Audit Case Study Synopsis™ (21133)
Newport News, VA
Savings (square foot)
Exclusive Service Provider
North American Portfolio
Upon review of the initial set of audit information, RRG noted that landlord was charging the client an arbitrary, square footage-based rate for utilities rather than actual costs incurred. The landlord’s interpretation of the lease was that electricity could not be included in operating expenses and must be billed to the client separately. However, this only applied in the event the landlord had installed a metering device. Following RRG’s fieldwork and survey of the building, there were no metering devices installed to monitor the utility usage. RRG corrected all utility billings based on actual costs incurred and modeled the appropriate calculations based on building level usage.
The lease also required that if the building was not one hundred percent (100.00%) occupied during any calendar year, including the base year, then the variable cost components should have been equitably adjusted to amounts which would have been paid had the building been at full occupancy. It was confirmed through the audit that this had not occurred even though the building had not achieved full occupancy during the base year. Upon further correspondence with the landlord, it was agreed that base year would be appropriately adjusted to reflect the proper category amounts and each subsequent year liability would be reduced following the application of the corrected base year thus generating a material savings across all operating years audited, throughout the remainder of the lease and any extension term.
It was also confirmed through the audit that the management fees passed through to the client were in excess of the actual management fee incurred. RRG not only reduced the management fee rate from three percent (3.00%) to one percent (1.00%), but also was able to remove garage operating income received from the management fee model.