CW-Nelson-Mullins-RFP-Response

APPENDIX B LAW FIRM TEST CASES AM LAW 100 FIRM TEST CASE #6 C &W advised our client, a Boston-based law firm, to audit the assigned operating expense and real estate tax base years to both verify the accuracy of the dollar amounts and document the calculation methodology. The effect of base year errors can be significant as they have a recurring impact on the calculation of escalations for each year of the lease term. The base year audit also provides valuable information if there is a change in building ownership and a new landlord implements a different set of accounting policies and procedures.

RESULTS ACHIEVED The landlord agreed with C&W’s audit findings and, as a result, the client’s base year amounts increased by $788,700 for operating expenses and $339,200 for real estate taxes. Applying the tenant’s pro-rata share to those values and projecting the benefit over the lease term results in an estimated savings of $851,400. In addition, due to the scope and thoroughness of C&W’s audit, the landlord implemented several changes in its accounting procedures to ensure its books were reviewed more carefully going forward. All parties involved developed a very strong and productive working relationship that will benefit the client throughout its tenancy.

Key lease terms:

• 28,000 Rentable Square Feet • 12+ Year Lease Term • Base Year Expense Structure

C&W’S SOLUTION: The audit included an on-site tour of the property, a full review of the backup documentation supporting the base year dollars, and discussions with the local tax assessor’s office. C&W’s audit team noted many errors and oversights. Most notably the audit uncovered: • Missing or incorrectly calculated gross-up adjustments to account for the building’s 36% vacancy rate. • Expenses that did not include a full year’s worth of charges. • Incorrectly applied year-end accrual adjustments. • Missing maintenance contract costs due to an elevator modernization project underway during the base year. • Artificially low cleaning contract costs due, in part, to a reduced scope of services because of the building’s significant vacancy. • Base year real estate tax dollars were significantly understated because of a recently performed city-wide revaluation that was being phased-in over a five-year period to lessen the burden of the dramatic increase in building valuations. The last revaluation occurred seven years earlier.

$851,400 TOTAL SAVINGS PROJECTION

62 Legal Sector Advisory Group | ADVISING FOR EXCELLENCE