In a competitive business landscape, efficiency is everything. Long-term, sustainable growth is often best achieved by refining existing processes and identifying opportunities for improvement. In commercial real estate, lease drafting and negotiation is one process that is ripe for improvement. The challenge is, everything we know about the leasing process is so entrenched, it’s tough to see how to improve it.
Hurry Up and Wait
The commercial lease drafting and revision process is a waiting game. You wait for lawyers to produce a first draft of a lease. Then you wait for the tenant’s lawyers to review and make change requests. Then you wait until everybody in both parties can free up time get on a conference call to negotiate and discuss those changes. Then you wait for the lawyers to make revisions. Rinse and repeat for every round of negotiation.
If the process of moving a lease from LOI to close takes 90 days, what’s the ratio of time spent waiting to time spent actively working on the lease? The answer varies from company to company and from lease to lease, but in general it’s safe to say that while the lease is in negotiation, most of that time is spent waiting. So if we’re trying to identify the low-hanging fruit for efficiency improvements, addressing a lease negotiation’s time spent waiting is a good place to start.
A problem of bandwidth
Call up any commercial real estate attorney and ask for 3 hours of his or her time to draw up or revise a lease. “Sure,” s/he’ll say, “I’ll be able to look at this two weeks from today. Does that work?”
Not really. But do you have a choice? The legal protections provided by a high-quality lease are invaluable. Legal expertise and attention to detail are of the highest importance. They can’t be compromised for the sake of efficiency. While an experienced paralegal or leasing admin could, in many cases, handle the drafting and revision work, the number of dependencies in a typical commercial lease often means that one small change necessitates dozens of other changes elsewhere in the document. The stakes are often too high and the leases too complex to entrust management of the lease document to anyone but a lawyer.
Traditionally, if you wanted to reduce lease drafting and revision cycle times, you only had two choices: (1) hire more lawyers in house, or (2) spend more on outside counsel. Neither of those options is ideal. Either solution would cause a significant increase in overhead. The productivity gains you might achieve are likely to be out of proportion with the overhead you added to achieve them.
Work smarter, not harder
To shorten leasing timeframes by eliminating unnecessary waiting time, it often makes sense to rely on technology. A tech-based solution to the problem of lease-drafting efficiency offers a cost-effective, scalable alternative to throwing more people at the problem. As we’ll see, most commercial real estate leases are structured in a way that makes software-based automation possible.
Earlier in this article we touched on the concept of dependencies within a lease. Changing the commencement date offers a simple example of a dependency: rent escalation tables need to be updated, renewal dates need to be adjusted, etc.
From this perspective, the difficult part of revising a lease isn’t editing a specific piece of text. The difficult part is knowing everything else in the document — it could be dozens of places — that also need to be updated to reflect the change. Lawyers are good at this because they’ve developed a “map” of the lease in their mind; they’ve learned to think about a lease programatically.
Computers are pretty good at thinking programmatically too. If you were to map out and connect all of a lease’s potential dependencies, you could theoretically have a computer handle the drafting and revision with minimal human input.
That’s exactly what LeasePilot does. We take a property owner’s forms, boilerplate language, and asset information and use it to create a “map” of the potential dependencies and connections within a typical version of that owner’s lease. With this map, the process of drafting and revising a lease becomes infinitely easier. Just select the asset from a database, tick a few checkboxes to select the terms and clauses that should appear, and enter the information unique to each individual lease (tenant name, commencement date, base rent, percentage increase, etc.), and the software automatically generates a lease that’s 100% accurate.
With much of the risk now removed from the drafting process, you no longer have to rely on an experienced lawyer to create a mistake-free lease. In most cases, first drafts and revisions of standard terms can be done by a paralegal or leasing admin, freeing up the lawyers to work on more complex legal issues instead of spending valuable time using the Find and Replace tool in Word.
Tying it all together
The obvious benefit of this is less time spent drafting. In many cases, it’s possible to generate a first draft of a lease in less than 30 minutes. That’s a significant time savings in its own right, but recall that the majority of the time a lease spends in drafting and revision, it’s sitting idle waiting for a lawyer to free up enough time to work on it. So while automation software can significantly reduce the time spent actively working on a lease, does it also reduce the time a lease sits idle?
The answer to that question is a resounding “YES!”
By ‘mapping’ and connecting all potential dependencies in your forms and boilerplate language, LeasePilot ensures that with every edit and revision, all of the affected language elsewhere in the lease is updated accordingly. This predictability and reliability means that in most cases, drafts and revisions can be handled by an experienced leasing admin or paralegal instead of a lawyer. All that time spent waiting for a lawyer to free up time? Gone. An admin can handle it. Now, instead of spending time putting together a lease, lawyers can spend time working on problems that require their expertise.
The benefit isn’t only for in-house legal teams, either. If you’re sending a lot of leasing work to outside counsel, getting them to use LeasePilot can help you negotiate a fixed-fee payment structure. It’s a win for everyone.