Lower your operating costs by managing your property taxes
Property taxes are often the single largest expense a landlord will pay, so it’s important to ensure that they are managed correctly.
Property taxes are probably the single largest expense a landlord will pay and as a consequence it is extremely important to ensure that taxes are managed correctly.
Depending on the specifics of your lease, taxes are collected from your tenants using different methodologies. In a typical office or industrial building, it is usually on a proportionate share basis but this is not always the case. With Mixed Use properties retail tenants often pay a higher amount based on their higher rent and the remainder of the building pays on a proportionate share basis. No matter what the methodology, it must comply with the terms of the lease and if the lease is silent on the subject then it must be fair and defensible. Your property manager should be able to guide you through this process.
This is important for both landlords and tenants because you don’t want to have one class of tenant subsidizing other tenants in the building as this causes dis-proportionate operating costs. Also if you have a vacancy, as a landlord you may be over paying the taxes for the vacant space.
If you have a mixed use property and your operating costs seem high for your office tenants, this is an area you should look into.
Once a property manager has fairly divided up the property tax amongst the tenants, their job is not over.
A good manager must also have a proactive approach to ensure the overall tax bill is fair.
Each year, BC Assessment assesses every property in BC. Your property manager should arrange to have the assessments reviewed to determine if the assessment is fair or if an appeal is necessary.
Sometimes the assessment authority has generated an artificially high value in comparison to similar properties or has not placed the property in the correct classification. Some simple ways to compare your property to others is to look at municipal GIS maps and also broker listings. We recommend hiring a qualified tax consulting firm as they will be able to find ways to reduce the assessment for both Land and Building. To calculate property tax, the yearly assessment value is then multiplied by the mill or tax rate that the municipality sets for the specific property classification. Mill rates are released in March/April each year and tax is generally calculated in early May.
If a property manager can successfully lower the value, it means that the taxes have the potential to be reduced significantly. In this difficult leasing market, this is something that landlords should be looking into.
We do this every year for our clients but not all property managed firms do, so you should check with your manager to ensure it is being done. Also many tenants do not realize that the property manager is doing this on their behalf. Your property manager should be communicating this benefit to your tenants as well. The cost to a landlord for the initial review is negligible. Most tax consulting firms will perform the work on a contingency basis which means that you only pay if there are tax savings to be had and the payment can be made out of the tax savings.
The benefits for landlords of being proactive in this manner are reduced taxes – reduced operating costs – potential for lower vacancy and better renewal rates. It is another way to demonstrate to your tenants you are managing the property well and that you are dealing with the single largest annual fixed expense.
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If you’d like to see what a client-focused property management company can do for you,
please contact our office at 604 873 8591.