wealth and professionalism.

Through your leadership, you can upgrade your operations with industry-specific software that delivers business systems and automation that encompass the full scope of commercial property management. This brings incredible efficiency to your business, in addition to control, accuracy and professionalism. Moreover, CRESSblue allows your internal team to manage your business with surprisingly little ongoing input from you. Professional operations and reporting are attainable by any landlord, big or small. Maximizing your wealth creation is within reach. You need only to decide to be professional.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

Follow me on LinkedIn

Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.

When to make the leap to new commercial real estate investment software.

New Commercial Real Estate Investment Software – When to Make the Leap

What factors hold you back from making decisions on new business systems? Have you been holding back from upgrading to commercial real estate investment software? Let’s take a look at the common causes of inaction and how to address those fears.

The case for leaping forward with specialized commercial real estate investment software

Without a doubt, there has to be justification for transitioning to new business systems before arguing when to make the transition. To that end, we have previously made a case for new business systems. Not utilizing the right tools can strangle a business, severely reducing responsivity and profit. Interestingly, Forbes Technology Council lists 11 signs your software is due for a major update. Let’s dig specifically into the key reasons you should move forward with commercial real estate investment software designed for your business.

Centralized business data

Centralizing data collection allows for quality control.

Sources of data are everywhere now – in leases, abstracts, offers, contracts, agreements, invoices, term sheets, building operations and many others. The issue isn’t the quantity of data that can be collected. Instead, the issues with data collection and use are:

  • Data quality
  • Data integrity
  • Data aggregation
  • Data control
  • Data assimilation
  • Data dissemination

Data quality

Quality data can only exist with accurate and reliable collection. Further, the data must be relevant and suited for individual transactional use. Furthermore, the data must be qualitative and not just quantitative.

Data integrity

Data integrity involves encryption and user security controls in the software itself. What’s more, data validation can be done utilizing incremental change tracking for irrational or outsized changes (i.e. upon entering a 10% rent increase when the typical rent increase is 1% to 5%). Another method is to set data input limits for the expected values. On the human side, there are data governance policies to ensure that the data is collected and maintained accurately and consistently. More than that, though, the reliability of the data must be verifiable. This means that the source materials need to be readily available, typically in a digital format. It isn’t enough to have a spreadsheet of aggregated data. Unquestionably, the source documents must be accessible to verify the aggregated data.

Data aggregation

Data aggregation (collection and organization) from disparate sources must be done consistently through the use of systematic processes and repeatable workflows. Individually created spreadsheets are demonstrably the worst means of collecting and collating data due to the single user creation and the inability to display verifiable data sources. The consequences of segmented data can be devastating. For example, one property management company and its tenants discovered that it had erroneously overbilled for years:

Location 1
Original Square Footage171,422
Actual Square Footage157,568
Overpayment Over 53 Months$170,047.11
Location 2
Original Square Footage41,960
Actual Square Footage36,634
Overpayment Over 53 Months$120,239.84
Total Overpayments $290,286.95
Paper systems leave much room for human error and mismatched data, as demonstrated above. The consequences can be crushing to both reputation and cashflow.

In contrast, compare a spreadsheet of data to a database where every number links to a digital source document for verification purposes. In addition, each number that exists in isolation in a spreadsheet directly links in a database to the tenant, premises and accounting transaction history. Together, the aggregate data presents a total, accurate picture.

Data control

Setting controls on the data are critical for two key reasons. One, the data is now much more valuable in its curated form that it was in the various disconnected sources. Two, no one user should have singular control over the data. This is important both for maintaining the quality of the data and for preventing internal fraud.

Data assimilation

With the collected data now in a consistent, verifiable manner, a sophisticated Software-as-a-Service (SaaS) solution will assimilate it into the relevant areas of the business decision-making process. The data is collected once, curated and then made available for all. These unified data sets enable consistent business decisions. Siloed data systems with multiple duplicate data entry points, on the other hand, lead to inconsistencies in both the data and decisions based on them.

Data dissemination

The final step for the effective use of data is to disseminate it to the right people at the right time. Accessibility to the central data repository is key to making use of the data while it is current. The speed of access is vital to decision-makers and stakeholders, enabling them to respond faster to changing conditions or make changes to stagnant positions.

