The “Double Edged Sword” of Property Tax Decreases for Multi-Res Buildings
Commonly, when a municipality imposes a property tax reduction, it will give you & your tenants notice of an automatic rent reduction so that the tax savings are passed directly to your tenants. Unfortunately, a “default” formula is used to calculate the tax savings & the actual savings may be far less than that calculated under the formula, so instead of a neutral impact on NOI, the rent reductions reduce NOI & adversely affect cash flow & building value.
On turnover, the units can back up to market rents, but to mitigate the immediate adverse impact of excessive rent reductions landlords may apply to “vary” the rent reduction & in many cases the variance results in the addition of thousands of dollars to NOI to the buildings bottom line.
Cohen Highley can help you calculate the correctness of the municipal rent reductions; communicate with tenants in the event a variance to the rent reduction is justified; & apply to the Landlord & Tenant Board to vary the amount of net reduction & preserve the net benefits of reduced property taxes levied against your building.