When buyers underwrite an acquisition, lease assumptions often get treated as a box to check rather than a risk to interrogate. The thinking is familiar: the leases are in place, the income is contracted, and the story holds.
Until it doesn’t.
Hidden termination rights, misunderstood rent escalations, or outdated assumptions about lease obligations can materially impact cash flow, financing terms, and exit value. In many deals, the leases themselves — not the market — are what end up blowing up the model.
Before you assume a lease portfolio in an acquisition, here are the most critical areas buyers need to fully understand.
In most acquisitions, buyers assume existing leases — but that assumption comes with nuance that’s easy to miss.
Not all leases transfer cleanly. Some require tenant notice or consent upon a change of ownership. Others include provisions that trigger rights or obligations the buyer may not have anticipated, such as changes in liability structure or guarantor requirements.
Key questions buyers should be asking:
If these details aren’t surfaced during diligence, buyers can walk into post-close friction with tenants — or worse, legal exposure.
Early termination rights are one of the most common — and most expensive — surprises in a lease review.
These clauses may be tied to specific dates, notice periods, penalties, or performance thresholds. They often sit buried in amendments or rider language rather than the original lease document, making them easy to overlook.
What matters most isn’t just whether a termination right exists, but:
From a buyer’s perspective, even a small percentage of income exposed to early termination can materially change risk profiles, debt underwriting, and hold assumptions.
Rent growth assumptions are foundational to any acquisition model — but leases don’t always escalate the way spreadsheets assume they do.
Common pitfalls include:
If escalations are misread or inconsistently applied across a portfolio, buyers may be underwriting growth that never materializes.
The only way to be confident is to tie every projected increase back to source-level lease language — not summary schedules or inherited rent rolls.
The most impactful lease risks often live outside the base document.
Over time, leases accumulate amendments that adjust rent, term, options, operating expenses, and tenant rights. Side letters may grant concessions or protections that never make it into formal lease summaries.
Buyers should assume that:
Without a comprehensive review of all lease documents tied to each tenant, it’s easy to misstate income, obligations, or renewal risk.
Lease quality doesn’t just affect operating performance — it influences debt terms and valuation.
Lenders increasingly scrutinize:
At exit, buyers will do the same diligence you did — and any unresolved lease risk can translate into retrades, price reductions, or delayed closings.
The buyers who win consistently aren’t just faster — they’re more certain.
Treating lease diligence as a strategic exercise rather than a compliance task allows buyers to:
That confidence only comes from having lease data that is accurate, complete, and traceable back to the source documents — not assumptions layered on assumptions.
In today’s acquisition environment, clarity around lease obligations isn’t a nice-to-have. It’s a prerequisite for making smart deals.
Assuming leases doesn’t have to mean assuming risk.
Prophia gives buyers a clear, source-backed view of every lease obligation before they close — from termination rights and rent escalations to amendments and non-standard terms that can materially impact value.
Instead of relying on inherited rent rolls or manual review, buyers use Prophia to:
With Prophia, lease review becomes a competitive advantage — enabling buyers to underwrite with certainty, avoid surprises post-close, and protect both financing terms and exit value.
Want to see how Prophia helps buyers turn lease complexity into clarity?
Request a demo or learn how leading acquisition teams are using Prophia to make smarter, faster deals.