Does Your CRE Lease Hide Significant Savings?

Commercial landlord-tenant relationships are usually long-term relationships. The lease establishes its basis but frequently overstates operating costs. Actual costs may be due to lease clause misinterpretation, oversight or human error, resulting in your business paying far more than it should.

Landlords’ audited financial statements are advantageous – well, to themselves –and typically audited to standard lease terms and related expenses. It is often a costly disadvantage to CRE tenants.

Most commercial real estate tenants – particularly anchor tenants and those with multiple locations – invest considerable time and resources to negotiate fair cost containment changes to a landlord’s standard lease. But your hard-won negotiated lease changes are neither included nor addressed without a knowledgeable formal lease audit. And, spanning a long-term lease, these discrepancies, omissions and oversights are often overlooked and can recover hundreds of thousands of dollars for your bottom line.

Overhead is the most common source of missed savings. It includes management and administration fees, salaries, imputed landlord office rent, and leasing and leasehold improvement expenses. Other areas to look at are operating costs – are they a cost centre or profit centre? And what are the actual costs of administering a realty tax bill, insurance invoice, or depreciation schedule? We often find that leases require tenants to pay salaries and administration fees. On the flip side: is your landlord incurring expenses to reduce operating costs on your behalf?

Vacancy Gross-Up calculations. Some operating costs, like utilities and cleaning, naturally vary when a space is unoccupied. We question whether the landlords’ gross-up calculation is a fair and, accurate, equitable reflection of the space when it is empty.

Parking. Many commercial buildings treat parking as a separate cost centre with dedicated revenue and expenses. When this is not the case, you may find it buried in the parking expenses included in your operating costs.

Capital Expenses. Capital expenses are another area of a CRE lease that are overstated or misrepresented to the landlord’s benefit. For instance, costs to bring a building to a new standard might appear as maintaining standards due to wear and tear. Amortization and the basis of that are also often omitted or need to be clarified.

Many organizations assume their accountants or accounting staff will pick lease discrepancies and overpayments. But finding them, analyzing them and ensuring delinquent recovery from the landlord is a specialized set of skills that combine comprehensive auditing techniques with extensive commercial real estate lease knowledge and experience.

CREiQ finds cost reductions in your leases that others most often cannot – for many reasons. These include uniquely hybrid commercial real estate and finance expertise, decades of data, and experience with complex CRE leases, servicing more than a billion square feet of leased commercial, retail and institutional space, AI-driven data extraction and tenant-focused 360-degree deep dive analysis.

Best of all, it’s a no-risk, no-cost service with everything to gain, whether significant cost reductions on your rent expenses or satisfactory due diligence for your stakeholders.

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