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The Complete Lease Audit ProcessThe RBJ Group uses a seven-step process to identify and recovery overcharges for our clients. Task 1 Conduct background research and obtain the necessary documents to perform the audit. Task 2 Review expenses of property, comparing building expenses to local averages and looking for tell-tale fulctuations over the four-year audit period. Task 3 Read lease to determine methods of calculations for all pass through expenses. Task 4 Audit the landlord's billings and Client's payments for operating expenses, common area maintenance charges, property taxes, HVAC/utilities, and insurance with respect to problems located in Tasks 2-4. Task 5 Audit the base rent escalations per the lease. Task 6 Create spreadsheet to compare actual operating expense pass throughs per the landlord to what should have been passed through to tenant pursuant to RBJ's analysis of the lease. Task 7 Deliver RBJ findings to landlord and facilitate recovery through phone contact and additional correspondence. TASK 1 - IDENTIFY PROPERTY TAX PROBLEMSThis task involves gathering the data required to perform the lease analysis and includes the following subtasks: 1.1 Lease and Related Documents: Obtain copies of lease addenda, CC&R's and Reciprocal Easement Agreements. 1.2 Expense Reconciliations: Obtain copies of operating expense reconciliations for the last four years. 1.3 Real Property Tax Records: Obtain landlord prepared property tax information, the Assessor's Parcel Map, and county records regarding property tax appeals and changes. 1.4 Building Information: Obtain outside information regarding building size, square footage, tenant rolls and other pertinent information of use in the audit. TASK 2 - REVIEW EXPENSES OF PROPERTYThis task involves comparing the actual operating expense pass throughs with local industry averages and looking at cost fluctuations. This allows us to spot red flags and determine how efficient the property management is. Task 2 consists of the following subtasks: 2.1 Compile Industry Averages: Compile industry averages for building's geographic area and building type (i.e. office, shopping center) based on industry average information gathered by BOMA, IREM, ICSC, The Urban Land Institute and The RBJ Group. 2.2 Review Operating Expenses for Building: Review the building operating expense pass throughs over four years to identify cost fluctuations indicative of capital expenses or prohibited pass throughs. 2.3 Analyze Model for Variances: Identify red flag areas based on actual building costs compared to industry averages or large increases in building expenses from year to year. TASK 3 - LEASE REVIEWThis task involves reading the actual, signed lease (addenda, CC&R's and REA's where applicable) to determine exactly which expenses the tenant is required to pay and exactly how those figures should be calculated. The lease determines:
TASK 4 - AUDIT LANDLORD BILLINGSThis task involves reviewing actual invoices, insurance policies, and tax information to verify the allowability of pass throughs and consists of the following subtasks: 4.1 Operating Expense Invoices: Review most recently reconciled general ledger, appropriate journals, and actual invoices to locate prohibited pass throughs such as capital expenses, tenant improvements, etc. Where systemic errors or other concerns arise, review invoices of prior years. Review base year if applicable. 4.2 Property Taxes: Review Assessor's Parcel Maps, tax bills, special assessment breakdowns, and historical county records to determine accuracy of tax pass throughs as well as tax appeals that may have affected the property. 4.3 Insurance: Review insurance breakdowns to assure that the policies are being properly apportioned. Assure that the property is properly insured, but not over-insured pursuant to the lease. 4.4 Other Additional Rent: Review billings that are not addressed on the operating expense reconciliations such as after-hours HVAC, excess utilities usage or parking charges. Assure that pass throughs are properly billed based on the lease provisions, and properly credited to the proper accounts to prevent these reimbursements from becoming a profit center for the landlord. TASK 5 - AUDIT BASE RENT ESCALATIONSThis task involves reviewing the base rent escalations by assuring the timely and correct escalation of base rent per the lease, assuring use of the proper CPI Index with the correct issue date, etc. TASK 6 - PREPARE SPREADSHEET - ACTUAL PASS THROUGHS COMPARED TO RBJ'S ASSUMPTIONSThis task involves creating a spreadsheet that compares actual operating expenses passed through to tenant compared to what should have been passed through to tenant pursuant to RBJ's analysis of the lease. Any overcharge/undercharge will be shown in this spreadsheet. 6.1 Input Actual Operating Expensess: Input actual operating expenses apportioned to tenant for last four years based on operating expense reconciliations. In addition, input base rent paid, rent escalations paid, and leased square footage according to landlord. These items will all be considered actual pass throughs. 6.2 Input Operating Expenses per RBJ: Input operating expenses and tenant's pro rata shares according to Task 4 above. Input base rent and rent escalations according to Task 5 above. These items will be considered RBJ assumed pass throughs. The difference between actual pass throughs and RBJ's assumptions will be the sum of the overcharge/undercharge. TASK 7 - FACILITATE RECOVERY OF OVERCHARGESThis task involves preparing a cover letter to accompany the spreasheet described in Task 6, and detailing all overcharges/undercharges with pertinent lease clauses identified. These are delived to the landlord and followed up with client meetings and landlord negotiations to recover overcharges. 7.1 Progress Reports: RBJ will periodically advise Client as to progress of lease audit through phone conversations and written correspondence. Such conversations shall review the scope of work, progress reports, preliminary and final findings. 7.2 Initial Discussion: Deliver findings described in Task 6 to landlord. Negotiations consist of additional letters and phone calls to the landlord to resolve the issues. 7.3 Additional Discussions: Prepare responses, spreadsheets, and other documentation addressing specific landlord concerns raised in the inital discussion of overcharges to resolve the issues. |
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