Reading Your Reconciliation Statements
What is the first thing you look for?
You may not be unlike most tenants who, upon receipt of their annual reconciliation statement, go directly to the bottom line. If the percentage of increase appears to be rather small (i.e. under 5%) or the dollar amounts that is due appears to be reasonable, you probably pass it on to your accounting people with a post note telling them it's ok to pay.
Did you really LOOK AT the statement?
There are some basic issues you should look for before you simply pass the bill on to your accounting department. In about 60% of the statement read by this office, we find errors. While the errors appear obvious to us, they usually slide by the tenant mainly because the bottom line looks reasonable and in most cases, tenants don't know what to look for. Not their fault...just widget makers make widgets.
For example, we recently reviewed a statement where the landlord incorrectly stated the tenant's share of the building. Immediate result was an overcharge of 20% of the bill. Carried over through the remainder of the term, the tenant would have had a rather large and incorrect overpayment due each year.
Some additional items to look at include:
- Is the size of your space correctly noted? How about the size of the building (note-leases we review will always state the size of the building- We have seen landlords try to change that DURING the term). With those two numbers, one can correctly calculate your pro-rata share of expenses. Without one or the other, you might as well give the landlord a blank check.
- Were there any exclusions to the expenses negotiated in the lease and were you given credit for it? One client was exempt from property taxes but charged by the landlord. Landlord is trying to dance around the issue because their failure to recognize the error prior to sending out yearly statements since it may now mean they will have to rebill every other tenants in the building. Interesting way to upset the other tenants. Surprise Mr. Tenant...you owe us more!!!
- Does your statement contain general categories (5-10) or more specific line items (20-30)? Don't be afraid to ask the landlord for a more itemized statement. (We'll talk about that later)
- Do categories vary from year to year? If it's not included in your base year, can the landlord include that expense in subsequent years?
- Was the base year grossed up? What's "gross up mean and how can that impact my costs? Item for another chapter…
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