Understanding the Risks and Benefits Associated with Prop 8 & 13 in Commercial Leases

Assessed Values for California Real Estate are principally governed by Proposition 13 and Proposition 8. Since the property tax bill is a major component of operating expenses in commercial leases, it is obvious why landlords, tenants and their counsel need to understand the impact of Propositions 13 and 8.

According to Prop 13, property value is only to be "reassessed" upon a change in control -- usually a "sale." Otherwise, they are subject to only a 2% annual inflationary adjustment.

As a result, depending upon when a "change in control" last occurred (and depending upon where market valuation cycles were at such time), current "assessed value" for a property could be significantly different that the present "market value."