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Operating Expense Reconciliations: What to Look For in Your Annual Statement

Deciphering operating expense statements can be tedious, but it’s well worth the time to make sure you’re not being overcharged.

As a commercial tenant, this is the time of year when you can expect to receive your building’s operating expense reconciliation and budgets. If you have never taken the time to study these statements, it’s probably because the information was presented in a way that offered little detail. That’s by design. Operating expense statements are intentionally devoid of information because the last thing landlords want is to make it too easy for tenants to peer into their spending habits. And even when their intentions are honest, the fact remains that errors are regularly made in these statements.

While your landlord would prefer that you accept the charges and potentially pay more than what you “owe,” it is your responsibility as a tenant to analyze and question these charges. By spending a little time deciphering what your landlord is actually asking you to pay, you can potentially save tens of thousands of dollars.

How do you accomplish this? Assuming your statement includes a reasonable breakdown of expenses, begin by comparing the current year expense reconciliation to last year’s statement. Do you notice any obvious increases? Look beyond what the landlord wants you to see, such as minimal increases in non-controllable costs such as utilities, taxes and insurance. Did the management fees or repairs and maintenance expenses increase significantly? This is a major red flag, as these items are well within the landlord’s control.

Are you paying too much? Get peace of mind with a complimentary review of your commercial lease and operating expenses from the Hughes Marino Lease Audit team.

Of course, significant fluctuations and increases don’t mean an error has been made. The key is to determine if a disconnect exists between what the landlord charges you and what your lease allows for. For this reason, your review will also require that you revisit the operating expense language in your lease.

If this sounds like an overwhelming project, never fear. Hughes Marino’s Lease Audit Service will perform a complimentary review of your lease and operating expenses to look for red flags. While many brokers may offer to review your lease, only Hughes Marino has invested the time and resources to create a division of experts dedicated to assisting businesses with identifying erroneous charges. The result has been over 4 million dollars in erroneous charges identified for our clients over the past few years.

Don’t let another year pass without knowing if you’re being overcharged. For a complimentary review to ensure operating expenses are in compliance with your lease, contact us and we will be happy to help.

Ed Muna is a senior vice president of Hughes Marino, an award-winning commercial real estate company specializing in tenant representation and building purchases with offices in San Diego, Orange County, Los Angeles, San Francisco, Silicon Valley and Seattle. Ed heads Hughes Marino’s Lease Administration and Audit Service divisions and helps tenants address issues that arise during their occupancy. Contact Ed at 1-844-NO-CONFLICT or ed@hughesmarino.com to learn more.



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