The value of conducting rental property audits

Leasing is the cornerstone of tenant-landlord relationships in commercial real estate. However, beneath the surface of these carefully crafted documents is a complex web of financial obligations and legal provisions that can easily become tangled. The more leases an organization has, the greater the risk of costly travel.

A lease audit is a powerful tool that not only unlocks these complexities, but also uncovers hidden savings, ensures compliance, fosters better business relationships and supports more strategic decision-making.

Ken Gerber, COO of Cushman & Wakefield | Broll explains that a lease audit is a deep dive into the details of a lease to ensure that all of its terms and obligations are being met and that no party is being disadvantaged.

“The importance of leasing audits cannot be overstated. For tenants, a rent audit can reveal billing discrepancies or errors that could lead to significant refunds or savings. For landlords, it ensures that they receive the correct payments and that the property is maintained in accordance with the lease terms. Essentially, rental audits help both landlords and occupiers achieve their financial and operational goals,” says Gerber.

The devil is in the details

Essentially, a lease audit is the comprehensive review and verification of the accuracy and compliance of a commercial lease. This meticulous process covers various aspects such as rent, operating expenses, taxes, maintenance, utilities and other charges that could be either billed to the tenant or paid by the landlord.

Beyond financial scrutiny, it also assesses the market value of the rent, what services should be provided at the property and by which party, and other tenancy conditions and events.

“With an up-to-date rental audit, both occupier and landlord can enjoy a better relationship, being on the same page about their obligations and having a clear understanding of their responsibilities. This can lead to greater satisfaction and trust, encouraging a more cooperative, productive and even sustainable partnership,” says Natasha Bruwer, managing director of occupier services at Cushman & Wakefield | Broll.

Conducting a lease audit is a detailed and structured process. It can be carried out in-house by a tenant or landlord, but due to the wide range of expertise required, it is usually placed in the skilled hands of a third party with experience in commercial real estate and lettings auditing, particularly in a particular market. , with strong professional ethics, including integrity, confidentiality and impartiality. Beyond this, proficiency in data collection, analysis and reporting has become essential.

For Cushman & Wakefield | Broll, a critical part of a lease audit is taking a data-centric approach. It is essential that you collect and analyze complete and accurate data on all leases. This helps drive strategy and ensures better trade execution.

Clean and current data

In today’s world, data reigns supreme. As businesses and property owners aim to get the best value from their leases, a thorough and technology-based approach to lease audits signals clear and reliable assurance.

Wynand van Jaarsveld, Director of Occupant Services Data and Finance at Cushman & Wakefield | Broll, points out that there are often common challenges early in the lease audit process. “Sometimes property data is incomplete, important rental events are not visible, and manually captured rental data can be inaccurate and lead to incorrect payments. In addition, data may not be aligned with regulatory compliance such as IFRS 16/ASC 842, and different data sets may make it difficult to maintain transparency and good data governance.”

Addressing these challenges through a complete data cleanup and ownership contract review is a crucial step in Cushman & Wakefield | Lease audit process.

“We take a systematic approach to lease audits and payment reconciliation. First, we gather all the rental documents and upload them into specialized abstraction software. The software extracts key information, checks for missing data and identifies potential gaps. For payable leases, this involves matching sites with payment records, verifying any discrepancies and preparing financial models and reconciliations. For leases receivable, a similar process is followed, ensuring all invoices are accounted for and reconciled,” notes Bruwer.

Technology-based approach

The role of technology in lease audits cannot be ignored. Advanced software and AI tools have made lease audits faster and more accurate. These tools can quickly process large volumes of data, identifying patterns or mistakes that humans might miss.

“Using these technologies, we can provide our customers with more detailed and useful information to help them get the most value from their leases,” says Bruwer.

Building a powerful system

Lease audits aren’t just about finding and fixing mistakes. It also helps create robust systems to prevent future errors and ensure ongoing compliance. A detailed report with findings and recommendations is provided, which can then be used to make informed decisions and adjustments.

If monitored and maintained on an ongoing basis, the benefits of a lease audit can be sustained over the long term.

Not all lease audits are created equal

The scope and depth of the process may vary depending on the number, complexity and duration of leases in a portfolio.

These can be done once or as an ongoing process, and once the necessary adjustments are identified and quantified, they can include negotiations, resolutions, lease management, real estate strategy updates, and any number of real estate solutions.