Adding Value to Lease Audits
Through Fell’s experience of performing Lease Administration services over the past two decades, we have found that a surprisingly high percentage of all landlord billings are incorrect. This fact unchallenged creates a significant overpayment of occupancy costs by tenants. Fell believes that lease audits, together with the collection and reporting of critical data, are the functions which lead to the greatest value add for clients. To validate and recover this overpayment, we have staffed our Lease Administration team with competent, experienced lease auditors, analysts and attorneys.
After deciding which locations in a portfolio meet the Fell/client criteria for an initial review, we would perform a desktop audit. This consists of an analysis of the actual lease and related documents, the landlord expense reconciliation billings and supporting documentation and trending the current year’s billings to previous years and the base year, if applicable.
The desktop audit focuses on the following:
- checkReview of the lease language to determine key issues
- checkCategorization of expenses as operating or capital
- Verification of base year expenses and any cap or stop identified in the lease terms
- Verification of pro rata share and gross-up calculations
Full lease audits occur when desk audits surface questions not answered sufficiently in exploratory discussions with the landlord, charges not supported by the language of the lease, or charges not conforming to industry standards.
A Full Audit would consist of:
- Lease files including any addendums, amendments, schedules, renewals, notices of change of landlord and any estoppel certificates.
- Landlord’s statements including budgets, year-end reconciliations of operating costs, taxes & utilities (preferably for the past three years if available).
- Client accounting statements that set out payments made to landlord for the past year.
- Trended annual expense for any line item expense from previous years.
- Operating expense comparisons to historical and market expenses.
- Billing and pass through of overtime HVAC and lighting.
Coordination with Landlord
Addressing with the landlord any of the charges not supported by wording from the lease and industry norms in order to demonstrate the basis for the overcharge.
Review of Expenses
Requesting additional or backup information to clarify any questionable expenses.
Requesting Information from Landlord
Requesting access to the landlord’s books, records and invoices at the landlord’s premises.