The centralization and control of quality data is likely the most significant immediate benefit you will realize when switching to a commercial business system.

Increased business knowledge through integration

Commercial real estate investment software made specifically for your business gives executives and managers access to a much more complete set of data. Centralized business systems provide access to all data sets simultaneously. They do not rely on individual departments making data available on scheduled intervals, such as monthly or quarterly reports. Not only do decision-makers have better data faster, but they also benefit from specialized insight and reporting tools. This makes for much quicker analysis and leads directly to more accurate and timely decisions.

Vastly improved efficiency

Business workflows and tools built into the systems benefit from standardization in all areas. This includes data entry and processing, allowing multiple users to enter data while the system processes that data independently of the user. Old-school spreadsheets hold individual user data inputs until they are blindly handed over to the next person. Additionally, paper-based systems leave room for messy documentation, like this illegible lease document:

Lack of legibility in this paper document created a billing nightmare for the companies involved.

SaaS-based, commercial real estate investment software, on the other hand, allows multiple users to enter clear data that is immediately available to all relevant users. Moreover, your team benefits from standardized data input forms and consistent reports.

Better investment returns

Obviously, another primary outcome of all the business process improvements is ultimately to increase ROI for the company. This objective is easily achievable in conjunction with improved work systems for all the staff when using enterprise-level, dedicated business solutions.

The impact of increasingly sophisticated tenants

Landlords aren’t the only ones with access to large amounts of data. Tenants are increasingly switching to more intelligent business systems. Larger tenants that have desirable lease covenants use sophisticated lease analysis software. What’s more, they demand more transparency from landlords on the CAM cost allocations and calculations. Landlords that do not meet the requirements of these tenants will find a shrinking pool of tenants willing to do business with them. Landlords using commercial real estate investment software have the clear advantage.

Existing systems and sunk costs

You’ve made it this far in the reading and understand the case for better systems. But you purchased software licences for other systems. Although you haven’t been able to meet all of the objectives you had hoped for initially, you haven’t fully amortized those costs. Perhaps you should wait until those costs are used up?

The costs for anything unrecoverable are known as sunk costs. It is a fallacy to allow those costs to influence new decisions. They cannot have any impact on the future because the spent funds will not change now or later. Draw a line under them and start fresh in your decision process. All that matters now and going forward is whether a new system will have a positive outcome on the business or not.

The fears (you’re not the only one who has them!)

How much will it cost? Purchase cost and ongoing licencing fees

The initial cost of enterprise-level systems is a shock to many just starting in the quest for better business workflow. Financial cost considerations often overshadow the financial benefits so much that fear petrifies the buyer, or they turn to software that costs almost nothing upfront.

Software system costs vary greatly. Why does some software hardly cost anything, and others charge so much? The difference is in the capability to save or even make money through efficiency and sophistication. The case for business software is financial on one side offset by the significant ROI that purpose-built industry solutions for commercial property management can achieve.

The cost of change - initial software cost versus annual cost savings due to efficiency gains.

How do you know what you can achieve? For one thing, book a demo of the commercial real estate investment software. Indeed, do more than one demo and focus on each group of users to see the workflows and interaction between departments and management levels. Have your decision team see and understand how the system works for your specific case.

How hard is it to set up? Implementation, training and deployment costs

The fear here is that setup will require a serious time commitment from the existing staff who still have to use legacy systems while doing the setup work. Where will the extra hours come from? Will there be overtime wages? When can we schedule all the extra work? How much resistance will there be?

Resistance to change

Change across an entire organization is always difficult. While helpful implementation strategies such as these are useful to get employees on board, CRESSblue recommends getting people involved even sooner. In this way, change is a response to their feedback directly and enables a more fluid process. Furthermore, the staff sees management implementing change to suit the needs of its staff, rather than forcing change.

Implementation of change

Implementation, training and deployment are typically lumped together as setup. There is a push to market software products that require little or no setup. However, to achieve exceptional levels of automation, the business system needs to understand your business structure and its data relationships.

