Connections for Success

 

07.07.22

How To Prepare for a 2021 Lease Audit
Stephanie M. Zaleski-Braatz

Over the past two years, businesses have endured many unexpected changes and disruptions, and the impact on corporate real estate and the workplace has been drastic. As your organization adapts for the future and evaluates the cost of office occupancy, you should act now by conducting a 2021 lease audit in the upcoming months. This includes diligently recording relevant information, gathering pertinent records and communications and requesting additional information from landlords where inconsistencies are noted. 

Throughout 2021, most businesses experienced sporadic re-openings and re-occupancy of the office space.  There are still businesses that are occupying very little of their workspace today. For these reasons, conducting a lease audit will be particularly important for the 2021 operating year. By taking a proactive approach to lease auditing, your business could gain valuable insight and potentially see significant cost reductions by recovering past overpayments and preventing future ones.

Related Read: New Lease Accounting Standard is Finally Here — Are You Ready?

Is your organization prepared for a lease audit? If so, you should be able to answer the following questions for all the buildings where you lease space.

The Basics

  • Do you have complete records of the landlord’s pre-COVID-19 operating expenses?
  • Do you have a comprehensive understanding of COVID-19-related operational changes and how they affect your office space?
  • Can you identify which 2021 costs are nonrecurring or indicative of permanent property changes?
  • Can you differentiate between capital expenditures versus reasonable and customary operating expenses?
  • Have you examined the specific provisions in each of your leases to determine who may be responsible for various costs?
  • Has the landlord communicated directly with you regarding changes in the building or its operations?
  • Is there transparency about the landlord’s new costs, equipment and services?

The Next Level

  • Has the landlord extended building operating hours, enhanced services or increased staffing?
  • Has the landlord closed, repurposed or redesigned any amenities space, such as dining, fitness or conference facilities?
  • Has the landlord upgraded HVAC and air filtration or installed new equipment, such as touchless doors or restroom fixtures?
  • Has the landlord enhanced sanitation services that benefit all tenants or do those costs become the responsibility of each tenant?
  • Are you still being charged for the cost of standard building services for any unoccupied or partially occupied office space?
  • Did the landlord reduce the level of building services and will you see the cost savings of those reduced services?
  • Are you eligible for rent credits for any building services that have not been provided?

The Deeper Dive

  • Was access to the building restricted during any portion of 2021?
  • Were your premises vacated for all or portions of 2021, and if so, during what period?
  • If you had employees onsite during the “shutdown,” were they restricted to certain floors or dedicated portions of your office space?
  • When did your business officially reopen your space for occupancy by employees?

The Big Picture

  • Does your lease give you the right to sublease or reduce leased space, and if so, what are the approval requirements?
  • How will your organization offset the costs of structural workplace changes?
  • For those locations with a 2020 or 2021 base year, how will the landlord account for the unique circumstances that occurred to provide consistent and reasonable comparisons throughout the lease term?
  • Do you have benchmarks and market data to compare your real estate obligations to others in each geographic market?

The past two years have been a time like no other. Each business has a unique real estate portfolio and by asking these questions and making the necessary preparations, your business can reap the benefits of a lease audit.

For more information, contact Stephanie Zaleski-Braatz at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Real Estate Group.

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