Are You Being Served… More Expenses Than You Deserve?

On Monday morning, my colleague Bill in our Audit and Recovery practice presented to all of us on the expense and fee clauses that he frequently sees when he is brought in to audit a client’s lease.  Since he is compensated on a contingency basis, he is very good at finding discrepancies between what the lease obligates and what the landlord actually charges.  However, the gems that he shared with us had less to do with comparing rent bills to leases and more to do with how to reduce the likelihood of these improper charges ever being an issue for our clients.

I’m sure everyone is familiar with the saying, “An ounce of prevention is worth a pound of cure.”  Nowhere is that more true than when negotiating the lease of a client.  At Monday’s session, I was shown an example where a property manager’s improper gross-up calculation for utilities would have resulted in roughly a $180,000 overcharge for the tenants in the building.  Now imagine that you are a major tenant, occupying roughly 10% of the space in a building.  Finding an extra expense of $18,000 on your annual rent is never a good time, and that was only for utilities.  If the same thing happened across all operating expenses or if some capital expenses were passed through as operating expenses, that $18,000 could quickly become a whole lot more.  That’s why I definitely appreciated gaining the insight from Bill.  Now I can actively review lease proposals for my clients and nip some of these issues in the bud to save my clients time and money down the road.

After-blog mint: Am I the only one who sees the humor in the fact that a man named Bill audits leases?


2 Responses

  1. Bill did a good job. Cap exes, operating expenses and audit rights have become a major focus lately for tenants, as has the contingent fee auditor. As a tenant, of course, you want one; and as a landlord you don’t. I am frequently arguing about these clauses in leases depending on who I represent.

  2. Thanks, Jacob for putting out this info. As a lender, I did not specifically focus on this issue, but as you pointed out — I’ve seen deals affected by the aftermath of a tenant figuring this out too late in the process.

    Buy Bill a latte for his efforts.

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