Lease Audits

Lease audits are an integral and essential component of due diligence when purchasing an investment property. Lease audits apply to apartments, office, retail, industrial, self storage and any other type of property where written leases exist. In lease audits most rent rolls are accurate and consistent with the actual leases. Lease audits can compare rent roll to leases to bank records. Most investment property sellers have not engaged in the nefarious activities such as leasing a volume of space to undesirable tenants. However, the financial pain caused by either misrepresentations by the seller or the seller signing leases with inappropriate tenants can ruin an otherwise attractive investment.

Steps in a lease audit can include the following:

Determine whether appropriate screening was performed for tenants. For example, for apartments this would include both credit checks and criminal checks.
Perform appropriate screening for tenants when there is no information in the file, provided the tenant has signed or will sign a release.
Determine whether the tenant actually occupies the space indicated in the rent roll.
Interview tenants in person or via written communication to determine whether they agree with the lease terms summarized in the rent roll and lease.
Interview tenants to determine if they are satisfied with the services provided by the management company and their relationship with the property owner.
Interview tenants regarding their plans or pending changes.
Compare lease and rent roll terms versus actual payments.
Reconcile ledgers with bank statements.

The value of an income property depends upon the quantity and quality of income. Both the quality and quantity of the revenue are dependent upon the accuracy of information contained within the rent roll and implicit assumptions regarding the tenants of lease audits. Sloppy record-keeping and fraud can cause a perspective investor to be presented with a rent roll which is entirely inconsistent with income being generated by the property. For apartments in particular, it is not uncommon for an owner to loosen leasing criteria to increase occupancy prior to selling the property. Investors can mitigate their risk and avoid becoming embroiled in a difficult, time-consuming and financially draining investment by verifying the accuracy of the rent roll and tenant quality via a lease audit.

To obtain more information on O’Connor & Associates lease audit services, call us at 713-686-9955 .
The Market Research and Consulting division of O’Connor & Associates provides information necessary to make decision to commercial real estate professionals. Occupancy and Rental Data, ownership and management information are routinely gathered for four major land uses – multifamily, office, retail and industrial. This information allows investors to compare competitive properties, facilitate business decisions and track market and submarket performance. In addition the data is useful to brokers who for example continually monitor Houston retail space leasing, Houston office space leasing, Houston industrial space leasing, Houston apartments, Dallas apartments, Ft. Worth apartments, Austin apartments, and San Antonio apartments.
This capacity to research, analyze and interpret market trends and the impact of specific transactions is a major reason for why developers and acquisition experts rely on O’Connor & Associates for market research, rent studies, tax credit studies, project design guidance, property performance evaluation and lease audits. O’Connor & Associates is an acknowledged source of trends in real estate investing and market activity.

www.williamsoncentralappraisaldistrict.com

About the Author:
Patrick C. O'Connor has been president of O'Connor & Associates since 1983 and is a recipient of the prestigious MAI designation from the Appraisal Institute. He is also a registered senior property tax consultant in the state of Texas and has written numerous articles in state and national publications on reducing property taxes. He continues to set the standard in direction and quality of our appraisal products, adding services ranging from business valuations and business appraisals to cost segregation analysis for income tax reduction. Patrick C. O'Connor www.poconnor.com