Tenant Not Responsible for Tax Increase Assessed for Base Year

April 30, 2005

Real estate taxes assessed for a building for any given year were due the following year. For example, taxes assessed for 1999 were due in 2000. A government tenant's lease required it to pay its share of any increases in the building's real estate taxes over “taxes paid for” the base year, which was 2000. The real estate taxes assessed for the building for 2000 and paid by the owner in 2001 were much higher than the taxes assessed for 1999 and paid in 2000. The owner asked the tenant to pay its share of this increase. When the tenant refused, the owner sued it.

Real estate taxes assessed for a building for any given year were due the following year. For example, taxes assessed for 1999 were due in 2000. A government tenant's lease required it to pay its share of any increases in the building's real estate taxes over “taxes paid for” the base year, which was 2000. The real estate taxes assessed for the building for 2000 and paid by the owner in 2001 were much higher than the taxes assessed for 1999 and paid in 2000. The owner asked the tenant to pay its share of this increase. When the tenant refused, the owner sued it. The tenant argued that because the base year was 2000, it was responsible only for increases in taxes over those assessed for 2000, not for increases in taxes over those paid in 2000 but assessed for 1999.

A federal appeals court ruled that the tenant didn't have to pay any share of the tax increase. The court said that the phrase “taxes paid for” 2000 meant the taxes assessed for 2000, not those actually paid during that year. To interpret the phrase otherwise would mean the tenant would be responsible for taxes assessed for a year when it wasn't a tenant (1999) [Greenwood Assocs., LLP v. Perry].

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