Property Taxes (Passed Through) — Definition & Reassessment Risk

Definition

Property taxes (passed through) refers to real estate taxes assessed on a commercial property that are billed to tenants as a pro-rata pass-through cost under a triple net lease or similar structure. Because property taxes can rise significantly following a sale, reassessment, or major renovation, this pass-through cost carries meaningful budget risk that tenants should understand before signing.

Why property tax pass-throughs carry risk

A property sale often triggers a reassessment to reflect the new purchase price, which can substantially increase the assessed value and, correspondingly, the property tax bill passed through to tenants — sometimes significantly above what the tenant budgeted based on the prior owner's tax history. Major capital improvements can similarly trigger reassessment in many jurisdictions.

What to watch for before committing

Recent sale or reassessment history

Ask whether the property has recently sold or been reassessed, since this directly signals near-term tax increase risk.

Tax appeal rights

Understand whether you have any right to participate in or be informed of a property tax appeal process.

Cap on tax pass-through increases

Consider negotiating a cap on annual property tax pass-through increases, particularly relevant in markets prone to sharp reassessments.

Jurisdiction-specific reassessment triggers

Research your local jurisdiction's specific rules on what triggers reassessment, since this varies significantly by state and county.

Pro-rata calculation method

Confirm exactly how your pro-rata share of property taxes is calculated in a multi-tenant building.

Budgeting for potential increases

Build a reasonable buffer into your occupancy cost budget for potential property tax increases over your lease term.

When you need to know this

Evaluating a NNN lease — understanding the specific risk of property tax pass-through increases
Properties likely to be sold during your lease term — assessing potential reassessment risk
Multi-year budget planning — building in a buffer for potential tax increases
Negotiating lease protections — seeking a cap on annual property tax pass-through increases

Frequently asked questions

What does it mean for property taxes to be passed through? +

It means the tenant, rather than the landlord, is responsible for paying a pro-rata share of the property's real estate taxes, typically as part of a triple net lease structure.

Can property taxes increase significantly during my lease? +

Yes, particularly if the property is sold, triggering a reassessment based on the new purchase price, or if major capital improvements trigger reassessment under local tax rules.

Can I negotiate a cap on property tax pass-through increases? +

Sometimes, particularly in markets prone to sharp reassessments — this is a worthwhile negotiation point to discuss with your landlord or broker before signing.

Do I have any say in property tax appeals? +

This varies by lease — some leases give tenants the right to participate in or be informed of tax appeal processes, since a successful appeal could reduce their pass-through cost, while others leave this entirely to the landlord's discretion.

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