Real Estate Advisor: Appealing Property Tax Assessment

When the tenant wants to appeal a commercial property tax assessment

When you aren’t paying the property taxes, it’s understandable why you’d rather avoid spending time and money on an appeal. You could have other reasons to want to stay above the fray, too.

For example, the party appealing an assessment generally must obtain a property appraisal to support the argument that it’s worth less than assessed. You might not want a new appraisal, particularly if you’re refinancing or plan to use the property as collateral.

Often, though, it can be wise for the landlord to step in on an appeal. For starters, you’ll probably enhance tenant relations. Tenants generally appreciate a landlord who takes steps to save them money on their tax bills. Plus, lower taxes make your property more appealing and position you to increase rent or require higher rates from new tenants.

When paying the property tax bill, it usually makes sense for the tenant to be responsible for appealing a property tax assessment. But that’s not always a smart move. Leaving an appeal to your tenant could result in unintended legal and financial consequences.

 

It’s also important to remember that the party filing the appeal controls the process — and you don’t want the wrong tenant in control. For example, if you own a shopping center, you probably don’t want a smaller nonanchor tenant pursuing an appeal. (Typically, only one appeal of an assessment can be made.) A tenant with a small pro rata tax liability could potentially play a big role in determining the future tax liability of much larger tenants with larger tax issues.

In addition, at some point you’re likely to have some vacancies. This means you’ll be responsible for paying a share of the property taxes. Because your bottom line stands to be affected as well, it’s probably best to have some control over the process.

Lease matters

Addressing this issue in your lease may save headaches later. Even if local law specifically allows tax-paying tenants to appeal an assessment if a landlord doesn’t, you may want to consult with legal counsel on whether or not you can or should restrict your tenants’ right to file an appeal and whether or not you should retain some control regarding strategy and settlement decisions.

Many factors may be considered by a court when a tenant’s right to file an appeal in the landlord’s name is challenged. You may never have a tenant that wants to appeal a property tax assessment, but, just in case you do, you may want to consult with legal counsel in advance of signing a lease so that you can negotiate the issues with tenants and clearly state your position in the lease from the beginning.

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