Commercial owners, are you ready for property taxes? – Orange County Register

The last few months of the year are busy times for property tenants and owners with taxes and improvements ahead. (iStockphoto via Getty Images)

Last week I shared my forecast for the balance of 2023.

Discussed were my views on where interest rates might be headed and their impact on our industrial market, Class A industrial absorption, the possibility of a recession, and finally politics.

My mom always suggested I not discuss politics or religion in an open forum, but alas, politics touches so many areas of our profession.

Today, we’ll skip the politics and instead review a few things you – as an owner or an occupant of commercial real estate – should consider as the days shorten and the “-ber” months unfold.

Taxes

One of the first lessons I learned when I became a real estate practitioner is how property taxes work in California. By the way, each state is different.

Proposition 13, established in 1978, set the course for how California handles levies on real property.

Simply, 1% of the assessed value is computed to form the amount each parcel owner will pay in the fiscal year. Fiscal years run from July 1 to June 30 – therefore stemming parts of two calendar annuals.

Assessments generally arrive to owners in mid-summer. Unless the parcel traded hands or improvements with building permits were made, the math is simple.

The law requires a 2% increase. A sale will reset the assessment to the amount of the transaction and improvements increase the assessed amount dollar for dollar.

The first half of taxes for July 1 through Dec. 31 are due Nov. 1 and are late as of Dec. 10.

The second half for Jan. 1 through June 30 is due Feb. 1 and are late by April 10. The mnemonic device “No Darn Fooling Around” has been employed by real estate professionals for decades as a date reminder.

Your landlord – if you lease – will do one of several things with the tax bill on your rented premises.

If you operate under a triple net lease arrangement, she’ll send you the bill when it’s received and expect you to pay it. Or, she’ll pay it and expect reimbursement. Or, she’ll collect an estimate of the annual amount on a monthly basis and pay when received.

Under a gross lease, she’ll pay the bill and expect reimbursement for the increased amount over the first year of your lease. Don’t know the base amount? Simply visit the Orange County tax assessors website. You can easily research past years.

Understanding the mechanism of property tax computation can potentially save you dollars. So keep this column as a guide. By the way, you should be able to question – and require proof – of any property tax increase.

Infrastructure

The fall is a great time to check on insurance coverages, building system repairs and upcoming key dates.

As you’ve read, insurance carriers are hedging their bets and limiting new policies. Rates are also rising meteorically. This can affect coverage on your premises as well as your operation’s liability.

Do yourself a solid and schedule a visit with your insurance provider. You’ll be happy you did.

With the dog days of summer behind us and shorter, wetter days ahead, now’s a good time to have your roof inspected and any repairs performed.

Also, if your location is equipped with a well for truck high loading, check the sump pump lest you have a water feature after the first major rainfall.

Finally, take a look at the key dates of your lease — expiration, options, rights to terminate or refusal to purchase, or any upcoming rent increases.

You’re now equipped to complete the year and head into 2024!

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.