Awhile ago, I wrote a post for commercial real estate tenants where I emphasized the importance for a commercial real estate tenants to obtain a proposition 13 tax exclusion in their lease. Such a provision is written to make sure the commercial real estate tenant does not incur substantially increased taxes in the event the building where there leased premises is located is sold. Of course, such an exclusion may decrease the potential sale value of the building if a potential buyer is forced to absorb the increased taxes on the building for existing leases.
Many tenant simply do not have the bargaining power to demand proposition 13 protection in their leases. These tenants and new owners need to explore possible exceptions to property tax reassessment.
For example, California Revenue and Taxation Code section 62 provides an exclusion against property tax reassessment for transfers between legal entities and individuals. For this exception to apply, the ownership interests must be exactly the same. In addition, California Revenue and Taxation Code section 64 provides the general rule that transfers in legal entities do not result in a change in ownership for the property held by the legal entity.
These are not the only exceptions. As a result, owners of commercial buildings, commercial landlords and commercial tenants, should make sure to check all possible exceptions to property tax reassessment when dealing with the possibility of substantially increased property taxes.