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News

22 Nov
Lease Monitoring Services - Audit detects overpaid rent of nearly $50,000

By Lisa Seun

A Perth commercial tenant was overcharged nearly $50,000 over two years, an error that was only detected during a lease renewal. 

ACORPP Director Lisa Seun said the mistake had been made by a property manager who had charged rent for the outdoor area of a 200 square metre tenancy at the same rate as the indoor area. 

“The tenant asked us to carry out a lease renewal and during that process we picked up the anomaly and a lease audit was carried out. Rent had been calculated and paid on the backyard area for two years when rent should have been charged for the office area only,” she said. 

“Over time, the tenant was billed an extra $48,800 which amounted to a 57 per cent overcharge.”

Ms Seun said that the parties had now agreed an approach toward reconciling the account. 

“The key message here, however, is the potential value that a lease audit can deliver. You can imagine that our client was very happy with the outcome and is now a convert to our audit services,” she said.

iStock 000018156870 Medium

The ACORPP director, responsible for the firm’s lease monitoring services, said it’s possible that mistakes with a financial impact can be made by leasing agents, property managers and owners. This can affect tenancies of any size, large or small. 

“These are not necessarily made deliberately, but are not as uncommon we would like to think due to honest miscalculations or misinterpretations,” she said. 

A few months ago, I was asked to provide a cursory check of a client’s rent invoices. Alarms bell rang when the client was repetitively billed thousands of dollars for the innocently labelled “water charges”. It was around the rating period so it got past the property manager and the tenat's radar but we noticed a large sum being billed in a previous month. 

On pressing the property manager for an explanation, we identified that a pipe had burst underground which left the expensive water meter ticking over. The Water authority was quickly called to repair the pipe to mitigate continued costs. Who knows how much more water and money would have been wasted. 

“Leases can be complex and you can’t know what you don’t know. Unless a tenant has someone like us in their corner, it can be next to impossible to pick up when a mistake is occurring – and compounding.”

Other common oversights or mistakes include:

• Overcharging of capped property management fees

• Passing on asset management fees as property management fees

• Annual audits not being carried out even if the owner is obliged to provide them

• Sinking funds (especially sinking funds hidden in strata levies)

• Some structural repair costs passed on a repair and maintenance costs. 

 

Ms Seun said the best approach was to ensure the original lease was effectively designed and negotiated and that subsequent audits were carried out every year. “The old saying about measure twice, cut once, applies to the design and negotiation of a lease,” she said. 

“If the lease is written right, the risk of subsequent errors is minimised – particularly when aligned with annual audits.”

 

 

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