Are You Paying More Than Required?
Are you being overcharged or giving away funds you could be saving?
How to Manage Your Rental Obligations and
Make Sure You ONLY Pay What Your Lease Requires
#1 - Double check the math on the reconciliation statement
Often times the simple math of adding up the total costs for operating your building in a year are not added up correctly.
Next, if everything adds up, check to see that the “Base Year” OPEX number is correct and subtract this number from the total cost calculation in step 1.
Next, multiply the pro-rata share with the final calculated number in step 2. If this all adds up with the reconciliation statement, move on to Tip #2.
#2 - Check your pro-rata share against your lease.
If the pro-rata share is not spelled out in the lease, you can calculate this number by dividing the total building square footage outline in the lease by your (tenant’s) square footage. if this matches the pro-rata share in the reconciliation statement, move on to tip #3.
#3 - Check what you paid in estimated payments for the previous year and make sure it is all accounted for.
This is frequently missed, as in most cases the reconciliation statement does not get sent to Tenant’s until March through July of the following year. Many times, the Landlord forgets to include the estimated payments made.
Is an Audit Warranted?
Statistically 8 out of every 10 leases are billed incorrectly by landlords or their property managers. Of those 8, 2-3 are typically found to have significant errors, enough to warrant an audit. Of the audits performed, it is not uncommon to recover between $1 - $4 per RSF of overpaid expenses.
Preliminary Reviews are Important…or are They?
There are several reasons why a preliminary review of your rental charges may be of benefit to you as a tenant. Look at some of the following examples, each a very different situation, and see what can be found because of a preliminary review, which lead to an official audit.
Small office building that was shown to be paying not only their own direct electricity and cleaning expenses, but also paying more than 30% (its prorata share) of these costs for the other tenants’ premises, over a FOUR-YEAR period!
Savings: $85,000.00 + future savings of $15,000 for the next 6 years
After the landlord filed a suit against the building’s janitorial and security vendors for alleged overcharges, the suits were settled and the landlord received a large mid-six figure settlement. Not only did the landlord not pass the settlement refund to the tenants, who were the ones who actually overpaid, he actually charged the tenants for all of the legal fees included in the lawsuit against the old vendors!
Savings: Cash refund from the Landlord in excess of $225,000
Internal audit fails. A large engineering firm requested a preliminary review of its headquarters lease, despite the fact the internal audit group had already preformed an audit and received a $5000 refund from the landlord. The Preliminary Review indicated an additional overcharge of $85,000 that uncovered additional problems that yielded an even greater refund.
Savings: Over $1,120,000 in recovered funds
Subleases also benefit from Preliminary Reviews. A nationwide insurance company requested audits of the sub-tenants only to find that many of the subtenants had never been billed for their share of the insurance company’s opex and tax obligations, or were billed incorrectly, resulting in the insurance company being able to collect an additional $582,000 from the subtenants.
Savings: $582,000 of unpaid OPEX and Tax obligations collected from subtenants
Headquarter audit of a major petroleum company revealed a large refund due the client for overcharges occurring over two years related to the landlord’s failure to exclude all costs associated with the building’s garage from the operating expenses charged to the tenant; it did not eliminate the property tax and insurance expenses. An agreement was then reached with the landlord concerning the calculation method to be applied to specific expenses resulting in significant savings over the remainder of the lease. This was AFTER four previous audits by other tenants/audit firms that had resulted in no findings.
Savings: $300,000 refund of overcharges by the Landlord + $1,300,000 over the next five years of the lease as a result of an agreed upon calculation method being applied to certain expenses.
It is important to note that most leases have a time limit on when statements can be reviewed, it is important to be productive in reviewing your reconciliation statements.
