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Don’t get screwed.</text><text x="58" y="258" font-family="Arial,Helvetica,sans-serif" font-size="30" font-weight="600" fill="#6b5b4d">Leases, TI, NNN &amp; buildouts — negotiated in your favor</text><g transform="translate(1010,86)" fill="none" stroke="#C0531F" stroke-width="9" stroke-linejoin="round"><rect x="20" y="40" width="150" height="130"/><line x1="20" y1="40" x2="95" y2="6"/><line x1="170" y1="40" x2="95" y2="6"/><rect x="50" y="80" width="36" height="36"/><rect x="104" y="80" width="36" height="36"/><rect x="74" y="128" width="42" height="42"/></g></svg>

How Do I Avoid Double-Paying Property Taxes in an NNN Lease?

Direct Answer

You avoid double-paying property taxes in a triple-net (NNN) lease by locking in a base-year or expense-stop on taxes, capping reassessment pass-throughs, and demanding the right to audit and to contest the assessment. In a pure NNN deal you pay your pro-rata share of property taxes on top of base rent — and the trap is that when the landlord sells the building or finishes a buildout, the county reassesses the property and your tax share can jump 20%, 50%, even 100% overnight.

The fix: negotiate so the tax base year stops your exposure at the assessment level when you signed, and so any increase caused by a sale or the landlord's own capital work is excluded from your pass-through.

The move: set a tax base year (or stop), exclude sale-triggered and Prop-13-style reassessments, require audit rights, and reconcile annually against the real tax bill. Done right, you pay your fair share of taxes once — not the landlord's gains from selling the asset.

How the "Double Pay" Actually Happens

NNN charges flow through to tenants on a pro-rata share basis — your square footage divided by the building's. Property taxes are usually the biggest line. The double-pay scenarios:

• Sale reassessment. The landlord sells for a big gain; the county reassesses to the new sale price; your tax share spikes — and you're paying tax on the landlord's appreciation.
• Buildout reassessment. Major capital improvements trigger a higher assessment, and a poorly drafted lease passes that increase straight to tenants.
• Sloppy reconciliation. Landlords sometimes pass through the gross tax bill without applying abatements, exemptions, or refunds they actually received — so you pay tax the landlord later got back.
• Estimated overcharges. Monthly tax estimates run high; without a true-up reconciliation, the overage quietly stays with the landlord.

The Levers That Stop Double-Paying

• Tax base year / expense stop. The strongest protection. The landlord eats taxes up to the base-year amount; you only pay increases above it. Better still, push for the base-year to reset on a sale.
• Exclude sale-triggered reassessments. Add language that any tax increase resulting from a change of ownership or sale is not passed through to tenants. This is the single most important clause in high-appreciation markets and in California-style Prop 13 states.
• Exclude landlord capital-work reassessments. Increases caused by the landlord's own improvements (not your TI) stay with the landlord.
• Pass through net of refunds and abatements. Require taxes to be billed net of any rebate, exemption, or successful appeal refund.
• Audit rights. Win the right to inspect the landlord's tax bills and CAM books annually, with the landlord covering the cost of the audit if it finds an overcharge above a threshold (commonly 3-5%).

What to Ask Before You Sign

• "Is there a tax base year or expense stop, and what is the base-year figure?"
• "Are tax increases from a sale or change of ownership excluded from my pass-through?"
• "Are increases from the landlord's capital improvements excluded?"
• "Will taxes be billed net of refunds, abatements, and exemptions?"
• "Do I have the right to audit the tax bills and to contest the assessment, and how is any refund shared?"
• "Is there an annual reconciliation (true-up) comparing estimates to the actual bill?"

Traps That Cost NNN Tenants the Most

• No base year at all. Pure NNN with no stop means you absorb every future tax hike. Always negotiate a base year or stop.
• "Grossing up" the tax bill. Watch for taxes calculated as if the building were fully occupied when it isn't — inflating your share.
• Pro-rata share creep. Confirm your share is your actual SF over total rentable SF, not a number the landlord adjusts.
• Refund hoarding. If the landlord wins a tax appeal and pockets the refund while you paid the higher bill, you've double-paid. Tie refunds to a tenant credit.
• Capital costs hidden in "taxes." Some landlords slip special assessments for capital projects into the tax line. Define taxes narrowly and exclude special assessments for new construction.
• No contest right. If you can't challenge a bloated assessment, you're stuck paying it. Reserve the right to contest (or to compel the landlord to).

FAQ

What is a tax base year in an NNN lease? It's the property-tax amount fixed at lease signing. The landlord covers taxes up to that base-year figure, and you only pay increases above it. It's the core defense against absorbing a reassessment after a sale or major buildout.

Can I really exclude tax increases from a building sale? Yes, if you negotiate it. Many tenant-rep brokers win language that caps or excludes reassessment increases triggered by a change of ownership. It matters most in Prop 13-style states where a sale resets the assessment to the new purchase price.

Why do audit rights matter for taxes? Because landlords make billing errors — passing through gross taxes, ignoring refunds, or grossing up an under-occupied building. Audit rights let you inspect the actual bills and recover overcharges, often with the landlord paying the audit cost if the error exceeds 3-5%.

What's the difference between NNN and a gross lease for taxes? In a gross lease, the landlord pays property taxes out of your rent. In NNN, you pay your pro-rata share directly on top of base rent — which is why the base-year, exclusion, and audit protections are essential to avoid paying twice.

Sources

• CBRE — NNN lease structures and operating-expense pass-through guidance
• JLL — Tenant representation: CAM, tax base-year, and audit-rights negotiation
• Cushman & Wakefield — Net lease and expense-reconciliation research
• NAIOP — Commercial real estate net-lease and taxation standards
• BOMA International — Operating expense and tax pass-through accounting standards
• IREM (Institute of Real Estate Management) — CAM reconciliation practices
• Tenant-rep broker commentary on tax base years and reassessment exclusions