Updated: Sep 12, 2019
By Janet Forrest, MBA
Senior Auditor, Account Manager
Don’t miss out on recovering your money because of a short timeline
You already know that the operating expense provision is one of the most important sections of a commercial real estate lease when it comes to controlling occupancy costs. While you should be diligent about itemizing the types of costs that you can be charged, you should also pay attention to a crucial area in your lease regarding the timing of your right to review and challenge those costs. We commonly call this timing requirement: the audit window.
An audit window is the amount of time that may pass from the date of the annual operating expense or CAM reconciliation to the date of when those expenses can no longer be reviewed. This window of time is critical to preserving your right to examine the expenses that the landlord has passed through to you as tenant. The lease’s audit language often deﬁnes the time limit that the tenant can thoroughly review costs that the landlord has presented as the operating expenses of the building. There are a number of important aspects to this often-overlooked paragraph such as: • Duration of time to commence and complete the audit • Survival of audit rights after lease termination • Conﬁdentiality • Penalties for overcharges • Location of audit • Document accessibility All are important factors to take into account when preserving the rights to review your bill. However, the audit window is arguably the most important factor since it allows you time to review the statement and consider your options. The audit window duration may range from a very reasonable period such as 3 years to a very unreasonable period such as 2 weeks. As tenant, the longer you have for your audit window, the better. A long window allows you to review multiple years in one exercise, thereby reducing the travel cost and/or time involved in conducting the actual audit. A long audit window also allows the reviewer to examine year-over-year trends. Such comparisons assist in the error detection process.
If you or your lease negotiating team is struggling with appropriate audit language, the professionals at Chelepis can assist with the drafting of your audit provision. Ask about our consulting and audit services to learn more.
Our success is based on knowledge of how each occupancy dollar is consumed, calculated, and billed. We offer real estate industry experience from an operations, accounting, and engineering viewpoint; proven experience not offered by any other firm in the industry.
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