Leases are often one of the largest expenses for businesses, especially those operating across multiple locations. But are you paying exactly what your lease agreement stipulates? That’s where a lease audit comes in, a powerful tool to ensure financial accuracy, prevent overcharges and strengthen lease compliance.

What is a Lease Audit?

A lease audit is a detailed review of lease-related documents, payments and expenses to verify that all charges and terms align with the agreed-upon lease contract. It is typically conducted by a lease auditor, accountant or real estate expert who scrutinizes financial data, including base rent, common area maintenance (CAM) fees, property taxes, insurance, utilities and other operating expenses.

Lease audits can uncover billing discrepancies, identify opportunities for cost savings and resolve disputes between tenants and landlords. They are particularly common in commercial real estate, where lease terms are complex and involve a variety of pass-through charges.

Why Are Lease Audits Important?

Even with the best intentions, landlords may miscalculate charges or misinterpret lease clauses. Over time, these errors can add up to significant financial loss. For tenants, a lease audit helps:

– Validate charges against lease terms
– Identify billing errors such as duplicate payments or unauthorized expenses
– Improve negotiation power during renewals or disputes
– Ensure compliance with lease agreements and accounting standards
– Support financial planning by providing accurate cost forecasts

Accounting Best Practices for Lease Audits

To conduct effective lease audits and maintain financial accuracy, businesses should follow these accounting best practices.

Centralize Lease Documentation
Maintain a centralized, organized system for storing lease agreements, amendments, invoices and correspondence. Cloud-based lease management platforms can help streamline this process and ensure that key documents are accessible for audits.

Track Critical Dates
Missed renewal or termination windows can lead to unexpected costs. Keep a lease calendar that tracks important dates such as rent escalations, audit windows and notice deadlines. Many companies integrate these reminders with their accounting systems.

Review CAM and Operating Expenses Carefully
Operating expenses are often the trickiest part of commercial leases. Scrutinize CAM charges to confirm they align with lease terms – some leases exclude capital improvements or administrative fees. Compare year-over-year changes and request detailed expense breakdowns if needed.

Reconcile Payments Regularly
Don’t wait for year-end to catch discrepancies. Reconcile rent and expense payments monthly or quarterly against invoices and lease terms. This helps identify issues early and keeps your records audit-ready.

Leverage Technology
Use lease accounting software that complies with ASC 842 (or IFRS 16 for international firms). These tools automate journal entries, amortization schedules and lease liability tracking, making your audits more efficient and reducing human error.

Engage a Lease Auditor When Needed
For complex portfolios or high-value leases, consider hiring an independent lease auditor. Their expertise can reveal hidden errors and ensure you’re not leaving money on the table.

Conclusion

Lease audits are a smart, proactive strategy for businesses to manage lease obligations and safeguard against financial inaccuracies. By implementing accounting best practices, such as maintaining organized records, verifying charges and using modern software, like lease accounting software provided by Yardi Corom, companies can take control of their lease expenses and make more informed financial decisions. In a landscape where every dollar counts, lease audits aren’t just helpful, they’re essential.

Yardi Corom is a comprehensive and user-friendly accounting, lease and workplace management solution for CRE tenants. Our cloud-based software solution increases efficiency and accuracy across your entire lease portfolio: manage leases and subleases, track key lease data, centralize transactions and become FASB/GASB/IFRS compliant. To learn more, you can visit our website or schedule a meeting with our team.