Payment of Real Estate Taxes Under NYC “Triple Net” Commercial Leases

One of the many reasons you should have an experienced NYC commercial lease attorney draft and review your commercial lease is that many leases reference New York State law or New York City Regulations. Experienced commercial lease attorneys will understand those references and know what they mean. The lease may reference a statute or regulation, such as payment of real estate taxes, and expects that the parties will either know what the reference means or conduct due diligence and find out what the connection means.

Let’s consider this example of a lease provision concerning the payment of real estate taxes. In “triple net” commercial leases, the landlord/lessor requires that the tenant/lessee pay any real estate taxes assessed and invoiced by the taxing authorities, among other expenses. Often the lease requires that the Lessee pay a monthly pro-rata share of the taxes to the landlord, who then makes the payment to the taxing authority. But sometimes, the lease requires payment by the tenant/lessee of said taxes directly to the taxing authority. Usually, the lease requires the tenant to pay the taxes “when due.” Here is an example of a lease provision like that from a reported case:

“The Lessee expressly agrees to pay all installments of taxes and assessments required to be paid by it hereunder when due, subject to the right of said Lessee to contest such tax or assessment. The Lessee can contest this in good faith, provided the title of the Lessors shall not be placed in jeopardy by forfeiture, foreclosure, sale under tax warrant, or otherwise.”

So, when are the tax payments due? Property taxes in New York City are due quarterly or semi-annually, depending on the property’s assessed value. See here – The fact page from NYC Finance Department. When the assessed value is under $250,000, the quarterly tax payments are due on the first day of April, July, October, and January. If the assessed value exceeds $250,000, the semi-annual payments are due in January and July.

So, under this particular lease provision, the tenant/lessee must pay the taxes by the first of each relevant month.

What About Grace Periods to pay Real Estate taxes?

As seen on the Fact Page linked above, New York City provides a 15-day grace period for quarterly taxpayers (although no grace period is allowed for semi-annual taxpayers).

So, one might ask whether paying the taxes by the end of the grace period would satisfy the lease requires that the tenant pays the taxes “when due?”. A New York court would likely hold that paying the real estate taxes before the end of the grace period would satisfy the lease requirement. But there is no guarantee. It might be more accurate to say that a court could hold that the payment of taxes before the end of the grace period is a breach of the lease but not a “material” breach. The phrase “when due” means the first of the relevant month. But, if the tenant pays the taxes before the end of the grace period and there is no injury to the landlord’s position, the breach is not “material.”

What About Missing the Deadline Entirely but Eventually Paying the Taxes and All Penalties and Interest?

The same happened; a New York court would likely hold the late payment of real estate taxes to breach the lease. It may, however, not find the breach to be “material” as long as the landlord suffered no injury.

Contact Wright Law Firm NYC Today

Call the experienced New York commercial lease and real estate attorneys at Wright Law Firm NYC for more information. We provide top-tier commercial real estate legal and legal services for the NYC business community. To schedule a consultation, contact our office by e-mail or call us at (212) 619-1500.