Proportionate Share of Real Estate Tax Increases

New York City real estate taxes are assessed every July. Each building is assessed a different tax every year. Sometimes the tax on a building does not go up, but it usually does. Landlords can’t predict how much their real estate tax will increase so they pass along the charge to their tenants.

As an example, a tenant occupies 5000 sf in a 250,000 sf building. Their proportionate share of the real estate tax increase would be 2%. If the base tax year is 2008/2009 (July to July) and real estate taxes in the building increase $10,000 in July 2009, the tenant would pay/reimburse the landlord $200 (2% of $10,000). It is not uncommon for a landlord to spread out these payments and charge the tenant in monthly installments instead of one lump sum (especially if it’s a high increase).

It is important to keep in mind that tenants are responsible for the increases above their base year, not the previous year. Using our past example of the $200 tenant charge in July 2009, if in July 2010, the real estate tax on the building increases $20,000, the tenant would now owe $600 in 2010 ($200 + $400 because the real estate tax is $30,000 more than it was in the base year 2008/2009).

So if there is a high increase in the second year of a five year lease, the tenant will also be enduring the effects of that in every year following.

Landlords also sometimes hold tenants responsible for increases in fuel charge, which works the same way, but is typically a much less substantial amount.

Landlords usually will require tenants to accept the current tax year as the base until it is completely over. But if, for example, you are negotiating a lease that begins in June 2009, you should at least try to negotiate a base tax year of 2009/2010 (since the 2008/2009 tax year is almost over). This will not only help you avoid paying your share of the increase at the beginning of the lease, but the result of that increase every year afterwards.