Many commercial leases pass through to tenants a proportionate
share of the landlord's operating expenses and taxes for the
property based on terms expressed in the lease. However, some
landlords attempt to pass-through certain taxes that a tenant
should not be expected to pay.
A recent lease negotiation on behalf of an industrial client was
jeopardized because the landlord insisted that the tenant was
obligated to pay a proportionate share of the landlord's Texas
franchise tax. A franchise tax is a general corporate tax often
based on the entity's income or assets. It has nothing to do
with the benefits the tenant derives from the lease and leased
space.
In short, a franchise tax is a landlord's cost of doing
business.
From the tenant's perspective, a proportionate share of taxes
should exclude taxes that are related to the landlord's
business that have nothing to do with the building or the benefit
the tenant derives from the leased space. Justifiable exclusions
from taxes should include franchise taxes, excise taxes, income
tax, inheritance and gift taxes, and transfer taxes.
A tenant should pay close attention not only to the tenant's
proportionate share and how it is calculated, but also as to
what expenses and taxes the landlord intends to pass-through. There
may be savings realized by challenging expenses and taxes that
the tenant is not obligated to pay.
This article is presented for informational purposes only and is not intended to constitute legal advice.
