Lease Audit

Market Insights

Whether you lease office space and/or industrial space there is a point in time in the early spring when you receive your annual operating expense reconciliation statement from your landlord. This reconciliation period exists because of shared expenses that are budgeted and paid for by the landlord and allocated and billed to the tenants. The more expenses that are paid for by the landlord, the greater the opportunity for error. Adding to the complexity of the operating expense reconciliation is the base year. The base year is the mechanism that gives each new tenant a starting point for calculating annual operating increases.

The late Joshua Leonard of Deloitte & Touché was an expert in lease audits and trained lease administrators and CPAs nationwide in auditing leases. I was fortunate to be introduced to Joshua while taking real estate attorney Bryan Mashian’s Advanced Commercial Real Estate Legal Analysis course at UCLA this year. Each lease will have different audit rights and time frames. The size and length of the lease are important as well. It is important to consult with your real estate broker, lawyer and CPA when considering  a new lease, reviewing your annual operating expense reconciliation statement or renewing your lease.

On multiple occasions, I have reviewed clients operating expense statements during times of lease renewals worked together with the tenant and landlord to find solutions to resolve current and future disputes and incorporated those solutions into the new lease.