The Value of a Lease Audit

October 19, 2015

Mention an audit to most professionals, and the response is not likely to be positive. Whether their mind jumps to the uncertainty of a tax audit or the burdens of a corporate audit, everyone wants to avoid the possibility of one. What these people don’t normally consider are the potential benefits of a lease audit, along with the significant amounts of money a lease audit could save them.

First, it’s important to recognize that a lease audit isn’t really an audit at all — it’s more of a contract compliance review. However, many leases refer to the process with intentionally confusing language, as landlords aim to discourage tenants from looking through their books and records. Leases may even include restrictive clauses against such activity, but if your real estate lease allows passthrough operating expenses, you have the right to know whether those charges are accurate.

Historically, one third of all commercial tenants are paying more operating expenses than what is required by their lease. The good news is audit rights don’t have to be specifically allowed in the lease for tenants to validate operating expense charges. What’s more, the process should not trigger audit provisions that may exist, since the landlord’s books and records aren’t involved. With minimal legal barriers in place, businesses shouldn’t be quick to write off what may be an important and valuable process.

So, who should perform lease audit services? An accountant is not needed, since a CPA will likely not have the necessary expertise to grasp the legal or leasing components of the review. Conversely, attorneys may lack knowledge of the management or accounting factors involved in the lease. The ideal partner will have a strong understanding of both, so a review of your lease and operating expense statements may yield advanced insight into your expense charges. This will show you what is acceptable and what might be cause for concern.

The professionals at Intelica Commercial Real Estate understand all angles of these transactions, and can extend their valuable expertise to increase your bottom line. Contact us for more information about a lease audit today.