Tax Recharge Provisions – The Devilish Details
Landlords and tenants beware! If you are a landlord and you do not pay enough attention to the tax recharge provisions in your leases, you can end up out of pocket tens or even hundreds of thousands of dollars on the annual tax recharge balance sheet. As we all know, if you do not have a contractual ability to collect, you still have to pay.
Yes, sadly, for all involved, property taxes will always be a part of our reality. Similarly, if the devilish little details are not adequately addressed, a tenant can be surprised by receiving a bill for taxes owing that it did not think it owed. A little attention to the devil in the details can alleviate some of the pain and aggravation of the whole tax recharge numbers game.
As an example: If you are the landlord of a building with main and second-floor retail with office floors above, the office tenants typically, by operation of the lease, subsidize the taxes generated by the retail tenants if the tenants are paying on a “proportionate share of the total building gross leasable area” basis. If office tenant space becomes exempt from the payment of taxes (hospital tenants, for example, are exempt) and the lease provides that absolutely no taxes are owing should the space become exempt, the landlord will end up in a shortfall position, where the tenant that was “subsidizing” the retail tenants no longer has to be a player in that game. Similarly, if a tenant expects to become exempt, and negotiates its lease such that it will no longer be required to pay taxes should it be classed exempt, that tenant will want to make sure that any “subsidizing” of taxes for other space in the building is addressed.
It is all in the details, and one or two words can make all the difference.
Whether you are a landlord or a tenant, you should consider having a lawyer experienced in this area take a look at the tax recharge provisions prior to finalizing your lease. Surprising, I know – a lawyer recommending that legal advice be obtained.
gross leasable area hospital tenant Landlord lease office tenant retail tenant tax exempt tax recharge provision tenant