On a multi-tenant building most of the saving flows back to the tenants. Run the appeal on the landlord's share and on who pays the consultant.
A property tax appeal is worth it to the landlord when its own share of the expected saving, not the building's, exceeds the fees it bears. On an illustrative office assessed at 48,000,000, the appeal is expected to save the building 88,800 a year, but triple net and base-year tenants receive 70 per cent of it. The landlord keeps 26,640 a year, worth 69,912 over three years, and nets 33,015 if it pays all the fees, positive only because its unrecovered share is above the 15.8 per cent break-even.
Worked in full in Real Estate Fund Management by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
On a multi-tenant property the real estate tax is an operating expense that leases pass through. Triple net tenants pay their pro rata share outright; tenants on base-year or expense-stop leases pay increases over their base. The landlord bears the tax on vacant space and the part that gross and base-year leases do not recover. An appeal reduces the whole bill, but the refund and the lower future bills flow back through the CAM and tax reconciliation to whoever paid. An asset manager deciding whether to file should therefore run three numbers: the building's expected saving, the landlord's share of it, and who pays the appeal fees under the leases.
| Input | Value |
|---|---|
| Assessed value / effective tax rate / annual tax bill | 48,000,000 / 2.40% / 1,152,000 |
| Value argued in the appeal (16.7% lower) | 40,000,000 |
| Outcomes: full reduction / settlement at 43,000,000 / no change | 15.0% / 50.0% / 35.0% |
| Years the reduction lasts before the next reassessment | 3 |
| Tax borne by the landlord: vacancy 12.0% + unrecovered on gross and base-year leases 18.0% | 30.0% |
| Consultant fee: contingency on first-year saving / fixed appraisal and filing cost | 30.0% / 12,000 |
| Discount rate / cap rate | 7.0% / 6.50% |
The outcome probabilities should come from the consultant's record in the jurisdiction and from comparable sales, not from the target value in the filing. How long a reduction lasts also varies widely by jurisdiction; three years is an assumption, not a rule.
Expected reduction = 15.0% × 8,000,000 + 50.0% × 5,000,000 = 3,700,000
Expected annual saving = 3,700,000 × 2.40% = 88,800 (against 192,000 if the appeal wins in full)
Present value over 3 years at 7.0% = 88,800 × 2.6243 = 233,039
Expected fees = 12,000 + 30.0% × 88,800 discounted one year = 12,000 + 26,640 ÷ 1.07 = 36,897
For the building as a whole the appeal is clearly worth filing: 233,039 of expected savings against 36,897 of expected fees, a net 196,142.
| Party | Share | Annual saving | PV over 3 years |
|---|---|---|---|
| Tenants, through the tax reconciliation | 70.0% | 62,160 | 163,127 |
| Landlord | 30.0% | 26,640 | 69,912 |
| Building | 100.0% | 88,800 | 233,039 |
Now the leases decide. If they let the landlord recover the cost of contesting taxes from tenants in the same proportion as the savings (refunds passed through net of the cost of obtaining them), the landlord bears 11,069 of the fees and nets 58,843. If the fees cannot be recovered, it bears all 36,897 and nets 33,015. Both are positive here, but the second is less than half of the landlord's 69,912 share of the savings and about a sixth of the building's 196,142.
| Landlord share of tax | PV of landlord's saving | NPV, fees shared with tenants | NPV, landlord pays all fees |
|---|---|---|---|
| 10.0% | 23,304 | 19,614 | −13,593 |
| 30.0% | 69,912 | 58,843 | 33,015 |
| 50.0% | 116,520 | 98,071 | 79,622 |
| 100.0% | 233,039 | 196,142 | 196,142 |
A largely triple net building with a 10.0 per cent unrecovered share loses 13,593 on the appeal if the landlord pays the fees: the break-even share is 15.8 per cent. The answer also moves with the odds. If the success probabilities are halved, the expected saving falls to 44,400 a year and the landlord's NPV to 10,507 with unrecoverable fees, or 27,621 with shared ones.
None of that means a landlord with a small share should not file. Tenants on net leases judge a building on total occupancy cost, and a tax bill that is out of line with competing buildings is a leasing problem at renewal. That benefit is real but sits outside this calculation; the point is to know you are paying for it.
Capitalising the building's saving into value. 88,800 a year at a 6.50 per cent cap rate looks like 1,366,154 of value. But only 26,640 reaches the landlord's NOI, which would be worth 409,846 even if the reduction lasted forever, and for three years it is worth 69,912. The reverse case, a reassessment that raises the bill, follows the same pass-through logic.
Illustrative. Assessment practice, appeal deadlines, the treatment of refunds and the recoverability of appeal costs differ by jurisdiction and by lease; read the tax and operating expense clauses of each lease before running the numbers.
Run the appeal at three levels: the building (here 196,142 net), the landlord's share (69,912 of savings) and the landlord after the fees the leases leave with it (33,015). File when the last number is positive, or when the leasing benefit justifies a small loss. The book treats the operating statement as the fund manager's lever on value; the free workbooks for the book take a trailing statement to an underwritten NOI line by line.
On net and base-year leases, mostly yes: the refund and the lower future bills pass through the tax reconciliation. In the worked example tenants receive 70.0 per cent of an 88,800 expected annual saving, 62,160 a year, and the landlord keeps 26,640, the share on vacant space and unrecovered leases.
Whoever the leases say. If tenants receive refunds net of the cost of obtaining them, the landlord bears its share of the fees, 11,069 of 36,897 in the worked example, and nets 58,843. If the fees cannot be recovered, the landlord pays all of them and nets 33,015.
Only the part that stays in NOI, for as long as it lasts. An 88,800 saving capitalised at 6.50 per cent looks like 1,366,154, but the landlord's 26,640 share is worth 409,846 if permanent and 69,912 if the reduction lasts three years until the next reassessment.
This article is one calculation from Real Estate Fund Management. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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