Are You Prepared for a 2020 Lease Audit?

Businesses have endured many unexpected changes and disruptions during 2020, 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 take action now by preparing to conduct a 2020 lease audit early next year. These preparations include diligently recording relevant information as it occurs, gathering pertinent records, communications and then requesting additional information from landlords where gaps are noted.

In 2020, most businesses experienced several months of normal office operations, followed by many months of remote working, then, in some cases, followed by there-opening and re-occupancy of the office space. For these reasons, conducting a lease audit will be particularly important for the 2020 operating year. By taking a proactive approach to lease auditing, your business could see significant cost reductions by recovering past overpayments and preventing future ones.

Is your organization prepared? You should be able to answer each of the following questions for all buildings where you lease space.

Click each headline below to reveal the questions.

  • Do you have complete records of the landlord’s pre-COVID-19 operating expenses?
  • Do you have a comprehensive understanding of post-COVID-19 operational changes and how they affect your office space?
  • Can you identify which 2020 costs are nonrecurring or indicative of ongoing property structural changes?
  • Can you distinguish between capital expenditures versus 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 with you directly regarding changes in the building?
  • Is there transparency about the landlord’s new costs, equipment and services?
  • Has the landlord extended building operating hours, enhanced services or increased staffing?
  • Has the landlord closed, repurposed or redesigned any amenities spaces, 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 implemented 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 receive corresponding cost savings of those reduced services?
  • Are you eligible for rent credits for any building services not provided?
  • Was the building physically closed to all tenants during any portion of 2020?
  • Did you vacate all or portions of your office space, and if so, during what period of time?
  • If you had employees on-site during the “shutdown”, were they restricted to certain floors or dedicated portions of your office space?
  • When did your business officially re-open your space for occupancy by employees?
  • 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 costs of these structural workplace changes?
  • For those locations with a 2020 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?

Each business has a unique real estate portfolio, and 2020 has been a year like none other. Your business can reap the benefits of a lease audit by asking these questions and making the necessary preparations now. BDO’s experienced team of advisors can help guide you through the process for an optimal outcome.