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2013 Case Studies

Global Telecom Company – Parking Deck Issue

The client is a global telecommunications company occupying roughly 273,000 square feet in a major metropolitan city.

Audit Findings/Non-Compliance Issues

CTS noted that the Building and the Parking Deck reimbursement obligations were separated per the lease, and while only the Building operating expenses were subject to a management fee reimbursement, the landlord was also applying a management fee reimbursement to the Parking Deck expenses. In addition, the landlord was impermissbly passing through income tax reimbursement associated with Parking Deck revenue to the Building tenants.

Financial Impact to Client

$185,000 was refunded to our client, and the landlord agreed to corrected Parking Deck expense calculations in subsequent lease years resulting in $373,000 in future cost avoidance.

National Law Firm – Electric/Energy Overcharge Issues

The client is a national law firm occupying 65,000 square feet in a suburban market.

The client’s lease contains an electric rent inclusion factor (ERIF), and electricity costs are reimbursed to the landlord at $3 per square foot. The lease contains a mechanism whereby the landlord may perform an electric survey, and if the actual cost of electricity used by the tenant exceeds $3 per square foot, the landlord may increase the ERIF per square foot cost to meet the actual costs to the landlord.

Audit Findings/Non-Compliance Issues

The CTS audit identified that the landlord had been increasing the ERIF costs to the client to meet the increasing costs per kilowatt hour charged by the utility provider, but had never actually performed the required electric survey. CTS performed an electric survey, and found that the actual electric usage by the client was well below the original ERIF cost level.

Financial Impact to Client

Over $450,000 was refunded and the client’s total electric costs have dropped by $125,000 per year.

Life Sciences Company – Real Estate Tax Issue

The client is a global life sciences company occupying roughly 76,000 square feet in a major metropolitan city.

Audit Findings/Non-Compliance Issues

CTS noted that the building occupied by our client had undergone an expansion and conversion, and that our client had become a new tenant to the building immediately post-conversion. CTS identified that the landlord was utilizing a valuation of the building for Real Estate Tax Base Year purposes that was pre-conversion and prior to issuance of a new Certificate of Occupancy (CO). Our client’s lease specifically stated that the Real Estate Tax Base Year was to be the first tax assessed year post issuance of the new CO.

Financial Impact to Client

$284,000 was refunded, and the tax base year was recalculated resulting in $656,000 in future cost avoidance.

Financial Service Firm – Janitorial/Cleaning Charges Impermissible Mark-Up

The client is a global financial services firm occupying over 400,000 square feet in the Financial District of in a central business district.

The client requires very substantial above standard service level janitorial services, and was paying almost $700,000 in annual janitorial expenses. The lease requires that the client use a vendor designated by the landlord.

Audit Findings/Non-Compliance Issues

The CTS audit revealed that the janitorial services vendor was a related party to the landlord. The audit also uncovered that the janitorial vendor was impermissibly marking up the costs of several client-dedicated cleaning staff members.

Financial Impact to Client

The client was refunded $38,000 in past overcharges. In addition, the services contract was revised and the correct billing structure implemented, creating $636,000 in future cost avoidance benefit.

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