Sublease Administration

Subleases present several challenges for corporate clients, both from an administrative and accounting perspective. Subleases are operationally the opposite of what a company’s Real Estate department (provided one exists) is typically set up to administer. Because of this, the “systems” needed to manage the resulting obligations are not in place, adding to the challenges associated with subleases. These typical challenges include:

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  • Measuring the excess property inventory (available vs. disposed).
  • Having a system for billing, tracking, and accounts receivable.
  • Documenting cash receipts for internal audit requirements.
  • Creating, maintaining, and regularly reporting on all related activity.
  • Filtering and researching issues between the Landlord, Prime Lease and Sublease.
  • Systematically placing collection calls, coordinating appropriate late fees, and default follow up.
  • Abstracting the sublease and seeing how it varies from Prime Lease obligations.
  • Reviewing Prime Lease invoices for sublessee-driven expenses so appropriate recapture billing can occur. This is most important relative to taxes and operating expenses, but may include sublessee’s work orders.

 

PSG’s Approach

 

Program Implementation

Understand the disposition program requirements and the underlying Prime Lease portfolio when building a sublease administering process. This ensures sublease “revenue” is maximized and is recorded properly when billed and collected. At PSG, this work is performed by our trained lease accountants under the direction of a senior manager experienced in sublease processing.

Lease Abstracting/Management

Portfolio Solutions Group has significant experience in conventional Prime Lease portfolio management, with resources to abstract, track, and administer these obligations.  Some Prime Lease administration is required so the Prime Lease and Sublease are appropriately linked, ensuring obligations are reconciled between the two contracts.

Sublease Abstracting

Sublease documents are organized, reviewed and thoroughly abstracted so that there is a clear understanding of the various obligations (administrative, accounting and otherwise).

Database Implementation

Enter the sublease abstract information into a database used to support information requests, processing activity, and appropriate billing and collection efforts. In most cases, an internet accessible, licensed/hosted database is selected. If the client already has a preferred database, this may be accommodated.

Financial Review

If the sublease has been in place for some time, PSG can reconcile past activity and investigate unpaid balances. We report discrepancies to the client, or the client can have us begin steps for resolution. This may be necessary to meet internal audit requirements.

Billing

Based on obligations in the sublease, as well as obligations implied by the Prime lease, we can generate and mail a monthly invoice to the subtenant. PSG can direct payments to the client or to an agreed lockbox location.

Collection

PSG can track payment receipts and route them to the client, or post them in our system so accurate ledgers exist and sublease revenue is properly accounted. The scope of collection activity can include late fee billing, collection calls, and coordination with clients’ legal counsel if defaults go beyond an agreed period of time.

Reporting

All database change activity and accounting activity is reported monthly, in both summary and detail, for client executive and accounting review. In addition,  PSG performs periodic trend analysis so that goal-progress can be measured.

 

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