LEASE AUDITING CASE STUDY 5

Gross Up Correction Saves Tenant $299,000

Client
National printing firm that occupied 130,000 square feet in suburban San Francisco, CA

Audit Discovery
The lease granted the landlord the right to gross up expenses to full occupancy. The lease also provided for a base year calculation of taxes and operating expenses. The landlord grossed up correctly the expenses but missed grossing up the management fees. In all future years, however, the management fees were grossed up.

Resolution
MBG Consulting analyzed all expenses and performed trend analysis against then-current market expense trends. The management fees increased disproportionately over the years. Further base year analysis established that the base year calculations did not reflect the management fees’ gross up. The landlord revised the calculations; the base year amount was increased accordingly and all annual escalation calculations after the base year were adjusted to reflect our client’s correct share. MBG Consulting negotiated a full recovery of the over-billed amount.

Lessons

• Always perform a detailed analysis of the calculations and underlying assumptions of the landlord's gross up.