Brownfield & Mayerhofer, Inc.

“You Say Tomato, and I Throw Tomatoes”

Resolving the Problem of Conflicting Audits

Our Client: A Global Energy Company


The tenant leased one million square feet of space in an office complex owned by a joint venture. All of the space was subject to a base-year lease structure. The lease defined typical escalation expenses, including capital expenditures that helped to reduce operating expenses.

Several years into the lease, the complex was purchased by a major REIT. After substantial “additional rent” increases, the tenant exercised its right to audit the expenses for all years of its occupancy. The auditor concluded that the property owner had not followed the letter of the lease and had overcharged the tenant by several million dollars since the inception of the lease. A key complaint was that certain capital replacements were made under the guise of operating leases, which the auditor claimed should not have been passed through. The property owner disputed the auditor’s conclusions, as did the owner’s audit firm, which presented its own report criticizing the tenant auditor’s conclusions. Not surprisingly, the two auditors had a polarizing effect on their clients. The tenant and property owner subsequently sued each other. We were retained by the tenant’s attorney and asked to review both audits as well as reports prepared by several other consultants.

Our Contribution

Our analysis focused on the methodology employed from year to year for escalation calculations, as well as on the opinions expressed by the owner’s auditor. We concluded that the old and new property owners had used different methodology over time, creating monetary disparities in their favor, and that the landlord auditor’s report clearly misinterpreted several lease clauses. Also, we agreed with most of the tenant auditor’s conclusions, especially with respect to inappropriately escalating the cost of operating leases used to purchase capital equipment.


We presented our report to the property owner’s counsel and discussed our findings. Court proceedings were initiated. A few days later, the two parties agreed to a confidential settlement that adequately resolved the tenant’s claim.