Audit Case Study Synopsis™ (1258)
Newport News, VA
Savings (square foot)
Exclusive Service Provider
North American Portfolio
RRG’s audit covered five (5) operating years.
Upon commencement of the audit, RRG noticed that the base rent was being escalated incorrectly. The requirements were that in order to arrive at the rent increase for a given subsequent year, the base rent for the initial year was to be increased by a factor equal to the product obtained by multiplying the base rent for the initial year by a fraction, the numerator of which was the Consumer Price Index for All Urban Consumers (“CPI-U”) as of three (3) months prior to the beginning of the current lease year and the denominator of which was the CPI-U as of the commencement date of the lease. The landlord was actually arriving at the appropriate increase factor; however it was being applied to the previously increased rent from the prior year rather than the base rent for initial year. The effect of this oversight artificially increased the rent materially and accelerated the escalation model in turn drastically overstating the rent for each year of the lease subsequent to the second lease year. This was corrected and not only generated savings in the immediate years which were subject to the audit, but also for each remaining year in the lease term.
Following RRG’s review of the lease and other file documentation, it was also noted that the lease provided the client with two (2) allowances to be applied against the construction of both the client’s office and retail spaces in the building. While the client’s records indicated that both allowances had been disbursed, RRG confirmed that the allowance for the office space had been paid, but there was no indication in the landlord’s documentation that the allowance for the retail space had even been addressed. RRG was able to confirm that no funds had been released to the client related to the retail space and contacted the general contractor who performed the work on the retail level space in order to obtain all of the necessary documentation to satisfy the requirements of the lease enabling the disbursement of the funds.
CPI Increase Determination