Since the slump, businesses have dug deeper for cost savings throughout their supply chains. They have approached cost containment and savings from every possible avenue. They have streamlined supply chains, measured warehouse performance, benchmarked against competitors, and thinned staffs. But they have not done all they can do.

Never has the phrase, "we don't know what we don't know" been more true. A small percentage of firms have real estate directors whose responsibility is to fulfill operating group needs for space, acquire space, dispose of space, and manage occupancy costs. Depending upon the credibility of the team in each company, these companies are likely "squeezing the lemon" effectively, and are certainly managing costs better than other companies.

The balance of firms in the marketplace — more than 95 percent — have a great opportunity to positively impact their bottom lines by effectively managing occupancy costs. And they don't have to add the overhead costs of hiring a real estate director to do so. Most firms have made great strides in managing costs, but are like a harried housewife clipping coupons in the kitchen downstairs on a cold winter night. She is effectively saving money on her household purchases, but she has left the upstairs window open with the furnace running full blast. It is easy to understand this example, but not so easy to see what we don't know about.

Savings Through Lease Management

Companies can generate savings through effective lease management processes and expertise.
Store all executed leases in a single place. Set up appropriate files and make sure the leases are "abstracted," or summarized. Ninety eight percent of all questions about a specific lease are regarding 20 issues. By handling these 20 issues in a format common to all leases, you make it easy to find and easily share the information throughout the company. The fact that every lease is different does not matter. The summary provides an easy approach to getting key information from disparate leases.

Determining your rights and obligations is easy and quick when the abstracting process is complete. This one step saves personnel time and results in significant other savings as you make it easy for your employees to understand your rights and obligations under the lease.

Track important dates. When does the lease expire? Do you have options? If so, by what date do you have to exercise the option or lose the right? Are you obligated to pay cost-of-living increases? When are they effective ? How are they calculated? Is there a floor and ceiling on the increase?

Do you get a copy of the Consumer Price Index and evaluate the increase to make sure the landlord did the calculation correctly? Would it surprise you to find that landlords occasionally make mistakes in their calculations and companies like yours routinely pay increases that are too high?

As branch managers and clerical personnel change at your many locations, who at the branch knows what your obligations are? If the manager or key clerical personnel leaves, by what process do you inform your new and remaining employees of the obligations you have under the terms of your lease? Do they call a repairman and simply pay the bill for repairs that take place? Do they just pay bills from the landlord for repairs and maintenance or increases in rent without verifying who is obligated and that the amount is correct?

Who maintains what? Would it surprise you to know that tenants routinely perform repairs that are the landlord's obligation? Would it surprise you to know that landlords occasionally make mistakes and bill tenants for repair obligations that are not theirs? Are you obligated to share in landscaping costs or other common area charges (CAM)? Is there a cap on that expense?

Do you have the right to audit the expenses or seek proof from the landlord regarding the CAM? Would it surprise you to find that the bookkeeper at your landlord's office mistakenly lumped bills for other properties into the CAM category for your property, and you subsequently were billed for an inflated CAM charge? It occasionally happens, but we don't want it to happen to you.

Maintenance Issues

If you are obligated to do certain maintenance and you don't, what are the consequences? Are you creating deferred maintenance that will be taken care of when you leave at the end of the lease term, and have no control over the repair costs? If you wait and let the landlord do the repair at the end and still pay for it, you will have lived with an unsafe or unsavory building condition during your tenancy, but will pay to improve it for the next tenant. Do you have any form of inspection process that routinely evaluates building conditions and alerts the responsible party regarding their obligation?

When it's time to exercise your option to extend your lease, do you routinely do so? What if the market is soft, and you could save money by moving? Even if you don't want to move, your landlord will likely reduce the rent if the market reflects lower values. If you were to move, the landlord will sustain vacancy while the building is cleaned up and re - rented. He will sustain tenant improvement costs and will pay leasing commissions. Astute landlords want to keep the tenants they have. Consequently, before you exercise your option, you need to do a market survey to determine your strategy. Exercise the option if the prices have increased, and negotiate if they have not.

On the other hand, when it's time to exercise your option, do you forget to do so, and end up staying in the same property for a higher rate? It happens when tenants are careless. Inexpensive lease management programs are available that provide both Lease Summaries, and a reminder of critical dates. In addition, cost-effective real estate consultants can integrate these programs and train your people to "shut that upstairs window" on a cold winter night.

Lease management is one of many processes that you can apply to your business to reduce your costs. Remember, every dollar you save goes right to the bottom line!