Another Lease Year And Another Year End Expense Reconcilation
March 06, 2013
You spent months negotiating the lease for your space. The landlord, the attorneys, and your team finally agreed to all the deal points and the location is working out great. Think you’re done? Not quite.
Just about now, commercial tenants will be receiving their 2012 operating expense and tax reconciliation statements from their landlords. Pay attention to this document and note the due date to notify the landlord of mistakes. Failure to do so before the window expires typically often means that the statement becomes binding notwithstanding how big the mistake is.
For most tenants it might take up to 30 days just to pay a bill and now you have to analyze the reconciliation, structure a position, then present the position to the landlord in far less time. Sprinkle multiple leases on to the equation and it can be a nightmare.
Ok – take a breath – establish protocols and do these steps to ensure that you are not missing any benefit from the lease agreement.
1. Upon receipt of the landlord statement, locate the “Audit Rights Provision” in each lease and understand the window you are allowed to analyze, to possibly object, and how to proceed with an audit of the landlord’s books and records if you deem necessary.
2. Before commencing an audit, thoroughly review the landlord statement against your lease. Review the base year line item numbers, pro-rata share calculations, expense stops, exclusions, capital expenditures, extraordinary charges, management fees, any after-hours services, and all CAM (common area maintenance) components.
3. Review all base rent calculations, CPI calculations, and any rent commencement issues to determine any discrepancies.
4. Check real estate tax billings for refunds or credits, and any improper inclusions or allocations.
5. Verify utilities and electric expense rates, and correct meter allocation and reading.
6. Conduct recon on similar properties and similar markets.
Be prepared.
If you would like help, call Bayshore Partners – you know the 40% of time that everyone spends covering their asses at big real estate firms – we’re putting that time into your business.
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