Property taxes are typically the second or third largest line item in a franchise CAM reconciliation, behind base rent and sometimes management fees. Unlike most CAM line items, property taxes are verifiable against public records — the assessed value and tax rate for any commercial property in the US are available through the county assessor. That makes property tax errors among the more straightforward to identify, once you know what to look for.
How Property Taxes Are Calculated
Commercial property taxes are the product of two numbers:
Annual Tax = Assessed Value × Tax Rate (mill levy)
Assessed value is the value the county assessor places on the property for tax purposes. It is not necessarily the market value or the sale price, though many jurisdictions assess at a percentage of market value (often 80–100% for commercial properties, but this varies by state).
Tax rate is expressed as mills (dollars per thousand dollars of assessed value) or as a percentage. Rates vary by county and are set annually based on government budgetary needs.
The property owner (your landlord) receives the tax bill and, under a NNN lease, passes through the tenant's proportionate share as part of the reconciliation.
What Triggers Reassessment
Property assessments change on different schedules depending on jurisdiction:
- Sale of the property: In many states (California's Proposition 13 system is the most notable example), a property sale triggers reassessment at the sale price. If your landlord sold the property during your lease term, expect a significant tax increase in the following reconciliation.
- Major improvements: A significant renovation, new construction, or expansion can trigger a reassessment for the improvement value.
- Periodic revaluation cycles: Most counties reassess all commercial properties on a 1–5 year cycle regardless of sale activity. In states like Texas, annual reassessment is standard.
- New special assessments: Infrastructure improvement districts, business improvement districts, and special tax districts can add new assessments on top of regular property taxes.
How to Verify Your Property Tax Share
Step 1: Get the tax bill. Under your audit right, you can request the actual property tax bills for the reconciliation year. This is public information, but obtaining it from the landlord is faster than navigating county records websites.
Step 2: Verify the assessed value and rate. Cross-reference the landlord's tax bills against the county assessor's records for the property. Many county assessors publish assessed values and tax bills online. Search "[county name] assessor property search" and look up the property address.
Step 3: Apply your pro-rata share. Your share of property taxes uses the same pro-rata percentage that applies to CAM, unless your lease defines a separate denominator or share for taxes. Check the tax section of your lease.
Step 4: Compare to the billed amount. If the billed amount exceeds your pro-rata share of the actual tax bill, you have an overcharge. Common causes include applying the wrong share percentage, billing taxes for adjacent parcels not covered by your lease, or including special assessments that your lease excludes.
Special Assessments: Are They Includable?
Your lease should address whether special assessments can be passed through as property taxes or are excluded. Common types of special assessments:
- Business Improvement Districts (BIDs): Annual assessments to fund marketing, security, or maintenance for a commercial district. Some leases include these; many don't.
- Infrastructure improvement bonds: Assessment districts formed to pay for street improvements, utility upgrades, or public infrastructure. These are sometimes includable, sometimes excluded, depending on lease language.
- Tax increment financing (TIF) assessments: Less common in private commercial leases, but they do appear in some redevelopment areas.
If your reconciliation includes a line for a "special district assessment" or "BID" that wasn't present in prior years, verify whether your lease explicitly allows it.
When the Tax Bill Jumps Year-Over-Year
A year-over-year tax increase requires a specific explanation. Before accepting a significant increase, ask the landlord:
- Was the property sold? If so, what was the sale price and how did reassessment affect the assessed value?
- Were there major improvements that triggered reassessment?
- Did the local government increase the mill levy? (This affects all properties equally and is verifiable from public county records.)
- Was a new special assessment district formed?
For a property sale, the reassessment impact can be calculated:
Estimated New Assessment ≈ Sale Price × Assessment Ratio
New Annual Tax ≈ New Assessment × Tax Rate
If the actual billed tax is significantly higher than this estimate, investigate whether the landlord is passing through taxes from adjacent parcels or applying the wrong property identification number.
Tax Payments vs. Tax Estimates
If your lease requires monthly tax estimates, verify that the annual true-up reflects the actual tax bills, not a continued estimate. Tax estimates carried over without reconciling to actual bills create a cumulative error that grows over time.
Also verify the timing of tax payments. Some property tax bills cover a fiscal year that doesn't match the calendar year. If the landlord is billing taxes on a calendar-year basis but paying biannually on a fiscal-year cycle, there may be timing double-counting in certain years.
Run Your Tax Line Against Public Records
If you suspect a property tax error, the fastest verification path is to pull the county assessor records yourself. Confirm the assessed value and tax rate, calculate your pro-rata share, and compare to the billed amount. A material difference warrants a written inquiry to the landlord requesting documentation.
For a systematic check across all CAM line items, upload your reconciliation and lease to CAMAudit. The tax overallocation rule verifies your pro-rata share calculation against the lease definition.
Frequently Asked Questions
Can my landlord pass through property taxes on the whole shopping center even if I only occupy part of it?
Yes — that's how NNN leases work. You pay your proportionate share of the total property tax for the parcel(s) covered by the lease. The question is whether the correct parcel is being used and whether your pro-rata share is calculated correctly.
What if the landlord owns multiple parcels and taxes them together?
If the landlord's tax bill covers multiple parcels and you lease space on only one, the landlord should allocate taxes proportionately to the parcel you occupy. Request documentation showing how the allocation was made. Billing you for taxes on a parcel your lease doesn't cover is an overcharge.
Does a property sale always increase my taxes?
Not necessarily. If the property sold at a value below its prior assessed value, the reassessment could decrease your tax share. In markets with declining commercial values, sales can trigger downward reassessments. The direction depends on the sale price relative to prior assessed value and the local assessment methodology.
Can I appeal the property tax assessment on my behalf?
Generally no — only the property owner can appeal an assessment. However, your lease may give you the right to request that the landlord file an appeal if you believe the assessment is excessive. Some leases include a provision requiring the landlord to pursue a tax appeal if the tenant can demonstrate good cause.
Are property taxes capped under a CAM cap provision?
Typically no. CAM caps in franchise leases usually apply only to controllable expenses and explicitly exclude taxes and insurance as non-controllable pass-throughs. If your lease has a CAM cap, read the definition of "controllable expenses" carefully to confirm taxes are excluded from the cap.
What if the property was recently renovated and I've seen a big cost increase?
A renovation that adds leasable space or substantially improves the property can trigger both a capital expense question (for the renovation costs in CAM) and a reassessment question (for the increased property value). Both should be reviewed separately: the renovation costs for capital exclusion, and the tax increase for proportionate reassessment.