Client
Securities trading firm that leased a large portion of an office building in New York City.

Audit Discovery

The landlord was billing for after-hours freight elevator service despite the fact that the lease required that such elevators were to be at no additional cost. The Building has two freight elevators that are available 24/7, which are used for its workers and for deliveries of lunch orders, furniture, equipment and construction materials. The Rules and Regulations of the Lease provided that “Each tenant agrees to pay for use of the service elevator at reasonable rates prescribed by Landlord, as set forth in the Lease” and that “bulky materials may not be delivered during usual business hours.” However, the lease provided that “Landlord shall provide, at no cost, necessary elevator service (including freight elevators) during Business Hours and shall have at least two (2) elevators subject to call at all other times.” The lease also provided that it would supersede any inconsistent rules and regulations.

The landlord billed the tenant $150 per hour for use of the freight elevators outside of Business Hours. During some of the same after-hours time periods, the freight elevator was also being used and paid for by other tenants in the Building. Furthermore, the landlord included the cost of providing after-hours elevator service (engineer, elevator operator) in operating expenses.

Resolution
KBA negotiated to remove the $150 per hour charge for use of the freight elevator except for the limited cases when it was being used to deliver construction materials. The landlord also agreed that when multiple tenants were using the elevators, the costs would be allocated among them. Finally, the landlord agreed that the cost of providing the elevator service would not be included in operating expenses because they were already being paid for directly by the tenant(s). The settlement saved the tenant $200,000 through the current year with a projected continuing savings of about $40,000 per year.