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What is a Lease Audit?

Lease Audit is Embraced by the Fortune 100.

Lease audit is a systematic process that examines leasehold expenses, billing methodologies, and lease language in commercial leases.

Professional lease audit is a very specialized forensic accounting function that requires expertise in building management, building operating systems, landlord billing structures, HVAC and energy audit, lease term interpretation / application, and is designed to level the field with the landlord and bring transparency to often highly complicated third-party billing / accounting systems.

Areas of a Review Typically Include:

  • Annual Reconciliations / Operating Expenses / CAM Charges
  • Base Year Calculations
  • Escalation Indices: CPI, PPI, Porter’s Wage & other Index Driven Escalators
  • Gross Up Calculations
  • Base Rent / Percentage Rent / Free Rent and Concession Provisions
  • Impermissible Lease Expenses / Capital Expenditure
  • Pro Rata Share
  • Insurance
  • HVAC / Utilities
  • Real Estate Tax / Specific Assessments and Parcels
  • Overtime Charges and Tenant Specific Chargebacks
  • All Other Chargebacks & Occupancy Related Costs
  • Space Measurement Verification
  • Sundry

What About Electricity/Energy Charges?

It is crucial to examine electric/energy charges as part of any comprehensive review. Unlike most lease audit firms that outsource this highly specialized audit component, CTS applies an in-house core competency in Electrical/Energy Auditing to determine the validity of these charges.

Among the methodologies examined are:

  • Sub-Metered Electric: Calculation Errors, Incorrect Rate Application, Improper Metering of Space, Faulty Meters, Exaggerated Profits, Wholesale/Retail Distortions.
  • Rent Inclusion (ERIF): Incorrect Rate Applications, Incorrect Base Dates, Improper Pass Throughs of Rate Increase/Decrease, Incorrect Surveys (Overestimated Consumption, Calculation Errors, Improper Equipment Inclusion).
  • Common Area Electric: Improper Allocation Between Building and Tenant Electric, Double Billings, Failure to Deduct Reimbursed Costs, Incorrect Tax Applications.
  • Direct Meter: Misapplied Rates, Billing for Incorrect Meters.