Duplicated Costs: Hidden Savings for CRE Tenants

Savvy commercial real estate (CRE) tenants recognize the importance of vigilant oversight in managing their lease agreements. One often overlooked but crucial aspect of lease management is identifying duplicated expenses – costs unknowingly paid twice. Lease audits can uncover these duplications for significant savings and are a valuable tool for tenants looking to optimize their financial positions.

Understanding Expense Duplication

Expense duplication occurs when expenses are billed to or directly incurred by the tenant while also included in the building operating expense pool and recovered from tenants a second time through the year-end expense reconciliation. Common culprits include hydro, HVAC, snow removal, security, cleaning, waste management, premises repairs and recycling. 

Tenants rarely question these costs, relying on the accuracy of their year-end expense reconciliation. However, in many cases, commercial tenants may effectively pay twice for the same thing. 

Where Duplication Hides

Intentionally or not, landlords may rely on ambiguous lease language or summarize reporting in a way that makes it challenging for tenants to see the duplications. The challenge arises when direct expenses are already provided for in the lease yet rolled up in a summary and included in year-end operating cost reconciliations. Landlords often group these extra charges with other operating expenses, and tenants often pay twice for the same services – once directly and again through their share of annual operating costs. 

Direct expenses often include utilities, maintenance, and services beyond the base amount agreed in the lease. The landlord may charge extra hydro or HVAC due to increased business operations, equipment, or lock changes due to security concerns. There may be additional direct charges for a tenant’s share of additional cleaning fees or security following events, emergencies, renovations, or specific waste or recycling initiatives. Tenants are billed at the time of service or as part of monthly operating expenses. Monthly payments are common, especially for routine services, but one-time charges may be applied as needed.

Lease Audit as the Solution

Thorough Examination: Lease audits involve meticulously reviewing lease agreements, financial statements, and related documents. CREiQ scrutinizes every line item, ensuring that all expenses are accounted for and that no duplication goes unnoticed.

Expense Verification: A comprehensive lease audit verifies each expense category, ensuring that charges align with the agreed terms and flags discrepancies or duplications for prompt resolution.

Negotiation Leverage: Armed with insights from the lease audit and knowledge of uncovered expense duplications gives tenants leverage to engage in constructive negotiations and fair adjustments to their lease terms.

Enhanced Transparency: Lease audits bring transparency, helping CRE tenants better understand the intricacies of their lease agreements and make informed decisions regarding their real estate expenses.

Maximizing Cost Recovery: By identifying and rectifying expense duplications, a lease audit plays a crucial role in ensuring that CRE tenants are only responsible for legitimate and agreed-upon costs, fostering a fair and mutually beneficial landlord-tenant relationship and helping tenants recover overcharged amounts. 

Duplication in commercial real estate expenses underscores the importance of thorough no-risk lease audits. CREiQ has extensive expertise and experience in commercial real estate and finance, helping clients across various sectors recover substantial cost savings and improve financial efficiency. It is just one of CREiQ’s extensive service offerings for commercial real estate tenants covering the entire lease lifecycle.

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