Monthly Archives: November 2016

Tenants Need to Hire a Specialist to Audit Their Lease / Operating Expenses

You are a busy tenant running your business.  You receive your annual reconciliation of your share of expenses from your landlord about April each year.  These expenses go by different names, but are usually called NNN in retail and larger industrial spaces and operating expense increases for office and smaller industrial spaces.

The landlord reconciliation usually just shows the breakdown of each expense category, what your percentage share is, and how much you owed for the year.  You usually have been paying estimates all year so you might owe some or actually might receive a credit if you have overpaid.

Can you tell if this reconciliation is correct on your own?  I doubt it.  Most tenants that even think they can really can’t and don’t know what they are missing.  Landlords usually don’t send you enough information on the reconciliation to tell if it’s correct.  You need someone that specializes in understanding your lease and also that knows how to properly audit this reconciliation.  It’s kind of a combination between a real estate attorney and a CPA, but even having both of these on your side will probably not cover all of your bases in this area and it would be costly to use both.  There is a better way to do, it in my opinion.

I just finished acting as an expert witness in a legal matter related to a tenant vs. a landlord where the landlord overbilled the tenant for over a million dollars for their share of NNN expenses.  The tenant who I represented won the case and this has happened many times where I have been involved as an expert witness.  In my experience, I have found that landlords commonly overbill tenants and have many profit centers in their expenses that should not be there.  There are also other things in a lease beyond these types of expenses that give you financial exposure that you probably don’t even know are there.  These need to be understood and you need to be ready for them if and when they happen.

My background preparing these types of reconciliations for landlords spans over 25 years, thousands of tenant reconciliations, and hundreds of negotiations and lease audits for this type of expense reconciliation.  I also was in a position for the last 6 years of my landlord side career to negotiate over 100 leases per year. I am considered by many real estate attorneys to be an expert with a lease form whether retail, office or industrial.  Put the two types of aforementioned experiences together and you have a specialist in this expense share area like me that can really help a tenant like you.

You can hire me on a contingency or hourly basis, but it depends on your situation as to which is best.  I will be able to advise you on this in less than an hour usually and can usually tell if there is problem with your reconciliation.  Not getting it checked every year is a costly mistake.  So, if you want my help to make sure your share has been calculated correctly or you need an expert witness in this area for a legal matter or a full lease audit, please call me.

805-217-0791

david@djmcre.com