Over the years, a tenant's right to audit its landlord’s determination of the annual operating expenses, taxes, utilities and other additional rent charges has evolved from a very straight forward premise to one that is the subject of much negotiation before the lease is executed. While many leases continue to allow the tenant virtually unconditional audit rights, landlords have begun to require tenants to meet various conditions in order to audit, and sometimes seek to impose added restrictions on the tenant's right to audit. Some have gone so far as to include an added audit completion deadline in addition to the typical audit window. We refer to these more onerous audit provisions as containing a "double" window.
Most audit windows are the "single" window variety, and these audit windows can be propped open, thereby preserving a tenant's right to audit at a later date – even years later. A “single” window simply requires you to notify the landlord of your intent to audit. A "double" window effectively requires the tenant to then complete its audit by a certain date. In other words, if your lease includes a "single" audit window simply requiring you to tell the landlord you are going to perform an audit, but does not include the "double" window requiring you to then complete that audit within a set time period, you can preserve your audit rights by sending the landlord a notice each year – within the time constraint of the "single" window – of your intent to audit. CyberLease's clients have used this tactic successfully for years, and ultimately saved millions of dollars as result when they eventually conducted their audits.
5 SIMPLE STEPS TO PRESERVE AUDIT RIGHTS
- Track the dates when you receive each reconciliation statement, and date stamp them upon receipt.
- Determine whether you have a "single" or a "double" audit window.
- Calculate the date by which you must notify your intent to conduct and, if applicable, complete any audit.
- Determine the landlord’s current official notice address(es). Since many buildings change hands during the term of a lease, be sure to check your files for formal notices from the current landlord directing you where to send all official notices after they acquired the building, including any required copies to other offices, outside counsel, etc.