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What you need to know about leasing automation (and why it’s so hard to do)

Document automation is nothing new. Microsoft Word has been helping us for decades with features like mail merge, but despite years of technological advancements, the commercial real estate industry has not been able to truly benefit.

Why is that, you ask? The simple answer is because the commercial leasing process is different. And much more complex to automate.

What follows will take take you through the leasing process and demonstrate where the breakdowns in automation often occur. More importantly, it will show you what you can do to combat these challenges and become more efficient.

A note: The next few sections probably won’t say anything that those in the CRE industry don’t already know. But they’re an important read as they lay the groundwork and set the context for the information that follows.

What is a lease?

A broad definition of a lease might be, “A legally-binding document that describes/defines the relationship between a landlord and a tenant.” While that’s true, it’s not very precise. Let’s dig a little deeper.

An executed lease contains various “hard terms” which have objective, often quantifiable meanings. Things like rent, commencement dates, CAM charges, etc. are examples of this. Although all leases will inevitably contain some subjective language, both the tenant and the landlord strive to eliminate these instances whenever possible. As a result, the overwhelming majority of the terms in a typical commercial lease are objective and straightforward.

A lease, then, can be thought of as a means to organize all these terms into a single, legally-binding document in a familiar format.

Negotiation

Once a tenant and leasing rep reach a tentative agreement, the terms are recorded in an LOI. It’s at this point in the process that leasing reps hand things off to the legal department and a first draft is generated.

First drafts are generally straightforward as they’re a re-statement of the LOI in a formal document. Because they’re so predictable, legal teams often use some level of automation to generate initial drafts. In a more traditional workflow, this is usually done by opening a base lease form in Word, referencing the LOI, and copying/pasting the necessary language from an existing library.

By building a platform that reinvents the leasing process, we’ve found that we also need to reinvent the language used to describe what it is we do.

In more modern workflows, document automation and/or contract management software is used to generate a first draft. Usually this means typing tenant and asset info into an MS Word plugin and then selecting relevant language from a searchable library (LeasePilot does this somewhat differently, but we’ll cover that shortly). Form inputs and selections are then automatically assembled and formatted in an MS Word document.

If traditional automation software could speak to the user, it’s at this point that it would say, “Ok, I’ve assembled the first draft. You’re on your own now.” If any custom language is needed, a lawyer will manually add or change the text right in MS Word.

As soon as the tenant’s lawyers get their hands on the first draft and the red pens (real or digital) come out, things start to get messy. With no further automation tools at their disposal, lawyers are left to process 2nd, 3rd, and nth drafts by hand in MS Word.

This brings us to an important question: Why aren’t standard document automation platforms equipped to handle a leasing process with multiple rounds of revision and negotiation? What’s so different about the nth draft that it can’t be automated?

Interconnected terms

A commercial lease is full of what software programmers and product managers would call ‘dependencies.’ As a simple example, consider the commencement date: if the commencement date changes, what other parts of the lease also need to change? In other words, how many other parts of a lease are dependent on the commencement date? Expiration, option notices, free rent schedules and letter of credit burn-downs to name a few.

Further, if landlord work is introduced during negotiation, a “hard” commencement date often becomes a “soft” one, and all the dates in the lease will need to be changed to reflect this (30 days after, 3 days before, etc.).

General-purpose document automation platforms just aren’t built to track the dependencies in a commercial lease. As a result, they aren’t particularly useful after the first draft is generated. Some contract management platforms do offer limited support for revisions by allowing the user to search an existing language library, place his/her cursor in the right place and insert text, but there’s still no underlying structure/logic in the software. It’s fundamentally an MS word document with no built-in logic.

It takes a seasoned lawyer who knows his/her leases inside and out to ensure that the different components of the lease still make sense and “agree” after each and every change. This is typically an incredibly tedious process and mistakes happen far more often than they should.

Simply put, the lease document itself—whether drafted entirely in Word or with the assistance of automation software that outputs a Word document—has no inherent, underlying logical structure. The logic is in the heads of the legal team.

Master of none

If traditional automation software could speak to the user, it’s at this point that it would say, “Ok, I’ve assembled the first draft. You’re on your own now.”

To this point, we’ve focused primarily on the status-quo in leasing workflows and why the complex dependencies in a lease limit the usefulness of general-purpose document automation software to first drafts. In order to overcome this limitation, a document automation platform would need to have a built-in logical framework that can monitor, track, and, most importantly, react appropriately and automatically to every change in a lease, no matter how large or small.

General-purpose document automation software simply isn’t built to handle the complexities of a commercial lease. Doing so would require specialized software built specifically for commercial lease-drafting and negotiation. 

A new standard: Context-aware automation

As anyone who has worked in business operations before can attest, “It’s all in my head!” is one of the most terrifying phrases that a COO can hear. Mission-critical knowledge should never be owned by an individual.

The needs of commercial landlords have become increasingly specialized and their tools must follow suit. They need to handle the inherent complexity of a commercial lease document in a way that was previously not possible.  Not only will this speed up the lease-drafting and revision process, it will also drastically reduce the risk of errors and create ‘quality control’ by standardizing language and processes across the portfolio.

By now you’ve seen the unique challenges of automating the commercial leasing process. LeasePilot was developed to provide the first truly context-aware automation platform and offer commercial real estate organizations a means to institutionalize and operationalize a process that was previously in the heads of a select few individuals.

The elephant in the room

At this point, the lawyers reading this might be getting a bit nervous, so let’s address the elephant in the room: No, this does not replace lawyers or make them expendable.

Rather, LeasePilot liberates lawyers from the tedium of drafting and revising a lease, allowing them to focus their attention on high-level strategic matters that require critical and creative thought well beyond what is possible in software. And isn’t that what the original promise of automation was supposed to be? To free us from banal, robotic, and uninspiring work?

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