Once you have created a shortlist of workable systems, what will it take to deploy the solution? SaaS software systems have significant advantages over legacy boxed software. The provider does the deployment. You are not required to supply any dedicated, onsite hardware. Typically, SaaS solutions completely bypass the old-style software installation process and provide instant, encrypted access using your Internet browser.

Look for after-sales training options. Is personal training available, or are you left to dig through a user-created knowledge base? Getting adequate training is important for several reasons. First, training reduces user frustration and gets early buy-in from the staff. Second, it allows for an earlier realization of newfound workflow efficiencies. Third, those who launch into sophisticated systems without training often pull together a workflow that works, but that doesn’t fully utilize the most efficient workflows available.

Look for a company as committed to your success using their product as they are in selling it to you. Insufficient or ineffective training can cripple the launch of a new software system through user frustration. Merely purchasing a sophisticated system in no way determines its effective deployment and use.

How long will it take? Slow realization of initial goals

What if the system we try doesn’t work out for us? What if it costs a small fortune, takes a lot of effort to set up and then doesn’t meet our expectations?

Take a serious look at using professional setup and training services. While doing all the setup internally can be beneficial for training and familiarity with the new system, manually inputting historical data can be very tedious. See if software scripts can be provided to import much of the historical data into the new system. Of course, this assumes you have enough good quality data available in a useful format.

In summary, online software avoids all of the deployment headaches of traditional boxed software products. Taking advantage of training advances the implementation curve significantly. Together, these factors lead to more effective use of the system and earlier realization of returns on the technology investment.

How long do I have to sign up for? Commitment liability

Commitment isn’t really the issue here. No one worries about commitment when they like where they are. Asking about commitment is actually looking for an escape mechanism in case you made a serious mistake.

The question then becomes “How long will it take to realize if I made a mistake?” The uncertainty is the highest at contract initialization and decreases inversely with software familiarity. Make a definitive commitment to fully implement and deploy the software. Subsequently, within a few months, you will know whether it will work out. Look for a 3-month money-back guarantee in your contract.

Will this work with my other software? Integration problems

This is more or less important based on two questions. One, how many other software packages do you use? Two, how much will the new system replace older systems? Other factors include reporting to or integrating with external systems used by others, such as financial reporting tools.

Newer software systems are typically built with an integration layer that enables rapid and relatively painless programming to connect systems. Ask what other systems have already been integrated and get quotes on the integrations you require.

Is change really necessary? Uncertainty

Facing uncertainty in business often feels worse than sticking with the processes you know. This inertia can be useful as a hedge against too rapid change and gives stability to the company. However, too much inertia and the company will stagnate and fall behind nimbler competitors.

Inefficient responses, improper reporting documents and poor accounting records are evidence of stagnation. Small landlords are not impervious to this measure. Being small and self-contained does not insulate you from the competitive influences of growing tenant expectations. Businesses must invest in themselves or get left behind.

What if I look like I don’t know what I’m doing? Image and reputation

This one is a personal issue. An outside expert is going to look at my business? What if I have been doing things wrong? Won’t that make me look inadequate or incompetent?

First of all, taking steps to improve is the smartest thing a person can do. Bravo! No one has ever grown by hiding in ignorance. Step up, learn and be surprised by how quickly you can make improvements with modern business systems working for you. Secondly, if you were far behind, you have the most to gain. Moreover, you will realize your efficiencies faster than most. Get the tools to make the improvements you need to outflank the competition.

If you have progressed this far in business and life, you undoubtedly have what it takes to master enterprise business systems. They exist for people like you, in your situation. Software solutions have advanced tremendously. CRESSblue is an example of a very specialized system that brings something brand new to the table. You aren’t unique in your need for better software solutions. Knowing what needs to be done and not doing it is a fool’s path. Seeing room for improvement and advancing toward growth is the behaviour of the savvy and successful. You have what it takes to be successful. A big part of that is a hunger for continuous improvement and competitive advantage.

Addressing the fears (the solution is right here!)

Briefly, here are the main steps that alleviate the concerns of moving forward with new commercial real estate investment software.

Get informed

Research and discovery diminish change-induced fear. Utilize the sales team resources for your benefit. Get more details, get more demos. It’s their job to educate you on the possibilities and capabilities of their solution, so inquire to your satisfaction.

