Audit Case Study Synopsis™ (18544)
Savings (square foot)
Exclusive Service Provider
North American Portfolio
RRG’s audit commenced as a two (2) year review, but based on a “claw back provision” within the lease evolved into a five (5) year review covering two (2) ownership entities and two (2) property management organizations.
Initially, it was noted during the audit that the landlord’s gross-up calculation did not reflect the appropriate variable-fixed ratio for the water consumption expense and that a material number of capital expenditures were being classified as operating expenses. These elements were addressed and adjusted and corrected during the early phases of RRG’s audit. The landlord was also collecting a management fee equal to four percent (4.00%) of gross revenue. Following the review of the management fee agreement, the outlined framework dictated that only two percent (2.00%) of that was being dispersed to the management company while the balance was being retained by the landlord. The lease was very specific and restricted the management fee expense to be incurred by the client to that actually paid to the third party management company. This was agreed to and reduced by the landlord. Further, the model resulting from the audit, which equated to a reduction in the management fee percentage by half, was adopted by the landlord for the remainder of the lease term.
RRG also made numerous adjustments to the insurance categories. The landlord was passing through premium amounts that were in excess of those actually incurred. In addition, garage keepers insurance was removed and all periods with overlapping coverage were corrected. The landlord was also charging back to the building as operating expenses tenant-related costs such as meals, gifts, and similar charges which were all confirmed as leasing related expenses.
Tenant Related Expenses