Thursday, August 16, 2012

Reconciliation Tips for Commercial Property Managers

commercial property manager looking at a file record
Outgoings reconciliations need good records for the commercial or retail property.

At the end of any financial year in commercial property management, it is necessary to reconcile the financial activities of the commercial or retail building for the landlord.  In a building with many tenants in the tenancy mix, the process of reconciliation becomes quite complex and lengthy.

It can take some days if not weeks to ensure that the reconciliation has been correctly conducted and accurately reflects the true income and expenditure from the property.

Some leases require the property manager and or the landlord to undertake a formal audit of the completed reconciliation process.  The auditor then signs off on the records of the reconciliation so that any outgoings recoveries can be correctly implemented with the necessary tenancies.

All of this takes time, and on that basis should be timed into the requirements of the building, the landlord, the leases, and local property legislation.  It is not unusual to have circumstances or legislation where the outgoings reconciliation needs to have been completed and served upon the tenants in a particular time frame.

The reconciliation process occurs for the following reasons:

  • To determine that the income raised throughout the year across all of the tenants leases is accurate and correctly charged
  • To determine that the expenditure paid from the property financial records is correct and in accordance with the established rules relating to building occupancy costs.
  • To remove any items of a capital nature that should not be in the ordinary property expenditure category.
  • To ensure that any arrears and recovery processes are correctly actioned and reflected in the recoverable income.
  • To review all of the rentals charged to the tenants to ensure that those charges are correct and in accordance with the terms of each active lease.
  • To raise charges against the appropriate tenancies for recoverable outgoings still to be charged.
  • To apply any adjustments on the tenants in the tenancy mix for any outgoings paid in advance.

The accuracy of the outgoings reconciliation process should never be under estimated.  The reconciliation will have impact on the net income for the property and on that basis the potential sale price if and when the property is sold.

The levels of outgoings in a property will also impact the market rental when it comes to leasing any vacant space.  A property with a high level of outgoings will be difficult to lease and will not attract the quality tenants that you require.