There’s compelling logic to combine a lease audit service with a lease management system such as Visual Lease. Commercial leases represent complex legal documents, and each market has its unique peculiarities requiring sophisticated legal and accounting expertise. Leases require constant monitoring, since landlord charges occur continuously, and the issue of erroneous charges including escalation rental increases and CAM (common area maintenance) charges require constant review and reconciliation.
There are several key benefits by having a lease audit firm combined with a lease management system. First, the audit firm can insure that the lease management system contains the required data fields, organized in a way that facilitates efficient lease administration. Second, the lease system can identify problematic charges and flag these charges to the audit staff for review and reconciliation. Third, there will be periodic instances such as lease renewals, option servicing, estoppels, and other lease requirements where the lease administrators will need specialized expertise such as legal or accounting expertise. The lease audit staff can fill this void for these types of leasing actions.
Perhaps one of the greatest benefits of having a lease audit staff associated with the lease management systems relates to problematic escalation charges. The lease system will flag these unusual charges, but having a lease audit staff available to scrutinize the charges, and reconcile with the lease provisions can save time and money. For example, one of the common errors in escalation charges relates to maintenance expenses. Typically these charges should be limited to legitimate expense items; however, some landlords may include capital items in these charges; a blatant violation of most CAM charges. A skilled auditor will identify these discrepancies, resulting in significant savings, sometimes in the high six figures.
With the anticipated changes to the FASB and IASB lease accounting standards, there will be enormous pressure to insure compliance with these standards once enacted. Having the legal and accounting expertise on hand will greatly facilitate the transition to the new standard, and to insure that the leasing system is fully up to date in reflecting the necessary balance sheet accounting for both Type A and Type B leases. The lease audit staff can oversee the transition to the new standard and certify that the lease management system is in full compliance.
KBA is unique as a lease auditing firm in developing a state of the art lease management system. Typically a corporate client would need to contract separately with a lease auditing firm to conduct periodic lease audits. At KBA these services are fully aligned and available as part of the Visual Lease lease management system. Synergies between these two entities both in terms of management and expertise, accrue directly to the client, ensuring efficient, time saving, and cost saving benefits.