In Property Management, missing a deadline can cost you millions
It’s no news that missing deadlines can cost you money. But did you know that it can quickly snowball into millions lost in revenue and property value? Read more about managing deadlines and how it’s a critical part of commercial real estate lease management.
In commercial real estate, leases are relatively long – 5, 10, sometimes even 15-year leases are very common. During that time there are countless deadlines coming up.
- Rent indexations
- Early termination options
- Negotiation windows for regular contract termination
- Expiring tenant insurance obligations or guarantee letters
Keeping track of all those deadlines and many more is a challenge on its own. And while it might not seem like a big deal, the underlying stakes can actually end up being pretty high – managing deadlines directly affects your risks, revenue and property value.
RISKS – if tenant misses a deadline, it can become a responsibility for the landlord
Many deadlines are the responsibility of the tenant. But if they do not take care of these, they may become the landlord’s responsibility. In many high-risk retail or industrial spaces (restaurants, chemicals retailers, manufacturing), the tenant is obliged to maintain valid insurance to cover for the potential additional risks. Also, some tenants choose to replace their lease deposits with guarantee letters from banks and parent companies. Both of these have expiry dates that often arrive before the end of the rental period.
For example, if a restaurant’s insurance has expired and there happens to be a fire in the kitchen, the damages for the owner and neighbouring tenants can be significant. Landlord’s own property insurance might not cover all of these costs, depending on the circumstances of the event. And that is the reason the tenant is also expected to have liability insurance for situations like these. The restaurant should cover the extra expenses, but if the insurance has expired, there might be nothing left to take.
That is why it is in the interests of the landlord to track these deadlines and make sure their tenants’ insurances and guarantee letters are always valid.
REVENUE – missing rent indexations can compound quickly
The importance of rent indexations is often overlooked. According to most commercial lease contracts, indexations can only be done in a certain time window each year. If you miss that window, you’ve usually missed indexation for that year. Of course, you’ll have the next opportunity next year but meanwhile, the revenue increase you were expecting from the tenant’s lease on the year you missed indexation, will still be lost.
Furthermore, there are always limits on how much you can index rent. This means that you cannot recover last year’s missed indexation by simply doubling the indexation the following year. Consequently, the revenue loss for 1 missed indexation only accumulates over a longer period of time. That’s the beauty (and power) of compound interest.
PROPERTY VALUE – depends directly on the lease revenue and risk factors
And finally, your total annual lease revenue is the key component of your property value (as a rule of thumb 10-20x annual lease revenue). This means that if you lose 100 euros per month per one contract indexation, you can lose 18K immediately on your property value.
Another component is the aforementioned risk. If you have high-risk tenants and these risks aren’t mitigated properly, your property value can take a serious hit.
That’s why it’s so important to stay on top of your property management deadlines. Missing a deadline here and there may seem like no big deal, but don’t be fooled. Poor deadline management can take a toll on your current revenue, portfolio value in general and future prospects.
Managing deadlines was actually the first challenge Moderan started out solving for property owners and managers 5 years ago. This is the most common place where property owners’ revenue is leaking, yet one of the easiest to solve with modern software tools (but not with Excel).
Moderan gives you timely reminders of all upcoming deadlines both via email and as a tasklist overview. The tasklist also includes overdue tasks to make sure you are always aware of your potential risks when some deadline has gone unattended.
Moderan puts you in control of your property management deadlines, your revenue, and your property value.
Do you want to learn about how to improve your deadline management with software?
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