Lease Audit Provisions Help Control Costs
March 18, 2015
- In recent months, increasing demand for commercial space has pushed lease rates higher in many markets. The favorable terms that were granted several years ago to lure tenants might not be available at your next renewal.
However, there are always techniques to optimize your commercial leasing program, even as landlords gain pricing power. One of those is by conducting regular audits of your lease to avoid overpaying for common area maintenance (CAM) and shared expenses such as property taxes and utilities.
Negotiating a favorable audit clause can be a way to save money over the life of your lease. It is also an excellent tool for insuring that both parties to the lease have a complete understanding of terms and provisions relating to the items subject to the audit.
Important times to include in the negotiation are:
The type of lease auditor: Landlords prefer to use a certified public account, paid on an hourly basis. However, as a tenant, you should request a contingency arrangement. Many auditors will agree to base their fee on the amount of money they recover.
Threshold requirement: Your landlord may agree to reimburse you for the cost of the audit if the errors reach a certain threshold. Negotiating this amount is important because it can save thousands of dollars later on.
Frequency: How frequently you can request an audit will be part of the negotiation, as will terms such as your ability to demand an audit if you are in default.
Binding resolution: Always ask for this provision to avoid ending up in a lawsuit if there is a dispute over the findings of the auditor. For example, you and the owner can agree to engage a mutually agreeable CPA to resolve the discrepancy and render a final and binding decision. Also spell out the financial adjustment to be made in case of an over or under charge.
It is rare that a landlord will deny tenants the right to an audit. By negotiating terms in your favor, you can avoid overpayment and keep the business relationship with your landlord on good terms.
Does your current lease have an audit clause?
< Return to News