Toronto Commercial Real Estate Lease Audit

Beware! Your Toronto Commercial Real Estate Lease Audit Year End Common Area Maintainance Audited Statements Have Arrived!

Why does my landlord send out audited statements for your Toronto commercial real estate lease?

Audited statements are supposed to give tenants assurance that Operating or Common Area Maintenance (hereinafter referred to as “CAM”) costs stated, are indeed recoverable per the landlord’s current unaltered standard lease.

Who pays for these Toronto Commercial Real Estate Lease Audit audited statements?Landlords pay for these audited statements but then recover these costs from tenants through CAM billings with an added 15% administration fee.

Why should Toronto Commercial Real Estate tenants perform their own lease audits, if the landlords’ CAM statements contain audited statements?

1) It is rare that all tenants are on the then current standard form of lease unless perhaps in new non-anchored shopping centres. Landlords’ standard form of lease changes every few years to include more and more costs to be recovered from tenants. One tenant ABC, may be on an older form of standard lease from another tenant XYZ in the same centre. As such, the most current audited statement may reflect the terms of tenant XYZ’s standard lease but not of tenant ABC’s standard lease. As such, tenant ABC may be paying too much.

2) It is rare that all tenants have signed the landlord’s standard lease without making changes to the costs that the Landlord may recover from the tenant. For instance, one tenant’s lease may exclude Capital Taxes where another tenant’s lease may not. What multi-unit retailer in Canada has not and does not change at least a few items in the landlord’s standard lease with regards to CAM costs? These are not reflected in the audited statements themselves.

3) The Toronto Commercial Real Estate Lease Audit landlord pays for the audited statements and directs the auditors. If the landlord’s auditors have questions as to the interpretation of certain lease terms, the landlord will offer their points of view (which is naturally biased towards landlords’ and consequently against tenants’ interpretation of the lease).

How often should tenants perform an audit of their CAM (and other lease-related) costs?Every year, as soon as the year end statements and resultant invoices are received because:

1) Many, if not most, Toronto Commercial Real Estate Lease Audit leases now contain a provision that limits any claim to adjust these invoices to 6 or 12 months, although I find it hard to believe that any credible landlord would not allow the tenant to go as far back as the error(s) has/have occurred, as long as that landlord has been the owner. Tenants pay landlords (through recoveries) to administer their leases correctly and should expect nothing less.

2) With landlords buying and selling properties from each other, it is important that you settle your claim with the landlord that made the error as the new owner will certainly not pay for those errors unless those errors are specifically detailed (which many tenants fail to do) in estoppels or tenant acknowledgements sent out by the then current landlord.

What problems do lease auditors encounter when auditing Toronto Commercial Real Estate Lease Audit landlords’ statements?

1) Many landlords drag the information transfer process for too long, while other landlords withhold information altogether. The sooner the issues are resolved, the sooner the tenant and landlord are able to resume other responsibilities.

2) The selling of properties from one landlord to another can limit the amount of information that the current landlord can provide during another landlord’s tenure, which may impact the amount of recovery from the current landlord.

Can a tenant successfully audit their own year end adjusting invoices?Perhaps, but let us remember that the scales are tipped in the landlords’ favour. Landlords are experts in every area of property management. Retailers are experts in their specific area of retail. Unless the tenant has someone on their staff that has a background in accounting and leasing and has worked for landlords, it is very unlikely that most deviations from the lease will be uncovered (even experts in the field cannot claim 100% success in locating errors). Many retailers cannot justify a lease auditor on their staff, hence the role of the contracted lease auditor.

If your Toronto commercial real estate lease is over 5000 feet and you want information on

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