In commercial real estate acquisitions, lease risk is underwriting risk.
Yet during most transactions, leases are still reviewed manually, summarized into spreadsheets, and trusted at face value. Critical clauses are buried in PDFs, amendments are overlooked, and risk is assessed inconsistently—often under intense time pressure.
A modern due diligence lease review requires more than abstraction. It requires understanding which clauses matter most, how they impact cash flow, and where risk is concentrated across a portfolio. That’s where risk-weighted lease clauses come into play—and where technology is changing the game.
Below are the top 10 lease risks buyers should identify before closing—and how leading investment teams are using Prophia to surface them faster and more reliably.
Termination options—especially tenant-friendly ones—can significantly reduce income certainty. These rights may be tied to performance thresholds, redevelopment provisions, or simple notice periods.
The risk: Projected cash flow assumes the tenant stays. The lease says otherwise.
How Prophia helps: Prophia’s AI automatically identifies termination language across leases and amendments, allowing teams to quickly assess which income streams carry the highest termination risk.
Co-tenancy provisions allow tenants to reduce rent or terminate if occupancy or anchor conditions aren’t met.
The risk: One vacancy can trigger multiple rent reductions.
How Prophia helps: Instead of hunting clause-by-clause, buyers can ask Prophia’s AI assistant to surface all co-tenancy exposure across the deal and understand downstream impact instantly.
Operating expense and CAM language is often inconsistent, vague, or missing caps entirely.
The risk: Expenses grow faster than rent, eroding NOI post-close.
How Prophia helps: Prophia structures CAM, tax, and operating expense obligations directly from the lease language—making cost exposure transparent and comparable across tenants.
Exclusive use clauses can limit future leasing opportunities and asset flexibility.
The risk: One tenant quietly restricts future revenue growth.
How Prophia helps: Prophia flags exclusivity and use restrictions as part of our standard lease clause analysis, ensuring leasing limitations are visible during underwriting—not after acquisition.
Fixed or minimal rent bumps may not keep pace with market growth or inflation.
The risk: Long-term value underperforms underwriting assumptions.
How Prophia helps: With lease terms structured and searchable, teams can instantly compare escalation mechanics across tenants and model long-term revenue risk with confidence.
Poorly defined renewal terms often favor the tenant and reduce owner leverage.
The risk: Buyers assume optionality that doesn’t actually exist.
How Prophia helps: Prophia extracts renewal and extension language directly from source documents—eliminating ambiguity and surfacing tenant-favorable terms early.
Broad assignment rights can result in weaker credit tenants post-close.
The risk: Credit quality degrades without owner control.
How Prophia helps: Prophia highlights assignment and consent provisions so buyers understand how tenant risk may evolve over the hold period.
TI allowances, repair responsibilities, restoration clauses, and go-dark provisions are often scattered across amendments.
The risk: Unexpected capital obligations surface after closing.
How Prophia helps: Prophia reviews the entire lease stack—base leases, amendments, and exhibits—to ensure no obligation is missed.
Manual abstraction introduces errors, inconsistencies, and omissions—especially at scale.
The risk: Investment decisions are based on incomplete or inaccurate information.
How Prophia helps: Prophia eliminates manual data entry by turning leases into structured, auditable data that can be queried, validated, and trusted across teams.
Even when individual risks are identified, they’re rarely aggregated across a deal or portfolio.
The risk: Buyers don’t know where risk is concentrated—or how much it matters.
How Prophia helps: Prophia enables buyers to analyze lease risk at scale and focus diligence efforts where exposure is highest.
The best investment teams aren’t reading leases—they’re interrogating them.
By using Prophia to transform leases into queryable, structured data, buyers can:
Complete due diligence lease reviews faster
Surface hidden risk before closing
Confidently underwrite cash flow and downside scenarios
Align legal, asset management, and investment teams around a single source of truth
In today’s market, speed matters—but certainty matters more. And the fastest way to both is knowing exactly what’s in your leases.