Demo and test

One standard demo will demonstrate the general use of any system. However, unique situations and process exceptions can break the workflow for the user. After the first demo, ask the other future system users to weigh in with their feedback. Schedule additional demos to see the functionality and workflows and how they address the atypical situations.

Mitigate the impact of change

Since early adoption of the new system is critical to its successful implementation, use the provided training resources. Get everyone using it effectively as quickly as possible. Concurrently, have the system provider run data import scripts as soon as possible. This step in effect informs the system on your business data relationships.

Avoid new risks

Have the system provider make the necessary software integrations for you. Avoid using workaround solutions as they destroy the efficiency you hoped to achieve. Awkward workarounds also lower user confidence in the new system.

Utilize newfound efficiencies quickly

Rapid deployment means reaching efficiency milestones sooner, and that means greater profitability. Minimize the initial hump as much as possible, and then cross it as soon as possible. With this in mind, fully commit to making the commercial property management system fully operational within the first three months.

The cost of not leaping

If you are looking for better property management software, there is obviously room for systems improvement. Delaying or declining the move to the right commercial real estate investment software can cost your company in many ways. Here are the top five risks faced by a commercial property management firm using outdated systems:

1. Lost revenue

Slippage is a significant source of direct income loss. Improper CAM calculations and missing expense recoveries immediately impact the bottom line. In reality, remedying slippage can, by itself, cover the cost of the entire software system and associated setup costs in the first year alone.

2. Disorganization

Lost documents, disjointed leadership activities and inattentive business management are symptoms of ineffective business systems. Dedicated, purpose-built enterprise business systems allow you to “get your stuff together” and keep it that way. So, replace “What the heck am I doing?” with “Check this out!”

3. No progress

Business systems have changed significantly in even just the last few years. If you are still using spreadsheets and individual independent employees, untapped efficiency gains exist. Improvements in workflows are one of the main reasons for using professional software.

4. Operating on assumptions

It is a point often overlooked, but if you do not have aggregated business information readily available, critical decisions stand on loose foundations. Basing big decisions on isolated data points and assumptions of past performance based on memory is risky. Get a complete picture of each property’s performance covering all aspects from asset purchase to capital expenditures to operational revenues, recoveries and losses.

5. No integration with partners

As a small business, you likely don’t have inhouse professional services. So then, what connects your outside legal, accounting, insurance, leasing and contracted maintenance services? You do. You hand responsibility from one profession to another. Your broker gets an offer to lease, and you give it to your lawyer for a lease agreement. If you are a careful landlord, you get your insurance broker to review the new tenant’s risks. Your bookkeeper does the daily accounting, and you hand the books off to the accountant to file your annual returns. At the centre of it all is you. It’s your responsibility to integrate all the information from everyone into a business plan and to act. Why deprive yourself of business tools you need to organize, cooperate and understand?

Purposeful striding

Given these points, it’s clear that there is a strong case for moving forward with modern business software, and that there are logical steps to resolving the associated fears.

Now we get to the heart of the matter. Insomuch as something needs to be done, and done quickly, the best advice is: Don’t leap at all.

That’s right. Don’t rush into anything. Plan. Prepare. Execute. It isn’t a question of leaping off a cliff and hoping you make it. A smart executive strides purposefully toward intended goals.

Plan. Prepare. Execute. Commit to the best SaaS for your business.

The timing is now

Change inevitably happens in the business environment, regardless of personal stagnation. Consequently, this will either force personal change or force you out of the industry. The only thing worth feeling embarrassment over is awareness of what needs to be done while doing nothing about it. To let critical opportunities for continuous improvement and competitive advantage slip you by. You know what to do. You know how to start. More importantly, you know you can do this.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Martin Sommer, CEO, CRESS Inc.

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Martin is a founder and the CEO of CRESS Inc., a Canadian SaaS company that automates lease administration and asset management. Martin also manages Karanda Properties Limited industrial portfolio as Director of Operations in all areas of commercial property management, including new development, asset management, capital expenditures, operations, leasing and lease administration of the industrial portfolio. Martin writes about property management workflow and issues. Book Martin to speak at your industry event.