Be Prepared for Hotly Contested Audit Issues

March 12, 2015
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A typical owner won’t object if you ask for an audit right in your lease to avoid overpaying. After all, there is no justification for pushback other than wanting to cheat you. But while owners generally don’t refuse to give tenants an audit right in a lease, you will have to negotiate what your right will include and how you will protect yourself if errors are found—crucial items that may ultimately be hard won. Prepare to face the following four issues, which are commonly at the center of many lease audit right negotiations: 

Issue #1: Type of lease auditor. For example, one of the most hotly contested issues will be whether you may use a lease auditor who works on contingency. The owner probably will insist on a certified public accountant being paid on an hourly basis, rather than someone who gets paid based on the amount of money he saves for the tenant, to perform it.

Issue #2: Threshold requirement. Another controversial issue is the threshold requirement for the owner to pay for your audit. For example, if the owner agrees to be responsible for reimbursing you for the cost of the audit if its errors reach a certain amount, what will that amount be? How erroneous do the charges have to be to trigger the owner’s obligation to pay? This is critical for you to negotiate because it could save a substantial amount of money later.

Issue #3: Frequency of audits. The owner will also probably want to impose a limitation on how often you can perform a lease audit and whether you can exercise your right to audit if you’re in default.

Issue #4: If you don’t ask, you won’t receive. The top thing to remember is that if you are negotiating the owner’s form, an audit right won’t be in there. It’s up to you to bring up the lease audit point and offer language you’re comfortable with.