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How the Philadelphia property tax hike can affect leases

7/8/2011 | Real Estate Blog

When investing or developing commercial real estate in Philadelphia for the first time, many people are surprised at the complexity of the legal issues that are involved. From laws governing how transfers need to be recorded to adverse possession to title disputes, real estate law can be quite intricate.

Investing in or leasing commercial property is no exception to this rule. After all, commercial leases are much more complex than residential leases. In fact, many commercial leases contain a clause that surprises many investors. This type of clause can shift the burden of collateral costs to the person or company renting the property. Collateral costs can include maintenance of common areas, paying the landlord a portion of sales, and even payment of property tax.

Over recent years, property taxes have increased dramatically in Philadelphia. As property taxes have increased, so has the importance of carefully analyzing leases for collateral costs clauses. In 2010, the city of Philadelphia hiked property taxes 9.9 percent. Now, the city is raising property taxes another 3.85 percent.

Supporters of the increase cited a $629 million shortfall in the School District of Philadelphia’s budget. The district asked the city to help with the shortfall, and the city obliged.

Although property taxes have increased over the last two years, the increases are intended to be temporary and are scheduled to expire in June 2012.

In the meantime, property taxes are going to play an increasingly important role in commercial real estate transactions in Philadelphia.

If you are considering a transaction in commercial real estate, you likely have legal questions about the process. Experienced real estate attorneys can help you understand your legal options and are available to answer any legal questions you might have.

Source: Philadelphia Inquirer, “Schools crunch, other demands fueled city tax hike,” Troy Graham, 7/4/2011