When is the ideal time to do a Lease Expense Review?

A Lease Expense Review is a financially beneficial process to ensure compliance with the costs set out in your lease. Where appropriate, it can enable you to recover historical overcharges by your landlord, while also preventing overcharging from recurring in the future.

The best time, and how often to do a Lease Expense Review varies, however, if you have never done a review before, then, put simply, the right time is now. Otherwise, you may be leaving money on the table.

From errors in accounting software to changes in “cosmetic” capital improvements, discrepancies are likely to occur. It is up to you — the tenant — to reference and uphold the conditions of the agreed upon lease with the respective landlord, to guarantee your continued success.

To ensure consistent compliance with certainty, we recommend that clients undergo a desktop review1 annually. We realize, however, that the feasibility of such a process varies from client to client. Keeping this in mind, we have discerned the three ideal stages to consider.

1. Start of the lease

When moving into a new space, the best practice is to ensure that the lease has been administered correctly. For a five-year lease, we would suggest a lease review at the one-year mark; for a ten-year, two. The old saying remains true: the earlier the better. Detection of incorrect calculations upfront will undoubtedly yield significant savings in the future. By acting early, these savings will become increasingly notable in years to come.

2. Midway of the lease

Once you are at the mid-way point of your lease, it is essential to take a more exhaustive look at your past and current billing practices. In a long-term lease, it is common for your circumstances to have changed since the initial signing — landlord processes change, buildings get remeasured, BOMA standards shift, just to name a few. To ensure compliance and reveal potential savings, it is strongly advisable that you conduct a thorough review, called a lease analysis2 . The importance of this cannot be understated as nearly 70% of the documents reviewed by our lease auditors contained errors.

3. End of the lease

As you approach the end of your lease term, the necessity of a Lease Expense Review may not be as apparent. Even if you are considering a new space, the decision to review the conditions of your lease is likely beneficial. Another comprehensive analysis may reveal past discrepancies and compel your landlord to recompense the difference. If you were to instead renew your lease, a Lease Expense Review would offer strong leverage on the tenants’ side and facilitate room for renegotiation.

Common Client Hesitations

The lack of understanding regarding the nature of a Lease Expense Review

Understandably, many are unaware of what a Lease Expense Review is, what it entails and therefore, remain unaware of its value. It is an invaluable tool for identifying billing errors that frequently occur in commercial real estate leases. Typically, each lease includes a provision that allows the tenant or their representative to conduct a review and negotiate with the landlord, cross-checking what was agreed upon in the lease versus what was charged to the tenant.

The fear of diminishing the tenant-landlord relationship

Many organizations may believe that conducting a Lease Expense Review could have a negative impact on tenant-landlord relationships. They fear that asking questions may bother the landlord. In reality, it is quite the opposite. If a review is done correctly, the relationship should become even stronger, more open and transparent.

Key Takeaway

Ultimately, it comes down to you to determine which option would be the most conducive to your overall success. As charges made in error are fairly commonplace, neglecting the necessity of a Lease Expense Review increases your susceptibility to financial vulnerability. Performing a Lease Expense Review is a sure-fire method in preserving your best interests and putting money back in your pocket.

“It’s the tenant’s right to understand what they’re paying for, and to make sure that the expenses are prepared in compliance with their real estate lease,” says Maria Nenciu, Senior Lease Auditor.

To have our Lease Expense team look at your year-end statements, or to learn more about the Lease Expense Review process, please reach out to Maria Nenciu, our Senior Lease Auditor, at the contact information provided, or contact your Cresa Advisor.