Tenant Must Pay 100 Percent of Real Estate Tax Escalations

February 1, 2007

A tenant leased space in an office building to operate a food store. The lease stated that the tenant must pay, as additional rent, its “proportionate share” of any tax increases above a base tax amount. The tenant's proportionate share of such real estate tax escalations would “be deemed to be and may be expressed as a percentage, i.e., 100%.” The tenant paid 100 percent of the escalations for several years after the lease began.

A tenant leased space in an office building to operate a food store. The lease stated that the tenant must pay, as additional rent, its “proportionate share” of any tax increases above a base tax amount. The tenant's proportionate share of such real estate tax escalations would “be deemed to be and may be expressed as a percentage, i.e., 100%.” The tenant paid 100 percent of the escalations for several years after the lease began.

However, the tenant later sued the owner for a refund, claiming that it owed only 50 percent of the escalations because it was not the building's only commercial tenant. The owner argued that the tenant was responsible for 100 percent of the escalations and had agreed to the terms of the real estate tax escalations clause.

A New York court ruled that the tenant must pay 100 percent of the real estate tax escalations. It didn't matter whether there were other commercial tenants in the building. The tenant assumed that the existence of other tenants at the building would affect its proportionate share of escalations. However, the plain language of the lease didn't support the tenant's assumption. And for four years, the tenant had paid 100 percent of the escalations without complaint.

The tenant's course of conduct suggested that the real estate tax escalation clause was negotiated and that the tenant had agreed to its terms.

  • F.S. Assocs., Inc. v. Jandi Realty, LLC: No. 120183/06, 2006 N.Y. Misc. LEXIS 3789 (N.Y.C. Civ. Ct. 12/19/06).

More like this