Lease Audit Services
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LEASE AUDIT SERVICESMINIMIZING REAL Furthermore, it is notESTATE RENT CHARGES uncommon to find dif-ferent exclusions orAN INTRODUCTION TO limitations on certainLEASE AUDIT operating costs in leas-Paul Neal Rent charges remain one of the es negotiated by vari-Vice-Presidentlargest operating expenses for ous tenants within theLease Audit Servicesmost companies occupying leased same building.premises. Understanding the truenature of the underlying rent components, and taking the Discrepancies can ariseinitiative to audit these annual charges, can result in signifi- between the tenant’scant bottom line savings over the lease term, especially for annual rent chargesorganizations with multiple leased locations. and its contractuallease obligations. AIn Canada, a typical net lease consists of Minimum Rent (or lease audit can poten-Basic Rent) and Additional Rent. The latter represents a tially reduce the his-tenant’s proportionate share of the property taxes and costs toric and future occu-to operate, maintain, repair and manage the property plus pancy costs for an organization by ensuring that all rentalutilities consumed within the leased premises and any charges are in strict compliance with the lease. For organi-additional services provided upon request such as after- zations lacking the in-house real estate expertise orhours lighting, heating and air-conditioning. resources to identify and deal with such issues on a timelybasis, J.J. Barnicke ...
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LEASE AUDIT SERVICES
MINIMIZING REAL ESTATE RENT CHARGES
ANINTRODUCTION TO LEASEAUDIT Paul Neal Rent charges remain one of the Vice-President largest operating expenses for Lease Audit Services most companies occupying leased premises. Understanding the true nature of the underlying rent components, and taking the initiative to audit these annual charges, can result in signifi-cant bottom line savings over the lease term, especially for organizations with multiple leased locations.
In Canada, a typical net lease consists of Minimum Rent (or Basic Rent) and Additional Rent. The latter represents a tenantÕs proportionate share of the property taxes and costs to operate, maintain, repair and manage the property plus utilities consumed within the leased premises and any additional services provided upon request such as after-hours lighting, heating and air-conditioning.
Each of these rent components is influenced by a multitude of economic, social and environmental factors, the unique characteristics of the property, the tenantÕs business use and configuration of the premises, plus the wording of the lease itself. Collectively, these will have a significant impact on a tenantÕs final annual rent charges.
Discrepancies can arise in the Minimum Rent payable if a tenantÕs final built-out space is subsequently measured to be less than the rentable area specified in the Offer to Lease. Gross free rent periods and negotiated abatements will reduce annual Minimum Rent, while contractual rent escalations during the term will increase it. Recent changes in property tax and business tax legislation, assessment methodologies, capping and shortfall recovery provisions, phase-in periods and related factors will all affect the computation of a tenantÕs property tax charges. Operating expenses are influenced by the physical characteristics and amenities of a building, its total square footage, historic occupancy levels, the overall size and location of the property, property management style and ownership structure. Also, certain operating costs that are passed through to tenants in one building might be partially or fully excluded in another by virtue of different landlords h a v i n gd i f f e r e n ts t a n d a r dl e a s e s ,a d m i n i s t r a t i o n structures and billing practices.
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Furthermore, it is not uncommon to find dif-f e r e n te x c l u s i o n so r limitations on certain operating costs in leas-es negotiated by vari-ous tenants within the same building.
Discrepancies can arise between the tenantÕs a n n u a lr e n tc h a r g e s a n di t sc o n t r a c t u a l l e a s eo b l i g a t i o n s .A lease audit can poten-tially reduce the his-toric and future occu-pancy costs for an organization by ensuring that all rental charges are in strict compliance with the lease. For organi-zations lacking the in-house real estate expertise or resources to identify and deal with such issues on a timely basis, J.J. Barnicke Limited can help.
J.J. BarnickeÕs Lease Audit Services Group can assist com-panies to efficiently and effectively audit their current and historic rent charges in order to
recover past overpayments of building operating expenses, realty taxes, utility charges and related occupancy charges benchmark historic and current occupancy costs to market identify and quantify future cost savings over the balance of the lease term ensure correct landlord billing practices that are in compliance with the specific provisions in the lease confirm that the Rentable Area of the Premises is properly measured in accordance with the methodology specified in the lease and bench-marked to BOMA industry standards verify that all financial incentives, inducements and allowances negotiated in the lease agreement have been properly granted by the landlord highlight ambiguous or punitive lease language for future re-negotiation with the landlord
UNDERSTANDING THE TRUE NATURE OF THE UNDERLYING RENT COMPONENTS, AND TAKING THE INITIATIVE TO AUDIT THESE ANNUAL CHARGES, CAN RESULT IN SIGNIFICANT BOTTOM LINE SAVINGS OVER THE LEASE TERM.
