Lease Auditing

The economic downturn has brought many changes to the commercial real estate business...increasing vacancy, tenant defaults, landlord defaults, and more aggressive leasing by landlords to mention a few.

As mentioned in an earlier post, commercial property owners are looking for ways to support revenue derived from building tenants. Further, as with Indianapolis office space and Indianapolis industrial space, real estate taxes have undergone dramatic increases in most metropolitan areas over the past few years.

This weekend, I received an email from the a client of my firm, Carmen Commercial Real Estate, asking if I knew of a firm that could evaluate its operating expense statement received from the its building landlord this past week. The statement indicated a severe increase in most building operating expenses and required the business to write a check for the increases within the 30 day window we negotiated in this lease a few years ago.

Shame on me for not making it clear to my client that I will do this work within my expertise for no charge. If it requires taking it to the next level, I can do so by recommending an audit firm. But the question begs to be asked: What can you expect from a commercial lease auditing company and how does the average commercial tenant located in Indianapolis or elsewhere around the country locate a firm to do this work?

First, what does a lease auditing firm do for a tenant. Lease auditing helps tenants avoid overspending errors, whether in the form of simple math errors or lease misinterpretations. Whether your lease is based on percentages or you're dealing with sub-tenant billings, lease audits are likely to reveal savings for your business.Lease audits can also help you recover overages regardless of why the over payment came about. Depending upon the size of your firm, performing an annual lease audit is a sound business practice that safeguards the rights of everyone involved.

Now, how do you find a firm to perform such work? Here's a few tips:

1. Call you CPA. It is not unusual for accounting firms to perform lease audits for clients. But some advise, if your CPA is familiar with performing a lease audit, it probably makes sense to move on.

2. If you were a savvy tenant and hired a commercial brokerage firm to represent you in your search and negotiations for building space, it is likely this firm can also perform a lease audit, or at lease a basic audit to determine if landlord is following the term of your lease. If you used a traditional brokerage firm that represents both landlords and tenants it is likely they will not take on this work. Remember, if the firm (not the broker) takes on listings, the firm either lists your landlord's building or wants to list it. Therefore, how well do you expect to be represented by a firm that has more to gain by befriending the landlord. Move on.

3. OK, now it's time to Google...perform a search under "Commercial Lease Audit" and you'll see a number of alternatives....again, enlist your broker to help you. If your broker doesn't want to help, you should consider utilizing the services of a new broker the next time you consider renewing your lease or relocating your office.