By now, your Landlord should have provided your 2022 year-end Additional Rent reconciliation statement as well as their 2023 estimates – and odds are it is not what you expected.
The pandemic has created a misaligned set of expectations around operating costs.
In response to the pandemic, coupled with new provincial government mandates, Landlords have implemented several cleaning and safety measures. These include enhanced cleaning protocols, added social distancing signage, and updated air filtration systems, to name a few. These safety measures drive up costs – and Landlords are looking to push these costs onto their Tenants.
Across Canada, many companies have implemented a hybrid work strategy, and as a result, many buildings continue to be underutilized. With fewer Tenants using their space, Landlords ought to be experiencing decreases in Operating Costs for items such as repairs and maintenance, utility consumption, and security. Tenants are expecting costs to decrease, yet many are finding the opposite to be the case.
Conducting a Lease Expense Review will help ensure you aren’t overpaying.
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Understanding your rights as a Tenant versus what the Landlord is able to charge back is paramount.
Exhibit 1
Increase in additional rent estimates across markets in the GTA
Changes to the language in leases
According to most leases, Landlords have the right to make adjustments in their calculation methodology which can increase or decrease operating costs, if they determine it is reasonable to do so. As a Tenant, it is crucial to look at the language in your lease to understand the rights required to challenge the Landlord’s determination of Additional Rent. In many leases, Tenants only have a limited amount of time to ask for support documents/information from the Landlord.
Understanding your rights, based on your specific lease, is important, particularly if you are being charged more than your appropriate share as per your lease. So, reading the fine print and being timely in terms of requesting and reviewing the Landlord’s support materials is more important now than ever.
Why do a Lease Expense Review?
This year is different from years past. The pandemic has forced new practices and procedures around how Landlords operate their buildings. And these increased costs will inevitably be passed down to Tenants.
Are you certain the allocation of costs is being calculated correctly? Do you have a baseline for costs to compare against? Is the landlord appropriately passing pandemic-related costs to the Tenants? Are you being negatively impacted because of increasing vacancy and fewer Tenants for the Landlord to recoup its costs against?
As your workspace continues to be underutilized, isn’t it time to get a second opinion on your commercial lease, to ensure every penny is accounted for?
Oversights happen.
We partner with occupiers exclusively to uncover their portfolio's hidden costs to optimize value. Lease Expense Review is an invaluable tool to identify billing errors that often occur in commercial real estate leases.
Download this Lease Expense Review Method one-pager to explore the value of conducting a Lease Expense Review, and when is a good time to do so.
How the Lease Expense Review process works
A lease expense review is an invaluable tool to identify billing errors that often occur in commercial real estate leases. By reviewing your unique lease documents and the Landlord’s year-end reconciliation, you can assess whether your company is paying your property owner more money than is legitimately due.
Cresa’s Lease Auditors perform a detailed analysis and year-end reconciliation of your Landlord’s invoices, to ensure compliance with the lease terms you agreed to. They also do a historic review of prior year-end adjustments to determine if you are entitled to a refund or are obligated to make up the shortfall to the Landlord.
The financial benefit of a Lease Expense Review
Lease Expense Reviews are not only about recovering past refunds. A thorough Lease Expense Review can create future savings by ensuring the Landlord does not repeat prior practices that cannot be justified.
This means real savings that stay with you – where it belongs.
Whether this is your first time conducting a Lease Expense Review, or you have engaged in a Lease Expense Review previously, this is a crucial year to initiate the practice. For more information on the process, please reach out to your Cresa Advisor.
Our Experts
Maria Nenciu
Senior Lease Expense Analyst
Phone: 416.862.2666
Email: mnenciu@cresa.com
As an Affiliate member of the Association of Certified Forensic Investigators of Canada, Maria brings over 25 years of experience ensuring the tenant’s best interests are at the forefront of every audit she does while at the same time preserving the landlord and tenant relationship. Her forensic approach to lease audit has resulted in substantial savings for her clients.
Rameysh Karu
Lease Expense Analyst
Phone: 416.862.2666
Email: rkaru@cresa.com
As a Lease Auditor, Rameysh brings 10 years of progressive lease audit experience conducting on-site and desktop audits for retail, office, and industrial clients. Specifically, he collaborates with stakeholders to settle complex disputes to ensure the Tenant’s interests are advanced. Rameysh is able to see the big picture and thoroughly examine the minutiae of lease language, audit clauses and OPEX calculations.
Thought Leadership
Lease Expense Review
By now, you will have likely received your 2023 estimates, and chances are, they will have increased from last year. With many companies employing a hybrid work strategy and buildings being underutilized, why is your operating cost increasing?
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