Tenant's pro-rata share of real property taxes and assessments levied on the building and land.
Key Takeaways
| Lease Type | Recoverable? | Controllable? |
|---|---|---|
| NNN | Yes | No |
| Modified Gross | Yes | No |
| Full-Service Gross | No | No |
Approximate budget share: 25-40% of total CAM pool.
Property taxes represent one of the largest single line items in most NNN CAM reconciliations, often accounting for 25-40% of total billed expenses. Tenants pay their pro-rata share of real property taxes and assessments levied on the building and land. The correct charge is straightforward in principle: the municipal tax assessment divided by total leasable SF, multiplied by the tenant's square footage. In practice, four common overcharges appear. First, late payment penalties incurred because the landlord missed a payment deadline are sometimes embedded in the tax line item, even though they are the landlord's financial obligation. Second, franchise taxes, income taxes, or inheritance taxes unrelated to the real property sometimes appear in the tax pool. Third, special assessments for infrastructure improvements that primarily benefit the landlord's future development are passed through as operating taxes. Fourth, and perhaps most impactful, when a building is sold and the property is reassessed at a higher value, tenants in base-year leases may have their tax burden spike. If your lease includes a base year, verify the post-sale reassessment does not exceed the cap. Always request the actual tax bill to reconcile billed amounts against the assessment.
Overcharge Risk
$5,000-$40,000/year
typical annual overcharge when this line item is disputed
Landlords pass through penalty interest on late tax payments, franchise taxes unrelated to the real property, or special assessments for landlord-benefiting improvements.
| Legitimate Charge | Suspicious Charge |
|---|---|
| Real property tax assessment billed pro-rata based on tenant SF over total leasable SF | Penalty interest or late payment fees embedded within the tax line item |
| Tax amount consistent with the municipal assessment on file | Tax charge significantly higher than prior years without a documented reassessment |
| Tax refund from a successful appeal credited back to tenants pro-rata | Landlord retains tax appeal savings without passing them through to tenants |
| Only real property taxes and standard improvement district assessments | Franchise tax, income tax, or estate tax included in the CAM tax pool |
Request a copy of the actual tax bill. Verify charges match the municipal tax assessment and exclude penalty interest (landlord's responsibility), franchise taxes, and special assessments benefiting only the landlord. If the landlord wins a tax appeal, any refund must reduce your pass-through proportionally.
Check Your Property Taxes (Pro-Rata) Charges
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