Seek Tax Protections in Your CRE Lease

One of the key economic questions any commercial lease must address is whether the tenant is responsible for paying real estate taxes on the property and, if so, how much. More often than not, the tenant does have tax liabilities, but because of the money involved, the issue is often hotly negotiated. And while every deal is different and generally reflects the bargaining power of the sides involved, there are eight protections that owners should seek in any negotiation with their tenants over tax allocation terms in the lease:

·         Whether the tenant must pay taxes at all

·         Which taxes the tenant is responsible for

·         What percentage of taxes the tenant must pay

·         The tenant’s responsibility for tax increases

·         Which escalations the tenant is on the hook for

·         Whether tenant’s responsibility for taxes includes pilots (payments in lieu of taxes)

·         The method of tenant tax payments

·         Whether the tenant may contest property taxes

To find out why these eight protections are important and to learn how to draft a lease that includes them, see “Negotiate Eight Real Estate Tax Protections into Your Lease," available to subscribers here.