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Lease Audit Begins with the Letter of Intent

Businesswoman showing contract to partner

Operating expenses often grow to be a major component of most leasehold expense obligations. Focusing on operating expense and audit right provisions is as important as attention to base rent, assignment, and expansion and sublease terms when drafting a Letter of Intent (LOI).

A prospective tenant’s leverage in negotiating operating expense limitations and rights to review the permitted expenses billed by the landlord is rarely greater than in the term sheet or LOI phase. Unaddressed operating expense and audit rights terms are generally filled by landlord-centric boilerplate language and a missed opportunity here can lead to significant additional expenses through a lease term.

Not only can a savvy lease administrator or transaction manager potentially create strong tenant-centric protections in this phase, it is a prime opportunity for the people who will actually administer and validate the financial aspects of the lease to get a ‘seat at the table’ and lend practical experience to the lease negotiation process.

Many of our clients from Fortune 100’s on down have found working with CTS and our input on strategies around their term sheets has saved them inordinate headaches and cost far down the line. If you would like to discuss strategies in term sheet negotiations related to effective cost avoidance opportunities, or are interested in having your annual operating expense reconciliations reviewed by a recognized market leader who has created leasehold cost containment profiles for some of the world’s most recognizable companies, please give us a call.

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