Good lease administration is the consistent application of a review discipline that is primarily quantitative. It begins with making sure that proper backup has been provided so that a review can even be conducted. Next, administration makes sure that the billing method, proration, size/pro rata share, and other pertinent variables are being properly utilized. Finally, the negotiated items of caps, stops, exclusions and limitations are reviewed. This discipline should be applied to ALL leases where operating expenses/CAM are billed. This is really just good accounts payable due diligence.
Audit takes that lease administration framework and reviews it on a deeper level. Audit also considers more qualitative elements of a billing and asks certain questions such as:
- “Are the amounts reasonable? Consistent?”
- “Have base building conditions changed since the base year?”
- “Are there questionable items when considering a comparison from year to year?”
- “Are there other buildings or a BOMA reported average?”
Solid lease administration doesn’t sacrifice one for the other. To gain the most protection from your process, start with good lease administration and have your team work with an auditor that can leverage that work to do what they do best. Both teams work together to create the best value for the portfolio.