Industry Articles

"Lease Audit Rights Effective Drafting and Exercise"
By: 
Anthony F. Collura, President, CRS, Inc. 
&
Dave Seibel Manager-Real Estate & Facilities, TDS Telecommunications Corporation 

What are lease audit rights? In most leases, a tenant is obligated to pay for a share of building operating expenses, taxes, utilities and other costs in addition to base rent. As in any other business transaction, common practice dictates that there should be an opportunity for an accounting of charges before someone makes a payment. Audit rights in a lease affect that opportunity.
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"Don’t Get Spaced Out: Know the Size of Your Leasehold"
By: Anthony F. Collura, President, CRS, Inc.

Most prospective tenants look at potential leased premises to determine if that space will comfortably accommodate their business operations. The number of desks, cubicles, offices and storage areas are closely considered. This is the space that will be used during their tenancy; hence the term “usable space”. But what of the lobby, the restrooms, the corridors and the stairwells – each tenant uses that space as well. Then there are pillars, elevator shafts and mechanical rooms – these are not “used” by tenant. All of the items mentioned above take up space, and you can be certain that whoever is leasing that space is trying to figure out a way to get the tenants to pay for all of it. Of course, there is absolutely nothing wrong with that, but it is critical that both parties to a lease recognize how much space (usually represented by a square footage amount) they are paying for and how that amount is determined.
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"KEEPING A LID ON EXPENSES"
By Anthony Collura-Vice President Lease Services, CRS Lease Specialists

When negotiating rent for an office lease and you feel that you have obtained a good deal for the base rent, remember only half of your work is done. Base rent can be set at the low or high end of what the market bears at any particular time, and then set for the entire lease turn. A much more volatile and potentially costly component of the rent that the tenant representative must pay close attention to is that associated with operating costs.
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"SARBANES-OXLEY AND THE CORPORATE REAL ESTATE PERSPECTIVE"
By Joel S. Brudner-President, CRS Lease Specialists

The Sarbanes-Oxley Act ("SOX") has had major implications on corporate management in many financial and operational areas. SOX was adopted in direct response to the improprieties of several corporations in the past few years in order to protect investors by enhancing the reliability and accuracy of financial disclosures in conjunction with securities law. This accountability is expressly improved by holding senior executives personally liable for compliance and accuracy.
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"AN OVERVIEW OF TENANT WORKLETTER OBJECTIVES"
By Joel S. Brudner-President, CRS Lease Specialists

The tenant work letter is an agreement that sets forth the terms within the lease upon which the initial tenant improvements are to be built. The work letter is an integral component of any commercial lease and is consistently studied in detail by several service professionals following the execution and delivery of the lease. In addition to the landlord and tenant, the construction manager, the architect/design team, the contractors, and the lender will typically review the work letter. Despite its importance, this part of the lease is often overlooked by tenant and its counsel in favor of more pressing legal and economic issues in the body of the lease. The work letter itself presents several very important issues such as which party is to be responsible for the construction of the tenant improvements, controls the schedule, the cost, the quality of design, and the quality of construction.
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"ARBITRATION: AN EFFECTIVE RESOLUTION TO CAM CHARGE DISPUTES"
By Joel S. Brudner-President, CRS Lease Specialists

Alternative Dispute Resolution ("ADR") is not a new concept in the business context. Arbitration has long been the primary mode of ADR, particularly for contracts and collective bargaining situations; and its use in commercial leases affords the parties a more expedient and fair approach to governing disputes.
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"TENANTS:  RESERVE YOUR RIGHT TO AUDIT"
By Anthony Collura-Vice President Lease Services, CRS Lease Specialists

When negotiating the terms of a new lease, it is important for tenants to include language specifying their rights regarding lease expense audits. Leases that are silent on this subject are generally preferable to those that include limitations and do not preclude a tenant and/or their representative from conducting lease audits. However, if the subject of expense review is broached, then the inclusion of an audit clause in the lease avoids a potential misunderstanding of the tenant's rights to receive and review detailed information on the landlord's building operating and common area costs.
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"OFFICE TENANTS CHECK FOR LEASE OVERCHARGES", Wall St. Journal 
'Audits Spread as Landlords Get More Aggressive In Passing on Costs'…By Sheila Moto

"WHEN AND HOW TO HAVE A LEASE AUDIT PERFORMED"
By Anthony Collura-Vice President Lease Services, CRS Lease Specialists

Any tenant who is charged additional rent, such as escalations for operating expenses, real estate taxes, and common area maintenance (CAM) costs, which are customary in retail and office leases, is a candidate for lease auditing. Any tenant whose leased space is defined in square footage or a percentage of a building's total space should consider a lease audit.
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