Previously in “Lease Intelligence”, I prepared you, dear reader for the economic impact on business if the “split roll” property tax modification to Prop. 13 passes in November when it is expected to appear on the ballot. To get a little insight on how the new guidelines would work, I spoke to Jonathan Marquit, a partner in the law offices of Burke & Marquit, a firm highly respected for its expertise in property tax matters.
If passed, the proposed ballot proposition would affect all office, retail, and industrial properties starting in 2022. According to Mr. Marquit’s knowledge of the drafting, the reassessment of qualifying commercial properties will be phased in over three years. It is definitely worth noting that residential rental properties, regardless of size will not be reassessed under the proposed language. This should come as a relief for apartment owners…and tenants!
The drafters apparently realize that tenants in commercial properties will be impacted by this change because there would be an additional three-year delay before the county will start reassessing commercial properties where more than 50% of the property is occupied by qualifying small businesses. This may apply to many office buildings, shopping centers, and multi-tenant industrial parks. So if you are a small business planning on signing a lease this year with a lease term of five years or less, you may not have to prepare for a spike in property taxes until your next lease even if the “split roll” initiative passes in November.
Should such a proposition be voted into law, no doubt real estate attorneys representing tenants will be crafting language that will attempt to mitigate the impact of sudden increases in property taxes. And expect the assessor’s office to be overwhelmed by property tax appeals for years to come.
A good tenant representation broker will anticipate these issues and be an advocate for their clients. If you are thinking about leasing commercial property, be sure you have one on your team!