Lease Audit Services: Why invoice auditing is important
By Patrick Rousseau, Director of Lease Administration & Audit Services, Landmark
As mentioned previously in Outsourcing lease administration to experts can be just like your Black Friday!, expertise in commercial real estate lease administration and audit is crucial to reduce costs and pay the correct amount that you should share with other tenants as per 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 and you ask yourself; 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 that are common with other tenants? If the tenants pay for everything, then what is the responsibility of the owner to his property?
Once your Lease clearly defines what are ‘’common areas’’ and what charges are eligible to be charged back, it is important to preserve your right to audit the charges that your Landlord or property manager is sending your way. If not, you might as well be handing over a blank check to your commercial center owner. It is then important to keep this notion in mind and be vigilant while reviewing all invoices that are charged to your business. An experienced partner in Lease Auditing will quickly provide you guidance if cost reductions are applicable to the invoices that you receive yearly. Their in-depth knowledge will help point out fair amounts for certain types of costs, tax particularities, and accounting principles on topics like amortization.
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 market and can recommend to immediately investigate the details of a suspicious account.
Costs can often vary greatly depending on region and type of cost. For example, in a typical winter the Atlantic provinces can get meters of snow while parts of British Columbia only get some inches. Additionally, metropolitan areas are often faced with limited space and cannot push accumulated snow to the end of a parking lot, like in suburban or rural areas, and property managers have the obligation to haul the snow out of the site. All these factors have a direct impact on the total rate per square foot of your common area costs. A 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 imputation 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. Once again it comes back to what your lease stipulates and what was agreed on between parties. It crucial that your lease wording is reviewed and discussed by your trusted Lawyers & Controller before signing your Lease as the impact of cost can become exponential. Most of the time it is allowed for important charges that represent a capital investment. Then again, it can become a debate. Aren’t the capital investments supposed to be the Landlord responsibility to protect and make their investment grow?
As a Quebec Province Judge once wrote in his judgement; a commercial lease is not meant to be an open buffet for a Landlord. To ensure that you are charged the right amounts in your real estate invoices, the best solution is to call upon the expertise of a Lease Auditor to work in your best interest.