May a tenant subject to a lease with a remaining term less than 35 years avoid reassessment when the property is sold?

Equinix LLC v. County of Los Angeles

Facts: A buyer acquires commercial real estate subject to a lease with a remaining term of less than 35 years. The tenant is responsible for payment of property taxes due during the lease. The county assessor reassesses the property on the transfer of ownership, resulting in an increase of the property tax. The tenant pays the tax then makes a claim on the county for a refund in the amount of the increase, which the county denies.

Claim: The tenant claims the reassessment is improper since there is no change in ownership due to the tenant’s long-term interest in the property.

Counterclaim: The county claims the reassessment is proper since a change in ownership occurs when a buyer acquires property subject to a lease with a remaining term of less than 35 years.

Holding: A California court of appeals holds the county’s reassessment is valid and denies the tenant’s refund claim since acquisition of a property subject to a lease with a term less than 35 years is a change of ownership triggering reassessment, regardless of the tenant’s leasehold interest in the property.

Editor’s note – Here, a provision in the commercial lease agreement passed the payment of property taxes through to the tenant as additional rent without excluding an increase caused by a reassessment triggered by the conduct of the owner/lessor. As a matter of policy, commercial lease agreements published by Realty Publications, Inc. (RPI) do not subject the tenant to the owner’s activity, only the activity of the tenant. [See RPI Form 552 through 552-8]

Equinix LLC v. County of Los Angeles