Lawyers Advise Clients The Consequences of Proposition 15

Lawyers have a duty to advise their clients of pending changes in the law. Of course, not every tenant (client) is currently doing business with their trusted lawyer. Therefore, a smart lawyer should probably send out a notice to past and present clients of a proposed tax change that may have dire effects on the lawyer’s clients.

If the lease that the tenant signed contains a pass thru provision, that if real estate taxes increase, the tenant will bear the consequences.

For instance, perhaps the tenant has an insurance business in 10,000 square feet of office space. Further, the 10,000 square feet of office space represents 50% of the entire building. Also, let’s say the insurance agency is paying $2.50 per square foot or $25,000 per month in rent. This building was purchased by the current owner in 1999 at a price of $2,000,000. Now 21 years later that same building is then assessed to a current value of $10,000,000. The new tax bill would be $110,000. Since the insurance company represents 50% of the space, the tenant would be responsible, in this illustration, for $55,000.

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