1. Navigating Legal Issues in Lease Audit Claims
Presented by: Marc E. Betesh, Esq., MCR.h, KBA Lease Services/ Visual Lease Maria Pizza, Terrie O'Connor Realtors – The Mcbride Group

2. Overview How do lease audits fit within the “law?” Dispute resolution
CAM provisions as contract issues
Dispute resolution
Negotiation
Litigation
ADR in the lease
ADR not in the lease

3. Specific Issues Management fees and administrative charges
Capital Expenditures
Space measurement
Gross-ups
HVAC Overtime and other special charges
Parking garage charges

4. Management Fees / Administrative Charges
Normal operating costs typically included in CAM
Center/building management a normal operating cost
Administrative charges are to cover costs of administration, and are normal operating cost
Management fee can be additive – can double count for labor
What does Lease say? Does it allow both charges?

5. Management Fees / Administrative Charges Audit Issues
Duplicate charge for same labor
Rates / fees above market
Rates / fees inconsistent (for Base Year leases)

6. Capital Expenditures
CapEx typically excluded from CAM / Operating Expenses
Common allowance for CapEx if
Required by laws, insurance, safety
Cost-savings
Allowable CapEx must be amortized

7. Capital Expenditures Audit Issues
Expense vs. CapEx
Laws/insurance/safety requirements predate the lease
Don’t actually save money
Amortization schedule not correct

8. Space Measurement Rent typically determined as cost/SF x RSF
Cost/SF driven by market
Cost/SF, RSF and sometimes total Base Rent are often fixed in lease to avoid ambiguity
No standard of measurement
PRS often a formula, but can be stated as well

9. Space Measurement Audit Issues
Size smaller than expected
PRS no longer valid due to changes in configuration
Added RSF
Change from single floor to multiple floor

10. Gross-Ups Removes dilution of costs due to
Low occupancy
Partial use
Partial cost
Goal is to cause tenant to pay 100% of costs attributable to it
Numerous formulas to achieve
Fixed vs. variable expenses
Formulaic vs. practical approaches

11. Gross-Up Audit Issues Failure to separate fixed from variable expenses
Failure to address non-occupancy related items
Disproportionate usage

12. Parking Garage Charges
Parking area costs usually part of CAM / Operating Expenses
Free parking (no charge to vehicles) is a normal amenity
Paid parking changes the amenity to a business
Costs to maintain paid parking areas should be excluded from CAM

13. Parking Garage Audit Issues
Charging expenses for paid parking to CAM
Failure to apportion expenses between paid / unpaid parking cost pools
Taxes
Utilities
Insurance
Labor
Security

14. HVAC Overtime and Other Special Charges
Special services charged to the tenants requesting them
OTHVAC
Elevators
Special / Supplemental Cleaning
Need separate agreements for these services
Some with landlord (built into lease)
Some with outside vendors
Must exclude from CAM / Operating Expenses the costs to provide these services

15. HVAC Overtime / Other Special Charge Audit Issues
Cost to provide services not excluded from CAM / Operating Expenses
Lack of separation of standard and extra services in multitenant properties
Excessive charges for these services

16. Conclusion

17. Questions and Answers