The Effect of Lease Audits on Business Efficiency and Savings
Lease audits offer significant benefits to tenants by helping identify key dates and ensuring that they are not overcharged by their landlord.
Right now, businesses across the globe are facing huge challenges. Not only is the world still recovering from the effects of the COVID-19 pandemic and the resultant supply chain disruptions, but inflation has wreaked havoc on tenants regardless of industry. Pent-up demand from the pandemic has collided with a shortage of supply, which has squeezed a number of tenants when it comes to rent rates.
However, there are ways to achieve some relief by starting up a lease audit.
Lease auditing is the process of analyzing the key terms of the lease and related documents to ensure the landlord has billed the tenant accurately. This helps ensure that the tenant is not overcharged for expenses such as their share of operating costs, taxes, utilities, CAM, rent escalations, per-square feet rent calculations, etc.
Other than these key areas, lease audits also help ensure key opportunities such as renewal and expansion options are not forgotten. An effective lease audit entails a thorough review of various documents apart from the lease itself, including invoices, bank statements, payment receipts and even documents in the public domain, at times.
Lease audits offer significant benefits to both the landlord and the tenant. Landlords usually perform lease audits to ensure they are not under-charging their retail tenants that have percentage rent clauses in their leases. However, lease audits are especially important from the tenant’s perspective, primarily because the onus of identifying and reporting incorrect charges lies with the tenant and not the landlord.
Moreover, most leases have a timeframe within which erroneous billing must be reported. If the timeline lapses, the tenant is deemed to have accepted the charges levied upon them. Further, if the lease has a clause wherein the charges are escalated based on the previous year’s charges, then the escalation will be applicable on the inflated amount and the cycle continues causing the tenant to lose thousands of dollars annually. There have been cases where lease audits have helped tenants cut their operating expenses by as much as 70%.
When businesses sign a lease agreement, a lot of thought goes into determining the financial viability of the lease. Somewhere down the line, perhaps due to lack of resources, on-going maintenance of the lease takes a backseat and the inaccuracies creep in so silently that businesses fail to realize that the lease is no longer in line with their expected ROI projections.
A lease audit can help fix this. If you are short on resources to perform yearly lease audits and related tasks, it makes sense to collaborate with an experienced lease administration vendor like Mohr Partners who can offer these services for you. Most tenants see that the ROI on their lease audits often outweighs the expense it entails by a great deal.