What is a Lease Administration Audit?

ByMatt Giffune

Last Updated on July 24, 2025 by

Leasing commercial space comes with complexities that can easily lead to rental overcharges, missed lease events, or billing disputes — especially when lease data management is fragmented. Many tenants face critical data blind spots hidden within lease provisions, CAM audits, and rent payments. That’s where a lease administration audit becomes invaluable.

Whether you’re managing multiple tenants across a portfolio or navigating a building ownership change, a lease administration audit ensures your lease obligations are met and erroneous charges are caught early. This blog explores the importance of lease audits, what they involve, and how to protect your interests during transitions. We’ll also cover topics like critical lease events, real estate taxes, CAM charges, and more.

Lease Audit Definition

A lease administration audit is a comprehensive financial audit of a tenant’s lease agreements, lease transactions, and supporting documents. It validates accuracy across lease accounting standards, rental charges, operating expenses, and other lease obligations.

The audit examines key areas including:

  • Base rental rate and escalation clauses
  • CAM charges and utilities
  • Tenant Improvement (TI) allowances
  • Security deposits and letters of credit
  • Lease renewals and liability schedules

Lease audits are a core component of lease compliance. They help tenants recover overpayments, catch critical errors, and confirm adherence to lease provisions. Auditing lease data also reduces potential risks tied to inaccurate financial statements or misapplied fee structures. For companies managing a growing lease portfolio, regular audits drive significant savings and improved lease data management.

Using a centralized lease management software platform ensures consistent access to personal data, lease events, and current obligations across departments — finance, legal, real estate, and operations.

Why are Lease Audits Important?

Lease audits are particularly important during property ownership transitions. New property owners may introduce changes to management services, accounting practices, or lease data inputs that lead to discrepancies. Without careful review, tenants can face erroneous charges and lease compliance breakdowns.

Audits support better outcomes by:

  • Identifying landlord overcharges or misapplied real estate taxes
  • Confirming all lease obligations are carried forward
  • Ensuring lease renewals, deposits, and allowances are honored
  • Maintaining control over critical lease events

Commercial tenants with unique requirements or global operations especially benefit from routine audits. Regular validation of critical data provides assurance that each tenant’s lease is being administered according to the original terms — not adjusted without consent.

Security Deposit

Security deposits protect landlords against damages or missed rent, but they also impact tenant cash flow. When a building is sold, the security deposit must be properly transferred to the new property owner. Failure to do so introduces financial risk.

To protect your deposit during a building sale:

  • Request written confirmation of the new landlord’s identity
  • Obtain acknowledgement that your deposit has transferred
  • Ensure your letter of credit is valid with the new owner’s bank

Without these steps, deposits can be misapplied or lost in the transition — jeopardizing your financial position.

What happens when the building is sold?

When a leased building changes ownership, tenants should pay careful attention to their security deposits. In some cases, the sale of a property can put deposits at risk if mishandled during the transition. To protect their deposit, tenants should request written confirmation from the new landlord agreeing to assume responsibility. Otherwise, the deposit could disappear into the previous owner’s accounts.

Banking and letters of credit

Many leases require tenants to issue a letter of credit instead of cash deposits. In a sale scenario, these banking instruments must transfer seamlessly. However, unless explicitly acknowledged, the new property owner might dispute the deposit’s existence.

To ensure continuity, you should secure written verification that the new landlord has accepted the letter of credit and confirm that your bank has recorded the change of beneficiary. This protects you from redundant payments or disputes over unrecognized deposits — both of which can complicate lease accounting and lease liability tracking.

How do you ensure your deposit is still valid?

To avoid security deposit disputes when ownership changes, tenants should take three key steps:

  1. Get written confirmation that the sale occurred and identify the new landlord.
  2. Obtain the new owner’s acknowledgement of receiving your existing deposit.
  3. Request documentation showing your letter of credit was transferred to the new landlord’s bank.

Following these best practices ensures a smooth transition of deposits between building owners.

TI Allowance

Lease agreements often provide a tenant improvement (TI) allowance which tenants can use to construct, renovate or customize their rented space. If the TI allowance is not fully utilized by move-in, tenants may be entitled to remain eligible to draw from it under the lease terms. When ownership changes, tenants should obtain the new landlord’s written acceptance of any TI allowance balance to prevent losing their unused credit.

The tenant never requested money from the landlord. Have you received everything that is due to you?

Many tenants miss out on receiving their full TI allowance because they are unaware of the procedure for obtaining the funds. Landlords are only obligated to reimburse tenant improvement expenses if properly submitted for approval in advance. Therefore, it’s critical to understand the required process which is usually detailed in the lease. Don’t leave money on the table by assuming the landlord will proactively provide the allowance. Be sure to file the necessary paperwork.

Utilities

How to navigate when the landlord is re-billing the tenant?

Some office leases include base year utility expenses as part of the tenant’s share of operating costs. When a property changes hands, new landlords sometimes neglect to adjust the base year when billing tenants for their utility usage. This results in tenants paying twice for the same utilities. Tenants should scrutinize operating cost statements and confirm the correct base year is being applied.

Common Area Maintenance

Are you paying for your neighbors’ bills?

Tenants are generally responsible for their share of common area maintenance (CAM) costs. When billed incorrectly, they can end up covering expenses beyond their own leased premises. For example, by using the wrong square footage allocation formula after an ownership change. Tenants should verify that the new landlord uses the correct space measurements when calculating their portion of CAM fees.

In summary, lease audits are essential when ownership changes to maintain proper lease administration. Tenants should confirm their deposits transfer and allowances roll forward to the new landlord. Also, verify that billing adjustments and calculations are handled correctly. With some vigilance, the transition can be seamless while protecting the stakeholder’s interests on both sides of the agreement.

In Summary

A lease administration audit is a crucial tool for commercial tenants — especially during ownership changes or periods of portfolio growth. Audits confirm that lease obligations are being met, prevent landlord overcharges, and preserve important lease data for future reference.

By reviewing financial statements, rent payments, real estate taxes, and lease liability items, tenants gain clarity and control over their leasing program. This improves operational efficiency and helps drive significant savings across the lease lifecycle.

Whether you self-manage leases or partner with third-party lease audit services, audits help your team stay ahead of potential risks — and behind every successful audit is clean, centralized lease data.

5 Unique FAQs

1. What are some typical lease errors uncovered in audits?

Some common errors found in lease audits include incorrect calculations of base rents and escalations, improper pass-through of operating expenses, unbilled or missing payments, excessive property management fees, capital expenses billed as repairs, incorrect security deposit accounting, and more.

2. When should tenants conduct lease audits?

Tenants should perform periodic audits throughout the term of the lease, such as every 2-3 years. Audits should also occur after any base year adjustment and when ownership of the building changes.

3. What documents do auditors need from landlords?

Auditors will request copies of the lease, rent rolls, operating expense details, invoices, calculations of payments, Tenant Improvement paperwork, security deposit statements, and any correspondence related to the terms of the lease.

4. Can I recover historical overpayments if errors are uncovered?

The ability to recover past overpayments depends on the state statutes of limitations. But audits can at least identify problems and obtain corrected billings going forward.

5. Who should perform lease audits?

While tenants can audit internally, third-party lease auditors provide independence and specialized expertise. Look for auditors with certified designations such as the Certified Lease Auditor (CLA) for best results. Housing your lease data in software like Lease Administration by Occupier enables your team to run internal lease audits.