Because a lease allows multiple miscalculations and billing errors, your internal effort in reviewing complex contracts for large amounts of leased space will benefit from an external expert audit.
When the leased space exceeds 100,000 feet. Typically, you should expect your recoveries from an external tenant lease review to be at least 1% of your total occupancy costs for the previous four years. This is true for commercial, industrial, and office users.
The review goes beyond the lease summary and digs into granular detail to uncover invisible inconsistencies between what your lease requires you to pay and the amounts you were billed and paid. Errors occur at a variety of component costs. Here is a distribution of errors by occurrence.
Maintenance of common areas 22%
Real estate tax 26%
Rent 32%
Repair and maintenance 8%
Invoice replacement 6%
Tenant Improvements 2%
Account statement credits 3%
Of the countless ways landlords have overcharged tenants, here are a few …
- Repairs made to other units.
- Administration fees charged on management fees.
- CAM charges not directly related to the common area.
- Capital upgrade / improvements misclassified as maintenance.
- Expenses applied in a single year instead of amortized.
- CAM calculation with denominator set raw leased space instead of gross leasable.
Once the surcharges are detected, a good tenant lease review requires clear and courteous correspondence with the landlord. See the censored example below
Estimated ____________,
We are currently reviewing our occupancy cost disbursements and have determined that, with respect to our location in ______________, for the years 2008, 2009 and 2010 combined, we have incurred $ 64,937 in charges for which we are not responsible in accordance with the terms. of our lease.
Section 4.3 of our lease states that our operating expense obligation is limited to our prorated share of CAM costs in excess of the “Allocation”. Section 4.3 of our lease states that the “allocation” is our actual 2008 operating expenses.
However, for each of the years 2008, 2009 and 2010 you charged us our prorated share of all Operating expenses that cause us to incur excessive costs of $ 64,937 as follows.
(Confidential customer information censored)
Please review the contents of this letter and send a check or credit for $ 64,937 to my attention.
The most sophisticated real estate departments take advantage of external audits to maximize their internal audit capabilities. DCI Solutions can partner with your internal audit to make sure you only pay what your original lease requires you to pay.