Things To Know About Lease Audits 

13.02.22 05:16 PM Comment(s) By Assetsoft

As a property owner, leases can both be a gift and a boon. The contract signed between the tenant and the landlord sets the tone for their relationship. It contains provisions on rent payment, security deposits, and other additional costs. 

Why Is a Lease Audit Necessary? 

Without a lease agreement, it would be impossible for the tenant-landlord relationship to exist. Since it is a legally binding contract, a lease is usually in legal language. But leases are not 100% infallible. Some loopholes and variables can be misused. As a result, it is difficult to interpret for both the landlord and the tenant. Disputes caused by misunderstandings are widespread in cases like this.  


Minor clauses on the lease are usually the cause of these misunderstandings. The opacity of the language surrounding points on security deposits, parking fees, or standard area fees is usually to blame for this.  

How Does an Audit Help? 

Getting a lease audit is a sensible way to solve this problem. The auditing team helps to clarify all your doubts about the contract. This process can help you get a concise and simplified understanding of your lease better.  


A system like this brings to light the expenses incurred on utilities, insurance, and operating costs other than the rent paid. This opportunity allows tenants to check the fairness of the invoices sent to them and see whether the numbers add up. A thorough and detailed study of the business's books is necessary for this process.  

The accounting usually goes through the CAM fees, landscaping, insurance, property taxes, janitorial, and energy consumption. An objective third party going through the finances helps restore stability in the lease status.  

Top Reasons to Conduct A Lease Audit 

  1. Detection of Errors 

A lease does not always make things clear on the subject of non-rental fees.

 

Sometimes, in the case of residential properties, you have many tenants living in the same building. The situation makes it difficult for the landlord to be specific in their calculations for each client. As a result, most of the fees are generalized and uniform for all tenants. For example, tenant A may be using more electricity than tenant B, who requires a higher amount of heating hours.  


On the other hand, tenant C may have none of the other excesses. 


The landlord usually finds it difficult to specify their data for each client. Instead, they use the available information to make the same broad invoice for all tenants.However, when the bill arrives, the amount paid by the three is the same. 


A lease audit helps rectify this by examining each leaseholder's calculation, expenses, and contact details. This practice ensures that the final report is always error-free and shows the incongruences in that lease statement. 


  1. Helps Reduce Risks 


Audit leases are a way for businesses to review the contractual effectiveness of their leases.  

When reviewing leases, the auditors go through a variety of data. The auditing process is not limited to only the monthly/annual rent details. It considers many factors to get the most detailed report out there. Some of these are 

  • Insurance premiums 

  • CAM fees 

  • Real estate property taxes 

  • Utilities like water, electricity consumption 

  • Occupancy costs 

  • Property rent 

Such a thorough examination helps them get discover loopholes in the contract. One can also find any errors in calculating bills in this manner. 


Audit Right of Tenant 


The lease signed between the tenant and the landlord usually has a clause aptly called the audit right. It highlights the leaseholder's right to demand a review of the contract. Alongside this statement, finer details may also exist. This list includes specifications on which party is to hire the audit, how is to pay the team, and more. 

Tenants must also follow a deadline if they want this auditing to be legitimate.  

Lease Audits: Reviewing Leases After Data Migration 

Lease audits are helpful for purposes besides conflict resolution. If you are upgrading your system, there are chances of data loss. Often, the system deletes incomplete data or data that has multiple copies. Sometimes, the language of the legacy system may be incompatible with the new software as well. Since humans are prone to making mistakes, reviewing the new system can be very beneficial. A team member must physically input the old data into the new system. Such a situation requires a bit of manual work to resolve. 


Detecting Incongruencies 

A lease audit looks into the transferred data to find errors or differences between the old and new clauses. However, the quality of the auditing service depends primarily on the firm. Some provide quick but shabby but reliable ones produce a detailed report within the promised time. When choosing your audit partner, it is essential to find a consulting company to tailor its service to your needs. These are the places that understand that each client is unique and strive to provide a unique approach. 

Using Lease Abstraction Software 

Many of these auditing firms use lease abstraction software to simplify the clauses of a rental contract. This technology allows users to distill the points of an agreement into concise, readable points. The software essentially summarizes and distills the contract to make it more accessible for everyone. 

How Is a Lease Abstraction Software Helpful? 

Firms use software like MRI Contract Intelligence to get valuable insight into the clauses of a lease. MRI uses Artificial Intelligence (AI) tools to read data. This technology is highly effective, much more so than a manual review method. The result produced is always compliant with IFRS 16 and ASC 842.  

Using an automated system also eliminates the chances of errors and data discrepancies. An AI can produce faster, more accurate results within the same period. 

Hiring a Consulting Firm 

The best consulting firms provide auditing services that aim at total reconciliation. Only such reliable firms lean towards objectivity and seek to improve conditions for both tenants. Their audits reports make both parties realize the different roles and responsibilities. Either by discovering loopholes on tax benefits or an incongruency in CAM clauses, these firms improve things for both landlord and client. 


Want to know more about how the Assetsoft team can help? Contact us today to know more! 

Assetsoft

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