Now is the time for a Lease Audit

 

By now, you should have received an estimate of your 2020 operating expenses from your Landlord, plus a reconciliation of last year’s charges. It’s important to check these statements to make sure you are being billed correctly per your Lease. Oversights happen, and commonly these reconciled statements do not carefully consider the uniqueness of one lease to another.

Operating Costs will increase due to the COVID-19 pandemic.

We know that every penny counts. Especially those belonging to you and not the Landlord. In light of the global pandemic, the language in leases that deals with operating costs is changing. Landlords are now seeking to pass on the costs of preparing a pandemic risk assessment and/or Health Emergency Plan, along with the actual costs of dealing with a health emergency to the Tenant

If a Health Emergency exists, the Landlord may amend, supplement or otherwise enforce any existing Health Emergency rules or regulations in existence. Without limiting the generality of
the foregoing:

• The Landlord shall be entitled to restrict or limit access to the Building to employees;
• The Landlord shall have the right during a Health Emergency to require the Tenant to decontaminate all or any part of he Premises, at the Tenant’s expense.
• The Landlord shall be entitled during a Health Emergency to close all or any part of the building

A lease audit is an invaluable tool to identify billing errors that often occur in commercial real estate leases. By reviewing your unique lease documents and the Landlord’s year end reconciliation, you can assess whether the company is paying its property owner more money than is legitimately due.

More importantly, as the Landlord’s operating costs of running the building during the pandemic are pushed down to Tenants, your additional costs may change significantly from last year. It is essential to conduct a lease audit this year to understand the increases and to create a baseline against which to measure future operating expenses.

The process

Lease Auditors perform a detailed analysis and year end reconciliation of your Landlord’s invoices, to ensure compliance with the lease terms you signed up for. They also do a historic review of prior year-end adjustments to determine if you are entitled to a refund or are obligated to make up the shortfall to the Landlord.

According to accepted industry standards, Cresa believes a 3% to 5% increase in costs is acceptable in a building maintenance and operation cycle, unless the Landlord incurred expenses allowable under the lease.

The Lease Audit process does not disrupt the Landlord-Tenant relationship, if anything it makes it more transparent and stronger. Landlords don’t want to create the perception that they are overcharging Tenants, so they want to work with the Auditor and the Tenant to rectify any overages made in error. Whether this is your first time conducting a lease audit, or you have engaged in a lease audit previously, with operating costs likely changing dramatically, this is a crucial year to initiate a lease audit.

For more information on the process, please reach out to your Cresa Advisor.

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