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Introduction
Would
you like to be the landlord and/or manager of a retail property where
the minimum rent is assured, while additional percentage rent is earned
daily? Rent increases every morning! Percentage
rent leases provide this opportunity. However, this opportunity is best
realized when the tenant accurately reports the lease-defined sales to
the property manager. When a retailer owns thousands, hundreds, or even
a single store, it may be that gross sales are underreported. Sales reporting
errors may be caused by tenant misunderstanding of lease gross sales definitions,
employee errors, deliberate tenant misstatement, or a particular lease
that does not conform to a tenant percentage rent sales reporting profile.
Major tenants may sense a property manager's fear of auditing them. There
are many reasons, or excuses--take your pick--as to why sales are not
accurately reported to the property manager as required by the lease.
Some common
examples of gross sales reporting errors are:
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A bank paying rent based upon a percentage of
the month-end balance of customer deposits.
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Movie theaters not reporting confection sales,
and deducting excessive film rental costs from reported
sales.
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Tenants artificially creating sales exclusions.
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Sub-tenant sales being omitted from reported sales.
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Catalog sales, repairs, patronage dividends, sales subsidies
and commissions, tenant internet sales returns improperly deducted
from unreported internet sales, wholesale sales, concessionaire
sales, mathematical errors, overstated employee sales, warranties,
employee tips, and credit card fees are often mishandled by
tenants for percentage rent calculation purposes.
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Finally, percentage rent is often reduced by incorrect
deductions for tenant improvement costs, real estate taxes,
and sales and liquor taxes.
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Tenants often misstate sales for the initial lease
year, which often exceeds twelve months (long lease year).
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Additional
reasons for tenant sales audits are: rent abatement requests by a tenant,
a tenant-exercised non-performance option, and as a follow-up to prior
successful sales audits. Our recommendations are always an integral part
of our concise, yet thorough, reports. Please review a sampling of some
of the numerous reports we’ve completed in our
Reports
section.
KNOWLEDGE
IS POWER.
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