Who Pays Property Taxes on Commercial Lease?

The type of lease determines who pays property tax in commercial lease? The tenant only pays a set rent under a fixed lease or full-service lease; the landlord covers all other expenses, including property taxes and maintenance. However, the responsibility of property taxes might fall on the tenant in net leases.

Who Pays Property Taxes on a Commercial Lease?

For full service lease, the landlord handles all costs.

However, in case of net lease:

1. Rent and property taxes are paid by the tenant in a single net lease.

2. Rent, taxes, and insurance are paid by the tenant in a double net lease.

3. Rent, taxes, insurance, and maintenance are all paid for by the tenant under a triple net lease (NNN).

Most commercial tenants under net or hybrid leases should budget for taxes and other operational costs.

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Wondering who pays property taxes on a commercial lease? The responsibility for paying property taxes on a commercial lease depends on the lease agreement between the landlord and the tenant. Read on to get the different lease types.

Who Pays Property Tax in Commercial Lease?

Generally, tenants in single net leases are responsible for paying both their rent and a portion of the property taxes. However, it depends on the different lease types. Here are the common types of leases and their implications:

Triple Net Lease (NNN)

In a triple net lease, the tenant is responsible for paying property taxes, insurance, and maintenance costs in addition to the base rent.

The tenant bears the full burden of property taxes, which reduces the landlord’s financial responsibilities. This arrangement is common in single-tenant properties and large retail spaces.

Gross Lease

In a gross lease, the landlord pays all property-related expenses, including property taxes, insurance, and maintenance.

The tenant pays a single, lump sum rent amount, and the landlord uses part of this rent to cover property taxes and other expenses. This type of lease is more common in multi-tenant office buildings.

Modified Gross Lease

A modified gross lease is a hybrid between a gross lease and a net lease. The tenant and landlord share property expenses, including property taxes.

Typically, the landlord covers the base year’s property taxes, and any increases in property taxes in subsequent years are shared by the tenant. The lease agreement specifies the exact split of these costs.

Absolute Net Lease

An absolute net lease is similar to a triple net lease but often more stringent. The tenant is responsible for all property-related expenses without exception.

The tenant pays property taxes directly along with other expenses, taking on almost all the responsibilities of property ownership without owning the property.

• The lease agreement results from negotiations between the landlord and tenant, and specific terms can vary widely.

• The nature of the commercial property (e.g., office, retail, industrial) often influences the lease structure and, consequently, who pays the property taxes.

• Prevailing market conditions and local practices can also affect how property taxes are handled in commercial leases.

This is all about who pays property taxes on commercial lease.

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