1. David Robinson, Esq. - Ruberto, Israel & Weiner, P.C.
Top 5 Audit Challenges
Presented by:
Debbie Ravel – Gap Inc.
David Robinson, Esq. - Ruberto, Israel & Weiner, P.C.

2. Survey Says……
#1 Landlord Responsiveness to Audit and Information Requests #2 Obtaining Sufficient Audit Information #3 Challenging Management Fees #4 Verifying Major & REA Contributions and Allocations #5 Change of Ownership by Landlord

3. #1 Landlord Responsiveness to Audit and Information Requests
Does your LEASE provide response parameters? Is offset an option? What is the industry standard for a “normal” response time? Team Discussion: What would you do? Best practices?

4. #1 Landlord Responsiveness to Audit and Information Requests
Leverage Internal Business Partners
a/k/a “Who you know”
Does the Landlord need something from us?
Leverage for Estoppel Response
Continuous, relentless follow up
“Squeaky wheel gets the grease”
Copy lender and owner (if dealing with managing agent) on all correspondence

5. #1 Landlord Responsiveness to Audit and Information Requests
Suggest Joint Audit with peers
Engage counsel (internal or external) to send demand letter
Request tolling agreement
Develop internal timeline/process

6. #2 Obtaining Sufficient Audit Information
Team Discussion: What is “sufficient” audit information?
General ledgers
Invoice copies
Proof expenses were paid (especially “related party” expenses)
Sample payroll/labor journals (for landlord employees)
Contracts including Scope of Work, Exhibits & Amendments
Allocations & objective support for methodology
Missing legal documents pertinent to property

7. #2 Obtaining Sufficient Audit Information
Understand Landlord and Landlord’s nearby locations (i.e. allocations)
If related party vendor, are costs reasonable?
Store Manager/On-site Personnel Verification
Comparative Analysis (stores in the vicinity)
Taxing Authority/Assessor Information
County Clerk for pertinent legal documents (i.e. REAs)
Contact Vendors?

8. #3 Challenging Management Fees
Incurred vs Imputed…. Cost of managing the common area vs. management fees What does your LEASE say? “operating and maintaining the Shopping Center, including but not limited to….” Team Discussion: Where to start?

9. #3 Challenging Management Fees
Obtain fully executed Management Contract
Review General Ledger to confirm expenses actually paid (Accounts Payable entry)
Related Party – is fee “arms length”
Comparative analysis
“Reasonableness Test”
How to estimate the Management Fee %

10. #3 Challenging Management Fees
OC-8: Landlord Fees – Migrate from Fee-ling Overcharged to Empowered Today 3:15-4:45

11. #4 Verifying Majors & REA Contributions & Allocations
The landlord refuses to provide the information
Team Discussion: How do we perform our due diligence with minimal information and cooperation?

12. #4 Verifying Majors & REA Contributions & Allocations
Obtain REA from County Clerk (if recorded) or Landlord
Understand Lease language – are contributions permitted? How are Majors and Anchors defined?
Obtain Tenant roster / Site plan from Landlord
How are allocations allocated if controllable expenses are CAPPED
Leverage NRTA contacts/peers

13. #4 Verifying Majors & REA Contributions & Allocations
Lease language wish list:
Floor on Contribution (i.e. not less than x% of your cost/sf)
How are contributions allocated if CAP on controllables?
Establish documentation requirement for landlord to provide source documentation

14. #4 Verifying Majors & REA Contributions & Allocations
OC-9 Expense Allocation Overcharges – Hunting for The Big Dollars
Tuesday 9:00-10:30
OC-11 Allocation Overcharges: Examples and Case Studies
Tuesday 11:00-12:30

15. #5 Change of Ownership of Mall/Shopping Center
What if Audit Period is prior to new owners purchase of the property? Team Discussion: How do we conquer this audit?

16. #5 Change of Ownership of Mall/Shopping Center
Successor provision in the Lease
Recent/Upcoming Sale – “Dispute” Funds in Escrow
Record availability
Managing Agent Continuity (if applicable)
Retroactive Extrapolation for pre-ownership period
Estoppel language – protect your rights

17. Debbie Ravel – Gap Inc. Deborah_Ravel@gap. com David Robinson, Esq
Debbie Ravel – Gap Inc. David Robinson, Esq. - Ruberto, Israel & Weiner, P.C.