Lease Audit Checklist

Answer yes or no to these statements to determine if you could benefit from a lease audit. If you answer no to any question, you should contact a skilled professional to arrange a lease audit.

Billings

1. We bill based on current year estimated operating expenses when leases allow, rather than on prior year actuals.

2. We include all allowable gross-ups such as cleaning credits, trash removal credits, electric, and security in our escalation charges.

3. Periodically, we have someone other than the assigned property accountant review tenant escalation calculations to ensure they are accurate.

4. Annual capital expenditures are reviewed by operations to determine if they qualify as depreciable pass-through operating expenses due to operating cost savings.

5. We have reporting systems in place that allow us to perform retroactive billings (true-ups) within 90 days of the close of the escalation year-end.

6. Consumer price index adjustments are reviewed to ensure that the correct index and base amount are being utilized.

7. Common-area maintenance charges continually are assessed to determine if all allowable charges are being billed to tenants.

8. We engage an energy consultant to assess common area electric charges that we can pass through to tenants.

Lease Abstracts

9. Prior to being entered into the billing database system, lease abstracts are reviewed for completeness and accuracy by someone other than the preparer.

10. Lease modifications are entered into the database billing system in a timely matter.

Lease Audits

11. For retail tenants that are required to pay a percentage of sales, our leases require that tenants report sales at least quarterly, if not more often.

12. We have systems in place to monitor tenant compliance regarding submission of financial statements, both audited and unaudited.

13. From time to time, we exercise our right to perform audits of tenants that are subject to paying us contingent rent such as percentage of sales, subletting profits, and other forms of participation rent.

14. We strictly enforce lease provisions that require that certain tenants produce audited financial statements.

15. Lease audits performed by our tenants have NOT resulted in our organization having to refund large sums to tenants.

16. Timely electric surveys are performed and tenant billings are adjusted accordingly.

Susan H. Nadler, CPA

Susan H. Nadler, CPA, is a partner at New York-based accounting firm Marks Paneth & Shron LLP. Contact her at snadler@markspaneth.com.