Original article posted in Inside Tucson Business here.
Have you checked to see if you can save money on your commercial real estate lease?
Right now is the ideal time to check that your landlord is correctly billing your company.
Around this time of year, commercial property tenants of Tucson office space, industrial space or retail space receive from their landlords the 2017 expense reconciliation statements of operating expenses and taxes.
Take a close look at the documents. You have 30 to 60 days after receiving them to give notice that you want an audit done. You should consider it.
An audit of your lease expenses may save you substantial amounts of money over your lease term. Examining the landlord’s expenses assures you that you are properly billed. I know of one auditor who has saved his clients millions of dollars over six years.
Not every tenant needs an annual audit. You should consider it under these situations.
New Gross Lease.
If your gross lease was executed in 2017, you have one chance to audit the base-year expenses. If you waive this right, you may be over-billed for the rest of the lease if the landlord understated base-year expenses.
New Net Lease.
If you signed a net lease in 2017, you’ll want to verify that you’re charged only permitted expenses.
Landlords may allocate expenses to the various components in mixed-use properties that do not reflect the actual usage of services by each component.
Major capital spent on building systems, exteriors or common areas should be audited to confirm if your lease permits such expenditures.
Operating Expense Increases.
If operating expenses rise substantially, that could be a red flag that the landlord may have improperly calculated them. You’ll want to look at specific line items of expense.
A landlord whose property has high vacancy may make significant errors in applying the gross-up adjustment of expenses. This can result in you paying too much for your share of the annual operating expenses.
Tenant representatives like Commercial Real Estate Group of Tucson can help you determine if an audit is in your best interest. We can also help you set the process in motion. Contact CREG Tucson at 299-3400.
Get Your Books in Order
If you’re a private company, this is the year to start getting your financial statements in order for new accounting changes that go in effect in 2020.
If you’re a public company, you should have started adjusting the reporting of your commercial property in 2017 to be ready for changes in 2019.
The changes by the U.S. Financial Accounting Standards Board (FASB) are meant to provide transparency in financial statements.
What it could mean for you is a loss in your ability to attract new investment, obtain new loans or maintain current loans. Or it could free up cash for space expansion or relocation.
Commercial Real Estate Group of Tucson can help you get started. Contact us, 299-3400.