Should I file a tax appeal on property I plan to sell or lease?

How often have I seen this: New Jersey commercial and residential real estate sale and lease listings sitting on the market getting lowball offers (or no offers) because of high property taxes? Even once is too often. I’ve seen it more than once.

With the highest property taxes in the country, New Jersey buyers and tenants have to be property tax savvy, so it’s no surprise these listings sit for hundreds of days with no movement. So, what’s a seller or landlord to do?

Normally, if the property’s assessment is too high, the simple answer is to file a tax appeal. However, when you’re selling or leasing real estate, every dollar counts. If you file an appeal, spend money on professionals and then sell or lease, will you see any of the tax benefit? Even if the assessment is too high, who wants to invest time and money in tax appeal if you might get a buyer or tenant who will handle the appeal themselves, and also pay for it? Could you also get stuck managing a tax appeal on a property you no longer own? There are definitely some things to consider that don’t apply when you’re appealing the assessment on a property on which you’ll continue paying taxes. 

On the other hand, a property tax reduction improves the affordability of the property. Every dollar that your prospective buyer or tenant doesn’t have to pay to the government is one more dollar that can be used towards rent or mortgage. That translates directly into a higher rent or sale price, if the market will bear it. For landlords, if your asking rent is triple net and your best offers are modified gross, you may end up with an unexpected expense that’s unnecessarily high. Additionally, if you’re signing up a large tenant who wants to be able to file tax appeals during their tenancy, how do you keep some control over any litigation involving the property?

Well, what if you could mitigate the tax problem to improve the property’s affordability, share the costs of the appeal with a potential buyer or tenant AND even see some of the tax benefit? Put simply, you can. with a well drafted tax appeal clause in the contract of sale or lease agreement. As with any contract, all terms are subject to negotiation; next time we’ll discuss what you can seek to include in your tax appeal clause.

Does your contract or lease form have a protective tax appeal clause for when it’s needed?