When a commercial tenant asks to pay the property taxes directly, does that make it a net lease?
This is a smaller question than what usually gets posted here, but it comes up often enough with small mixed buildings that it is worth working through carefully rather than guessing. Picture an owner with a four unit and a two unit, both on ordinary residential leases, who has been reading about NNN because collecting rent and doing nothing else sounds like a rest after a hard year. Then something lands that makes the two topics touch. The two unit has a ground floor commercial space, a small insurance office, that came with the building. Its lease is a one page document the prior owner wrote: base rent 1,150 a month, no escalation, month to month after the first year, and well past that point now. The tenant emails and asks whether she can pay the property tax bill on the commercial portion directly and take it off the rent, because her accountant prefers it. What should the owner make of that? The building is one parcel with one tax bill covering all of it. There is one insurance policy on the whole structure and one furnace serving both floors. So there is no clean way to split any of the three items that make a lease net. The real uncertainty is whether this is a reasonable ask worth figuring out how to accommodate, or a sign the tenant wants a longer term and a better structure and does not know how to open that conversation. And underneath that, whether a mixed building can ever really be net leased at all.
