Tenants, Not Landlords, Are Responsible For Accuracy Of Operating Expenses
February 02, 2012
The secret to paying the correct amount for your lease’s operating expenses is for you to check the accuracy of the statement. It’s that simple. Landlords can make mistakes on the expense statements that they charge tenants; it’s up to you to catch mistakes and bring it to their attention.
Right now tenants should be receiving their year-end building expense statements that reconcile actual with estimated building expenses that they have been charged for 2011, as well as the estimates for 2012. There are a number of property managers that will use a standard lease as the basis for the building expense calculations and not the tenant specific negotiated lease. Lease documents can be very complex as a result of the negotiation process and it’s not uncommon for tenants to be incorrectly billed. Even though landlords follow lease language, mistakes are made, so the burden is on the tenant to find the errors and challenge the landlord. If tenants do not take this step, the bills are considered conclusive and binding.
Do not leave money on the table. If you believe that you have found an error, call the landlord to complain. The landlord values the relationship with you and the property manager may try to assure you and say, “We had the Landlord’s CPA certify the landlord’s financial records and everything is in order, sorry.” This may be true, however, what the landlord’s CPA firm typically certifies is that the operating expenses are properly treated from an owner’s point of view for financial reporting and tax purposes but not from the point of view of a lease pass-through clause. Here is another secret; they never certify each tenant’s bill.
Typical errors maybe found around the following partial list;
● CPI miscalculations
● rent commencement errors
● tax refunds not credited
● improper inclusion of income taxes or personal property taxes
● pro rata share miscalculations
● base year error
● expense stop calculation error
● capital expenditure charges
● calculation errors of savings for allowable cost-saving capital items
● charging of excluded costs
● excessive management fees
● marketing charges
● failure to bid service agreements
● excessive admin fees
● profits for building materials included
● expense pool miscalculations
● association dues miscalculations
● misallocation of costs among buildings
● above market charges for non-arms-length services
● excessive charges for chilled or condenser water
If you would like assistance, please call us.
Real estate is one of a company’s most significant expenses; small mistakes compound over years to significant dollars. Check, re-check, and audit landlord expense statements.
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