The Basics of Lease Compliance Audits
Lease compliance audits are a tool that commercial tenants have to try to control their costs of occupancy. These audits are becoming more and more common. Lease compliance audits are conducted to determine whether the tenant has been billed according to the terms and provisions of the terms of the lease agreement.
Although each particular circumstance varies, in general lease compliance audits usually include the following items:
1. Whether those who administer the lease or bill the tenants have a complete and accurate understanding of the lease terms.
2. Whether negotiated exclusions or limitations are being taken into account in the administration of the lease and billing of the tenants.
3. Whether any charges unrelated to the property are being billed to the tenants.
4. Whether any charges not authorized by the lease are being charged to tenants.
5. Whether any improper charges have been intentionally billed to tenants.
In practice, there can be a substantial gap in the way a lease is negotiated and drafted by attorneys and how it is administered by a landlord or property management company. It is important for there to be adequate communication between the attorneys and those administering the lease to ensure that it is administered in line with the intent and agreement of the parties to the lease.
For example, a particularly service-oriented law firm might prepare a sample billing that the landlord or management company could use as a template to make sure that the financial elements of the lease are consistently accounted for and applied during the time the lease is in effect.
The prospect of a lease compliance audit can be less than welcome by the landlord, and the process itself can at times be somewhat contentious. It is important for the lease agreement itself to carefully and in a detailed manner spell out the specifics of lease audit options, including selection and compensation of the audit company.
Commercial landlords should be aware that more and more commercial tenants are requesting lease compliance audits, and should be prepared to address these issues in a productive manner that will promote a good working relationship without sacrificing their rights or economic interests.
Although each particular circumstance varies, in general lease compliance audits usually include the following items:
1. Whether those who administer the lease or bill the tenants have a complete and accurate understanding of the lease terms.
2. Whether negotiated exclusions or limitations are being taken into account in the administration of the lease and billing of the tenants.
3. Whether any charges unrelated to the property are being billed to the tenants.
4. Whether any charges not authorized by the lease are being charged to tenants.
5. Whether any improper charges have been intentionally billed to tenants.
In practice, there can be a substantial gap in the way a lease is negotiated and drafted by attorneys and how it is administered by a landlord or property management company. It is important for there to be adequate communication between the attorneys and those administering the lease to ensure that it is administered in line with the intent and agreement of the parties to the lease.
For example, a particularly service-oriented law firm might prepare a sample billing that the landlord or management company could use as a template to make sure that the financial elements of the lease are consistently accounted for and applied during the time the lease is in effect.
The prospect of a lease compliance audit can be less than welcome by the landlord, and the process itself can at times be somewhat contentious. It is important for the lease agreement itself to carefully and in a detailed manner spell out the specifics of lease audit options, including selection and compensation of the audit company.
Commercial landlords should be aware that more and more commercial tenants are requesting lease compliance audits, and should be prepared to address these issues in a productive manner that will promote a good working relationship without sacrificing their rights or economic interests.