Forensic accounting gets new “lease” on life

Detailed audits help landlords determine what portion of costs can be passed on to tenants

New York /
Mar.March 06, 2013 09:00 AM

The economic downturn and housing crunch have resulted in landlords trying to save dollars wherever they can, and this has meant a rise of forensic lease audit work for accountants, the New York Observer reported.

Though the majority of disputes over things such as tenants’ responsibility for repair and building upkeep tend to be decided in out-of-court settlements, there is often significant money involved. “In one instance, I actually recovered $1.9 million for a tenant,” Thomas Woodward, director of real estate advisory services at Holtz Rubenstein Reminick LLP, told the Observer. “It’s not unusual for me to come up with a million here and a million there.” 

Forensic reviews, Woodward said, tend to be far more granular than the typical desktop audit, and drill down into the details of a lease term or capital improvements. The decisive factor tends to be whether an expense is a capital improvement or a repair; capital improvement costs tend to fall on the landlord, while costs of a repair can often be passed on to the tenant. In the case where a capital improvement — such as renovating an elevator — prevents the need for repair work, the audit can help gauge how the costs will be split.

“You don’t want the landlord to be penalized,” Woodward told the Observer. But the tenant should be charged “only for the amount of repair that has been eliminated by doing the capital improvement.”

Savvier landlords have learned how to predict what issues may come up, and draft the leases accordingly, Berdon LLP’s Seth Molod, told the Observer. “Sometimes there are legitimate gray areas. Those positions can usually be worked out.” [NYO]  —Hiten Samtani


Related Articles

arrow_forward_ios
(Image by Wolfgang & Hite via Dezeen)
Hudson Yards megadevelopment inspires a new line of sex toys
Hudson Yards megadevelopment inspires a new line of sex toys
Cammeby's International Group founder Rubin Schron and, from top: 194-05 67th Avenue, 189-15 73rd Avenue and 64-05 186th Lane (Credit: Google Maps)
Ruby Schron lands $500M refi for sprawling Queens apartment portfolio
Ruby Schron lands $500M refi for sprawling Queens apartment portfolio
Wendy Silverstein (Credit: Getty Images)
Wendy Silverstein, co-head of WeWork’s real-estate fund, is out
Wendy Silverstein, co-head of WeWork’s real-estate fund, is out
JLL CEO Christian Ulbrich. (Getty)
JLL explores sale of China property management wing
JLL explores sale of China property management wing
Birmingham and Bournemouth both saw a giant increase in demand. (Getty)
Demand for rentals rises in UK’s largest cities in Q1
Demand for rentals rises in UK’s largest cities in Q1
This Arkansas compound  sits directly across from the University of Arkansas football stadium. (Getty, Realtor.com)
Arkansas’ priciest home lists near Fayetteville football stadium
Arkansas’ priciest home lists near Fayetteville football stadium
Philip Falcone and his homes at 142 Crestview Lane in Sagaponack and  22 East 67th Street (Getty, Corcoran, Google Maps)
Foreclosure on Phil Falcone’s homes can move forward
Foreclosure on Phil Falcone’s homes can move forward
Softbank CEO Masayoshi Son and Compass CEO Robert Reffkin (Getty, Compass)
SoftBank buys $72M of Compass stock
SoftBank buys $72M of Compass stock
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...