Expertise in commercial real estate lease administration and auditing is crucial for reducing costs and ensuring the payment of the correct amounts that you should share with other tenants according to your lease terms. For a great start, clear lease language written by knowledgeable lawyers will help you avoid confusion when your landlord sends you his year-end billings, making you wonder, “Should I really pay that charge?”
What should be your financial contribution to common areas, which play a role in operating your business? Should you pay your share of the total operating costs of your commercial center, or only your proportionate share of the areas and services common with other tenants? If tenants pay for everything, then what is the owner’s responsibility to his property?
Once your lease clearly defines what ‘common areas’ are and which charges are eligible to be charged back, it is important to preserve your right to audit the charges that your landlord or property manager sends your way. Otherwise, you might as well be handing over a blank check to your commercial center owner. It is thus important to keep this notion in mind and be vigilant while reviewing all invoices charged to your business. An experienced partner in lease auditing can quickly provide guidance if cost reductions are applicable to the invoices you receive annually. Their in-depth knowledge will help identify fair amounts for certain types of costs, tax particularities, and accounting principles on topics like amortization.
What is a Fair Amount in a Particular Market?
The devotion and rigor of an experienced real estate auditor will, with a glance at an invoice and detailed cost verification, identify amounts that seem unaligned with the market and can recommend immediately investigating the details of a suspicious account.
Costs can often vary greatly depending on the region and type of cost. For example, in a typical winter, the Atlantic provinces can receive meters of snow, while parts of British Columbia only get some inches. Additionally, metropolitan areas often face limited space and cannot push accumulated snow to the end of a parking lot, like in suburban or rural areas, and property managers are obligated to haul the snow off the site. All these factors have a direct impact on the total rate per square foot of your common area costs. Knowledge of the market helps an auditor identify those irregularities. The same notion applies to many other cost centers, like parking lot repairs, insurance, and administrative fees.
With or Without HST and the Amortization of what?
While reviewing the invoices included in your year-end reconciliation, exceptionally some cost centers can include the HST amount for taxes that are irrecuperable from the government by the landlord. If you see invoices that are ‘tax included’ or charged back to you with the HST amount, be sure to remove the tax portion from the calculation. Most of the time, they are not allowed as they represent a double counting of the same charge at the end of the invoice review.
For amortization charges, this can be tricky as lots of rules apply to this concept. It comes back to what your lease stipulates and what was agreed upon between parties. It’s crucial that your lease wording is reviewed and discussed by your trusted lawyers and controllers before signing your lease, as the impact of costs can become exponential. Most of the time, significant charges representing a capital investment are allowed. Then again, it can become a debate. Aren’t capital investments supposed to be the landlord’s responsibility to protect and enhance their investment?
As a judge from Quebec Province once wrote in his judgment, a commercial lease is not meant to be an open buffet for a landlord. To ensure that you are charged the correct amounts on your real estate invoices, the best solution is to call upon the expertise of a Lease Auditor to work in your best interest.