By Edwin Yarbrough
How will this financially impact a commercial tenant?
Current Tax Situation and Process
In accordance with North Carolina state law, counties must conduct a reassessment of real property at least once every eight (8) years to keep real property tax values aligned with the current market value. Both Wake and Durham counties shortened their cycle to every four (4) years. The property reappraisals for Durham County will occur in 2025 and for Wake County in 2024. For Wake County the new valuation notice will be provided by January 18, 2024, and you’ll have until May 15, 2024 to file a formal appeal. For Durham County, the new valuation notice should be provided by January 30, 2025, however, note that the county has not yet published a firm date for the notice nor the timing for an appeal of the 2025 revaluation.
On average, the assessed values of commercial properties in 2020 for Wake County increased by 33% from their 2019 values.
What’s the potential exposure, and how might it
impact me as a tenant?
Annually, landlords furnish tenants with a projected operating expense payment (monthly estimate or escrow), a mandatory additional rent payment for taxes, insurance and common area maintenance. Depending on your lease terms, landlords might have the right to adjust this estimated payment at any time during the year. Since the tenant’s portion of real estate taxes is included in this additional rent, the revaluation and increase in property taxes may result in an noteworthy increase in their estimated operating expense payments. In essence, the potential impact could be considerable—planning ahead is crucial.
Vital tenant questions you should be asking:
- Examine your lease and any amendments for guidance. What do they say regarding tax increases?
- Is the landlord obligated to contest (appeal) the property taxes to minimize costs? Upon a successful appeal, how can you ensure you receive your share of the reduction in taxes (the refund provided to the landlord)?
- Check whether you have a cap on operating expense increases and if that cap applies to real estate taxes. If so, did the landlord properly apply the cap?
- Do you have a base year in the lease and does it apply to property taxes? If so, is your share being calculated by the landlord per the terms of the lease?
- Consider your exposure if the tax increase is due to the landlord performing alterations or improvements or were due to changes in ownership. How does your lease address these types of increases?
- Does your lease include the right to audit the landlord’s operating expenses/property taxes or receive supporting documents? Are you confident in your ability to validate the expenses or would having an experienced and knowledgeable third-party be a better option?
Summary
Property tax revaluations for Wake County are happening now and in Durham County in 2025. Commercial tenants will begin feeling the impact of these increases, so it’s important to be proactive and understand your exposure. More importantly, you need to know what options you have in your lease to minimize the financial impact.
About Hughes Marino: Hughes Marino is a global corporate real estate advisory firm that has represented companies on tens of thousands of projects, developing and executing on winning corporate real estate strategies. We specialize in representing office, industrial, and life science occupiers of real estate in lease negotiations and structuring, owner user acquisitions, construction and project management, portfolio management, lease administration and audit, capital markets and facility management.
