Proposition 15 - Split Roll - Who Pays?

Image Attribution:www.danjacoby.com

For the next few weeks, I will endeavor to sound like a broken record. Or is it Groundhog Day? Or as Yogi Bera once opined - “it’s Deja Vu all over again.” Not that I’m partisan - my goal as a commercial real estate practitioner is to inform my readers about the ins and outs of splitting the tax roll. Today - with full permission - I’ve borrowed a review of certain AIR CRE lease documents from Usman Mohammed from Consensus Legal P.C. If you have questions, you can contact 

Usman directly:

Direct: (213) 814-2552

Email: Usman@ConsensusLegal.com

www.ConsensusLegal.com

Many, many small businesses have entered into one of the below AIR CRE leases and are governed by their language.

 A bit about AIR CRE. “AIR CRE is an innovative, member-owned platform that provides commercial real estate professionals with the critical tools they need to be successful. AIR CRE has curated the best resources that the industry has to offer, and packaged them together as a single integrated network. Members have unparalleled access to a system of market research, listings services, contracts and legal resources, networking, and education.”

 So, simply - if a Tenant enters into an AIR CRE lease today, would the Tenant be required to pay the increase in property taxes resulting from the potential passage of Prop. 15?

 Short Answer: Yes, except under the rarely-used AIR CRE month to month lease (entitled “Standard Industrial/Commercial Multi-Tenant Month To Month Lease – Gross”).  

 How does each individual AIR CRE Lease allocate responsibility for increased Real Property Taxes resulting from Prop. 15?  The following is a breakdown.

Industrial/Commercial Leases

Single-Tenant Lease – Gross: Tenant pays increases in Real Property Taxes over the fiscal tax year during which the Commencement Date Occurs. (Paragraph 10.2.)

Single-Tenant Lease – Net: Tenant is responsible for Real Property Taxes. (Paragraph 10.2.)

Multi-Tenant Lease – Gross: Tenant is responsible for Tenant’s share of any increase above the Base Real Property Taxes (i.e., the Real Property Taxes assessed during the calendar year in which the Lease is executed). (Paragraph 4.2(a)(v).)

Multi-Tenant Lease – Net: Tenant pays Tenant’s share of Real Property Taxes. (Paragraph 4.2(a)(v).)

Multi-Tenant Month To Month Lease – Gross: Paragraph 10 provides: “Landlord shall pay any Real Property Taxes.”  In this AIR CRE Lease, Landlord is responsible for all Real Property Taxes.

Land Lease – Gross: Tenant is responsible for increases in Real Property Taxes over the fiscal tax year during which the Commencement Date occurs. (Paragraph 10.2.)

Office Leases

Multi-Tenant Office Lease – Gross: Tenant pays Tenant’s share of the amount by which all Operating Expenses (including Real Property Taxes) for each Comparison Year exceeds the amount of all Operating Expenses for the Base Year. (Paragraph 4.2(a)(v).)

Multi-Tenant Office Lease – Net: Tenant pays Tenant’s share of all Operating Expenses (including Real Property Taxes). (Paragraph 4.2(a)(v).)

Shopping Center Lease

Multi-Tenant Shopping Center Lease – Net: Tenant is responsible for Tenant’s share of all Common Area Operating Expenses (including Real Property Taxes). (Paragraph 4.2(a)(v).)

You, as a Tenant, would be well advised to review your lease carefully. If the heading contains one of those above - you know the impact. If not, seek counsel. If you’re considering entering into a new lease - you are certainly advised to ask for Proposition 15 protection.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.