How to Abstract Your Child Care Facility Lease and Why it Matters

By Chris Binkley, Headwaters Capital, LLC, Program Mentor

Originally published on August 1, 2024 (www.childcareaccelerate.com)

For child care business owners that lease space from a property owner, it’s imperative to have a lease abstract completed and saved in an easy-to-access location. Doing so will help you stay on top of critical dates and know what is and is not your responsibility as a tenant. In this blog, we will walk through what a lease abstract is, how to create it, why it matters, and key terms you’ll need to know.

A lease abstract is a short summary of a long lease agreement. Think of an abstract as the cliff-note version of your full lease agreement. Its purpose is to pull out the most important details within your full commercial lease agreement and summarize them in a clean manner that’s easy to review. Typically, abstracts are no longer than one or two pages; brevity is key for it to be useful. Having a lease abstract handy saves you time, improves your understanding of your agreement, and facilitates decision-making. Let’s review each element in greater detail.

Saves You Time

Creating a lease abstract will save you time by highlighting the key points. Forget frantic searches through your lease; a lease abstract keeps key details like rent amounts and renewal dates at your fingertips, so you won’t have to dig through legalese. When quick decisions are needed, you’ll have lease terms on expansion options or subletting readily available, avoiding delays. Plus, with important dates like rent due days highlighted, you can ensure timely payments and eliminate wasted time dealing with late fees.

Improve Your Understanding

Creating a lease abstract will improve your understanding of your lease by forcing you to read it at least once while you work to summarize key details. The abstract acts like a translator for your complex lease agreement. By condensing legalese into clear summaries of key terms, it clarifies your rights and responsibilities as a tenant.

Facilitate Wise Decision-Making

Creating a lease abstract will facilitate wise decision-making as you work with the property owner on matters related to your space and agreement. The facts contained in your abstract will enable better strategic planning, streamline lease negotiations, optimize budgeting, and proactively foster a stronger relationship with the property owner.

Creating Your Lease Abstract

To get started on creating a lease abstract first read your full commercial lease agreement in its entirety all at once and note or highlight any major facts or detail that seem important, especially if they pertain to any of the items below:

• Property Owner Contact Information: is the legal owning entity’s business name, address, phone number, and email of the individual or entity that owns the property being leased. This information allows the tenant to easily communicate with the property owner (or designated property manager) regarding lease-related matters, such as maintenance requests, rent payments, or emergencies.
• Tenant Contact Information: This is your own contact information. The property owner will send legal notices to this mailing address. So be sure to keep it always up to date.
• Guarantors Contact Information: A Personal Guarantee in a commercial lease agreement is a legally binding commitment by an individual, often the business owner or principal, to be personally liable for fulfilling the lease obligations if the business entity fails to do so. It provides the landlord with added assurance of payment and performance, especially when dealing with tenants who may have limited financial standing or corporate structures.
• Property Address: is the specific location of the leased premises, typically including the street address, city, state, and any other identifying details necessary for clarity.
• Premises: is the specific space or property being leased by the tenant, typically outlined in detail including its location, dimensions, and any accompanying amenities or shared areas. It serves as the core subject of the lease, defining the boundaries of the tenant’s rights and responsibilities within the commercial property.
• Permitted Use: is the specific activities or purposes for which the tenant is allowed to utilize the leased premises as outlined in the lease agreement. It delineates the permissible business operations or activities within the space, ensuring compliance with zoning regulations and landlord preferences.
• Term: the duration for which the lease is valid, outlining the specific start and end dates during which the tenant has the right to occupy the premises. It is a fundamental aspect of the agreement that defines the length of the tenant’s commitment to the property and the landlord’s obligation to provide the space for that period.
• Lease Commencement Date: This date marks the official start of the tenant’s occupancy rights and lease obligations, typically coinciding with when the tenant takes possession of the premises or begins using the space for business purposes. It is a critical point of reference for rent commencement, lease term calculations, and other time-sensitive provisions within the agreement.
• Lease Expiration Date: This date signifies the end of the lease term, indicating when the tenant’s occupancy rights cease unless a renewal or extension is negotiated. It serves as a crucial milestone for both the landlord and the tenant, prompting discussions about lease renewal, termination, or renegotiation of terms well in advance of the expiration date.
• Rentable Area: Rentable area is the total square footage of space within a building that a tenant occupies or has access to, including their individual premises as well as any shared areas like hallways, lobbies, and restrooms. This measurement helps determine the total space for which the tenant is responsible and upon which their rent may be based, often calculated by adding the tenant’s usable space to a proportionate share of the common areas.
• Tenant’s Pro-Rata Share of Building: The portion of the building expenses the tenant is responsible for. It’s calculated as a percentage based on the square footage their leased space occupies compared to the total rentable area of the building. This share determines their contribution to costs like common area maintenance, property taxes, and utilities.
• Rental Payments: Rental payments are the periodic sums of money a tenant pays a landlord for the right to occupy a commercial property. The lease agreement specifies the amount, frequency (e.g., monthly, annually), and due dates of these payments.
• Extension or Renewal Options: An extension or renewal option gives the tenant the right to extend their stay beyond the initial lease term. It outlines a predetermined time frame for the tenant to exercise this option, typically with written notice to the landlord. The option might specify a renewal rent or a method for calculating it, such as fair market value.
• Security Deposit: A security deposit is money paid by the tenant to the landlord upfront. It’s like a down payment to guarantee the tenant will uphold the lease agreement. The landlord can use the security deposit to cover repairs for damages beyond normal wear and tear, or unpaid rent, when the tenant leaves the property.

The next and last step is to summarize the information in a simple and orderly format. Below is an example of a layout I recommend tenants use. Feel free to copy and paste this template and begin drafting your lease abstract by filling in the information in each box. Once you are done save it in a convenient location and revisit it as often as you need.

Lease abstract example:

If it would serve you well to have your commercial lease abstracted by a commercial real estate expert, please feel free to reach out to Chris Binkley for further consultation.

About The Author

Chris Binkley, the Principal Consultant at Headwaters Capital and Director of Strategic Capital at AMG, specializes in guiding individuals and business owners through strategic capital deployment in commercial real estate ventures. With a wealth of expertise in commercial real estate, Chris provides invaluable advice to clients who are seeking to buy, sell or lease CRE property, empowering them to navigate complex real estate matters with confidence. For further information, please visit www.headwaterscap.com or reach out to Chris at chris@headwaterscap.com.

Child Care Accelerate is an innovative business support program designed to help child care providers optimize their business operations in two months. Our customized coaching journey allows us to partner with providers on their self-identified goals and priorities and share tools to improve their operational efficiency, build financial capacity and sustain a competitive edge. To learn more about Child Care Accelerate, please email info@seedconsults.com.