Reading Your Reconciliation Statements
What is the first thing you look for in your statement? 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 amount due appears to be reasonable, you probably pass it on to your accounting people with a post it 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 accounting. In about 60% of the statements read by this office, we find errors. While the errors appear obvious to us, they usually slide by tenants mainly because the bottom line looks reasonable. Further, in most cases, tenants don't know what mistakes to look for. This is not their fault—typically, they’re just widget makers who want to make widgets rather than worry about the specifics of a statement.
For example, we recently reviewed a statement where the landlord incorrectly declared the tenant's share of the building. The immediate result was an overcharge of 20% on the bill. Carried over through the remainder of the term, the tenant would have had a rather large (and incorrect) overpayment due each year.
In addition to checking the charge you receive on your space, check to see if the size of your space is correctly noted. What 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 be giving the landlord a blank check.
Were there any exclusions to the expenses negotiated in the lease? If so, were you given credit for them? One client of ours was exempt from property taxes, but still got charged by the landlord. The landlord ended up trying to dance around the issue because their failure to recognize their error prior to sending out yearly statements may have meant they would need to rebill every other tenant in the building. Their error (and subsequent backpedalling) was an interesting way to avoid upsetting the other tenants. Surprise Mr. Tenant—you owe us more.
Does your statement contain a number of general categories (between five to ten) or more specific line items (between twenty to thirty)? 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 a category wasn’t included in your base year, can the landlord include that expense in subsequent years?
Was the base year grossed up? What does "gross up” mean and how can that impact your costs? That’s an item for another chapter.
In all of these cases, simply being thorough can save you a significant amount in overages.