Above: Most leases say a landlord can bill a tenant for operating expenses but not capital expenses (building improvements which will enhance the value of a landlord's property).  Yet again and again, many major landlords try to get away with billing tenants for capital expenses, like this $372,771 invoice you see here for repairs & improvements to the heating, ventilating and air conditioning (HVAC) system.  CTRR discovered it while performing a lease audit for a tenant.

     As a matter of prudent business practice, you obviously ought to know  whether your landlord is honoring or evading the terms of your lease. Your office lease represents one of your company’s biggest expenses. Knowledge of landlord billing practices can greatly strengthen your position when the time comes to negotiate a lease renewal. There might be so many violations of lease terms that you’d be foolish to again count on the landlord honoring his end of a bargain.

     We’re not talking about mistakes adding things up. The problem is that many landlords deliberately bill tenants for capital expenses even though capital expenses are excluded by a properly-drafted operating expense clause. Tenants are frequently billed for a landlord’s overhead, the cost of bringing in other tenants, work done on other buildings, all kinds of expenses which are blatantly improper.

     You can’t tell by looking at a landlord’s bills whether they are proper because they come without any backup documentation. The people in your accounts payable department aren’t in a position to know whether the bills are proper because they aren’t lawyers, and in any case they almost certainly had nothing to do with negotiating the lease.

     The only reliable way to find out whether your landlord is honoring or evading lease terms is to have your landlord billings audited. The rationale is the same as with auditing financial statements, employee performance or other aspects of your business.

     However, auditing landlord billings involves some specialized skills. First, one must know how to interpret a real estate lease, a complex legal document typically between 100 and 500 pages. Second, one must understand which kinds of services are likely to be consistent with the lease and which are suspect. Third, to know what's going on, one must inspect all the documents in a landlord’s general ledger, invoice files and vendor contracts – perhaps over 1,000 documents per audit year. Otherwise an auditor won’t spot certain dubious financial practices such as breaking down big capital expenses into smaller invoices which are less likely to be noticed.

       Over the years, Commercial Tenant Real Estate Representation Ltd. has audited hundreds of leases for Fortune 500 companies and law firms. We have negotiated the recovery of millions of dollars of landlord overcharges, and in the process we have given top corporate executives important benchmarking information for the next lease negotiation where much more money will be at stake.   

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CTRR serves commercial tenants exclusively nation-wide,
providing real estate brokerage & consulting services 
to help cut occupancy costs

Commercial Tenant Real Estate Representation Ltd.
12 East 41st Street, New York, NY 10017
Phone (212) 684-4400     Fax (212) 684-4403    
email mmanley@ctrr.net

Copyright (C) 2005 by CTRR Ltd.
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