CRE glossary
Audit rights
Audit rights are a tenant's contractual right to examine the landlord's books and records to verify the calculation of pass-through charges — CAM, operating expenses, real estate taxes, insurance, and other reconciliation-style charges. Without audit rights, tenants must accept the landlord's annual statement at face value.
Audit rights are essential in NNN, modified-gross, and any lease with significant pass-through charges. CAM and operating-expense lines on a typical commercial lease can total $10–$25/SF, which on 20,000 SF is $200K–$500K of charges depending on landlord accounting.
Standard structure: tenant has a defined window (60–180 days) after receiving the annual reconciliation to request an audit. Tenant pays unless errors above a threshold (3–5%) are found, in which case landlord refunds audit cost AND repays the overcharge.
Three negotiation points: audit window must be at least 90 days; error threshold should be 3% or lower; auditor selection should be tenant's choice, not landlord-approved.
Example
- Audit window
- 90–180 days from reconciliation
- Error threshold
- 3% of total charges
- Typical audit cost
- $3,000–$15,000
- Typical errors found
- 2–8% of CAM/OpEx
Broker perspective
Audit rights are the most underutilized provision in commercial leases. Most tenants accept reconciliations without question. A capable third-party CAM auditor will find 2–8% in overcharges on most reconciliations. Push tenants to actually exercise audit rights every 2–3 years.
Frequently asked
People also ask
Why need audit rights?
Landlord-prepared reconciliations are unilateral. Without audit, no way to verify charges.
How often should I audit?
Every 2–3 years for most tenants. Annual audits make sense for 50,000+ SF tenants.
What does an audit cost?
$3,000–$15,000. Usually offset by recovered overcharges.
Can the landlord refuse access?
Not if rights are properly drafted. Specify timing, location, and what records are accessible.
Related terms
Common area maintenance (CAM)
Tenant's share of the cost to operate and maintain shared building areas, lobbies, parking, landscaping, HVAC, security.
Operating expenses (OpEx)
All costs to run the building, taxes, insurance, utilities, janitorial, management, that get passed through to tenants in NNN and modified gross structures.
Expense stop
The base year operating-expense level in modified gross leases, tenant pays only increases over this floor.
Triple net lease (NNN)
A lease where the tenant pays base rent plus their pro-rata share of property taxes, insurance, and CAM.
See audit rights extracted from a real lease.
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