One parcel – multiple assessments? Mistakes lease administration professionals make can be costly
/Understanding component assessments can mean $510k in value on some leases.
In commercial leases, especially retail leases, it is common to see that tenants can, or should, be billed based upon the square footage of the property excluding portions of the property that are separately assessed. Sounds pretty simple and straightforward, doesn’t it? But in that one sentence, there can be dozens of variations on the requirement.
For example:
The tenant shall be billed based upon …
The tenant may be billed based upon…
Variations of the shall and may:
…are separately assessed…
… are separately assessed and are the sole responsibility of another party…
…. are separately assessed and billed to another party …
These tiny little nuances may seem like nothing. But that can make a material difference in what a landlord bills, and thus, can greatly affect the landlord’s absorption or leakage.
In a few U.S. states, there is an often overlooked factor outside of the leases. In the majority of states, when we have just one tax parcel, all of the buildings on that parcel are valued as one economic unit. However, in some cases, there is a component assessment performed and provided by the various municipalities.
The natural inclination is one parcel, one assessment. However, when you do a bit of digging, you may find that the assessors have assigned an assessment to each individual building or set of buildings within one parcel, and the values and the related taxes on a per square foot basis.
That means that your lease administration professionals have to exercise caution when interpreting leases to bill tenants for their share of expenses.