Acting for the landlord
A clause that had never been tested
A contractual rent entitlement that had run for more than a decade without an audit, and what one forensic review recovered.
Lease audit · Rent review · Negotiation
$2.5m
of value recovered and created for a landlord, out of a single lease
The situation
A landlord held a long lease containing a contractual rent entitlement tied to the tenant’s reported performance. The lease had run for more than a decade.
The entitlement had never been audited. Each year the landlord accepted the tenant’s declaration and took it at face value.
The challenge
An entitlement of this kind works only as well as the system monitoring it. Nobody had verified the declarations independently.
The lease definition of reported performance had never been stress-tested against the tenant’s actual accounting practice, and the gap ran quietly in the tenant’s favour.
The approach
Klug reviewed the lease line by line — the definition of the entitlement, the audit rights, and the landlord’s ability to inspect the tenant’s records.
Working with the landlord’s legal advisors, we established the audit right and obtained ten years of records. We reconciled them against the declarations and against the lease definition, which proved broader than what the tenant had been reporting.
The outcome
The audit established consistent under-reporting. Amounts that sat inside the lease definition had been left out of the declarations year after year.
The tenant settled the shortfall in full at $181,759. Klug ran the concurrent review and reset the rent to market, an uplift of 19.7%. Capitalised at 5.5%, that uplift adds approximately $2.36m to the asset’s value.
Key takeaway
An entitlement of this kind is valuable only when it is actively managed. Many landlords hold audit rights they have never exercised. One forensic review can recover years of missed income and reset the rent on terms that reflect what the tenant is actually reporting.
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