Did your last lease audit cover this important area?

 

Why you shouldn’t overlook the definition of leased area/premises square footage in your lease?

As a tenant, you know how important it is to manage lease costs. You also know there’s always an opportunity to cut leasing expenses (or at a minimum, keep them from growing out of control!). A lease audit is a cost-effective way to help you identify these areas and financially benefit from them. Diligent tenants conduct annual lease audits to ensure they are not being overcharged by their landlords. Unfortunately, the scope of a lease audit can sometimes be so vast that auditors overlook areas that may not be as obvious. In our blog today, we discuss one such area in particular – leased space.

Leased space or square footage plays an important role because it forms the base for most of the charges levied upon the tenant. Even a few square feet here and there can make a huge difference when base rent, CAM charges, and other operating expenses are calculated on a per-square-foot basis. In order to ensure you are being billed fairly and correctly, you need to understand the definition of leased space clearly and verify the amounts you have been billed against that.

From a tenant’s perspective, it is most advantageous if your leased area or square footage definition involves only the actual usable area. This means other common areas such as hallways, stairs, other access pathways, etc., are not included. Ideally, as a tenant, you should be looking into this right at the time of signing your lease. If this angle was overlooked, you may still be able to negotiate with your Landlord and sign an amendment to address it. If not, understanding the concept of leased square footage with respect to your lease will help ensure you are not paying more than your fair share of operating expenses and CAM charges.

If you haven’t done so already, you should consider including leased space in the scope of your next lease audit. This is extremely important given that most leases specify a limited timeframe for any corrections/objections related to the tenant charges. If not modified within the stated time period, the charges are deemed accurate and accepted. This can prove especially costly in cases where the yearly rise in expenses is based on the previous year’s charges, causing the error to repeat year-after-year.

RE BackOffice is a strategic partner providing end-to-end lease administration and accounting services. We offer scalable, affordable and accurate lease accounting and administration services to optimize your lease portfolio and related processes. Please contact us today to learn more.