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
- HVAC / Utilities
- Real Estate Tax / Specific Assessments and Parcels
- Overtime Charges and Tenant Specific Chargebacks
- All Other Chargebacks & Occupancy Related Costs
- Space Measurement Verification
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.