A base tax year applies where a tenant is responsible for its proportionate share of real estate taxes paid by the landlord in excess of the taxes paid by the landlord during such base tax year. It is the period of time for which a tenant’s future tax payment obligations will be based upon.
The base tax year is typically (but certainly not always) the first twelve months of a lease term. It can be based on a calendar year (i.e. January 1 through December 31) or a fiscal year (i.e. July 1 through June 30), dependent on such factors as when the lease term is expected to commence, how and when the applicable municipality(ies) assesses property owners for real estate taxes and the respective negotiating leverage each party may have in the deal.
The proportionate share of real estate taxes may be based upon the percentage of the leased space relative to the size of the building, however this is not always the case. In particular, where the leased space is in a mixed use building (for example, retail on the ground floor with residential units above), landlords typically argue that tenant’s proportionate share should be higher because commercial use is taxed by most municipalities at higher rates than residential use is.
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