The assessment arrives and the charge gets passed on. Whether that’s right depends on the lease, the legislation and how the tax is calculated.
Land tax is one of those outgoings that can easily be overlooked when managing a commercial property. The lease says the tenant pays it. The assessment arrives. The charge gets passed on.
Simple, right? Not always.
In my experience, land tax is regularly recovered without anyone first checking two things. The first is exactly what the lease allows the landlord to recover. The second is whether the tenancy is subject to the NSW Retail Leases Act.
The lease decides how land tax is recovered
Every lease needs to be read on its own terms. Some leases provide for land tax to be recovered on an “as assessed” basis. Others specify a single holding basis, or contain specific provisions dealing with the landlord’s land tax liability.
The recovery should follow the mechanism actually agreed in the lease. It isn’t enough to take the landlord’s land tax assessment and pass the entire amount on to the tenant.
Land tax and retail leases work differently
This is where things become particularly important. If the premises are subject to the NSW Retail Leases Act 1994, the legislation can override the lease where the two are inconsistent.
Section 26 places a statutory limitation on recovering land tax from a retail tenant. Say the lease makes the tenant responsible for the landlord’s land tax “as assessed”. The landlord still can’t simply pass on its full assessment where that is inconsistent with the Act.
For a retail lease, the calculation is generally made on a single holding basis, subject to the statutory requirements.
How ownership structure affects land tax
A property may be owned through a trust or company. That structure can give the landlord a higher land tax liability, or cost it the benefit of a land tax threshold.
That doesn’t automatically mean the tenant picks up the additional liability. For retail leases, the statutory calculation applies specific assumptions about the landlord’s ownership and landholdings.
The landlord’s land tax liability and the tenant’s recoverable liability are not necessarily the same amount.
Small land tax mistakes can become expensive
Charge too little and the owner may leave recoverable income behind.
Charge too much and the tenant may challenge the recovery. That can lead to credits, refunds, disputed outgoings and unnecessary tenant negotiations.
The questions I ask before recovering land tax
Land tax shouldn’t be treated as a simple accounting exercise. It’s a lease compliance exercise. Before recovering it, I ask:
- What does the lease actually say?
- Is the tenancy retail or non-retail?
- Does the NSW Retail Leases Act apply?
- Is the recovery “as assessed”, on a single holding basis, or calculated another way?
- Does the lease deal differently with a tenant holding over?
- Has the correct statutory methodology been applied?
A good asset manager doesn’t send the tenant an invoice just because the landlord received a land tax assessment. We check the lease. We check the legislation. Then we calculate the recovery.
It may seem like a small part of managing a commercial asset. But these are exactly the details that protect an owner’s income, reduce disputes and make sure the asset is being managed properly.
If you’d like to talk through how land tax is being recovered on your property, reach out to me on 0420 991 609 or request a review for your property.