Can the landlord pass through tax increases caused by a property sale?

In many jurisdictions, a property sale triggers a reassessment at the new purchase price, which can dramatically increase real estate taxes. Unless your lease addresses this, the full increase can be passed through to tenants. Negotiate language that excludes or limits pass-throughs resulting from voluntary sales or refinancing.

Am I entitled to a share of tax refunds?

Only if your lease requires it. When a landlord successfully appeals property taxes and receives a refund, tenants who paid escalations based on the higher amount should receive their proportionate share back. Many leases do not include this protection, so negotiate it explicitly.

How does CAMAudit analyze tax escalation charges?

CAMAudit's Rule 10 (Tax Overallocation) reviews the tax charges on your reconciliation statement, checks the calculation against your lease terms, and flags issues like missing refund credits, included penalties, and allocation errors.

Tax Escalation Clause

Last updated: April 2026

By Angel Campa, Founder

Taxes are 30-50% of your CAM bill, so errors in tax escalation clauses, missing refund credits, and included penalties have outsized financial impact.

What Is a Tax Escalation Clause?

A tax escalation clause defines how increases in real estate taxes are allocated to tenants. It establishes the base year or base amount for taxes and specifies that tenants pay their pro-rata share of any increase above that baseline. Some clauses include provisions for tax abatements, reassessments, and the right to participate in tax appeals.

Why This Clause Matters for CAM Audits

Real estate taxes are often the largest single component of CAM charges, sometimes representing 30-50% of total operating expenses. Tax escalation clauses determine how much of a tax increase hits your bottom line. Issues arise when landlords fail to pass through tax abatement benefits, include penalties or interest from late payments, or do not properly credit the results of tax appeals.

Sample Lease Language

“Tenant shall pay Tenant's Pro-Rata Share of Real Estate Taxes in excess of the Base Year Real Estate Taxes. "Real Estate Taxes" shall mean all ad valorem real estate taxes and assessments levied against the Property, net of any tax abatements, credits, or refunds received by Landlord. If Landlord receives a tax refund or abatement for any year for which Tenant has paid tax escalations, Landlord shall credit Tenant's Pro-Rata Share of such refund (net of reasonable appeal costs) within sixty (60) days. Late payment penalties and interest resulting from Landlord's failure to pay taxes timely shall not be included in Real Estate Taxes.”

This is illustrative language only. Your actual lease language controls your rights.

Red Flags to Watch

⚠Tax definition includes penalties and interest from landlord's late payments
⚠Landlord is not required to pass through tax refunds or abatements to tenants
⚠No provision for tenant to benefit from successful tax appeals
⚠Tax reassessment after a sale is included without limitation, passing through the new owner's higher basis
⚠Tenant has no right to participate in or be notified of tax appeals

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Negotiation Tips

✓Exclude penalties, interest, and late fees caused by the landlord from the tax definition
✓Require landlord to pass through the tenant's pro-rata share of any tax refunds or abatements
✓Include a right to be notified of and participate in tax appeals affecting the property
✓Consider a cap on tax increases or limit pass-throughs to reassessments that do not result from a sale or refinancing

Key Data

30-50%
Real estate taxes represent an estimated 30-50% of total operating expenses in most commercial properties [industry estimate]
Source: BOMA / Operating Expense Benchmarks (2024)

Explore Other Lease Clauses

Audit Rights Clause CAM Cap Clause CAM Exclusion Clause Gross-Up Provision Management Fee Clause Pro-Rata Share Definition Clause Base Year Stop Clause Controllable vs Non-Controllable Expense Clause Capital Expenditure Exclusion Clause Self-Help Remedy Clause Reconciliation Statement Deadline Clause Co-Tenancy Clause

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CAM Line ItemProperty Taxes (Pro-Rata)Lease TypeTriple Net Lease (NNN)Lease TypeDouble Net Lease (NN)Detection RuleTax Overallocation Detection RulePro-Rata Share Error GlossaryProperty Tax Escalation

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Related Resources

Detection RuleTax Overallocation Detection RulePro-Rata Share Error CAM Line ItemProperty Taxes (Pro-Rata)Lease TypeTriple Net Lease (NNN)

Frequently asked questions

Need to extract lease terms before your audit?

A CAM audit is only as accurate as your lease data. lextract.io extracts 126 structured fields from any commercial lease PDF: CAM definitions, pro-rata share, caps, base year, and audit rights. So you have the exact terms your landlord is supposed to follow.

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This page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.