Proposition 13 and commercial property: what changes when you buy
By Francisco Williams, CCIM · CCIM · Executive Vice President, Williams Capital Advisors · CalDRE #01979442 · Updated
Short answer
Under Proposition 13, a California property's assessed value resets to market value (usually the purchase price) when it changes ownership, then generally rises by no more than 2% a year. The base tax rate is 1% plus local voter-approved assessments. Buyers should underwrite taxes at the new assessed value, not the seller's current bill.
What triggers reassessment
A change in ownership, including some transfers of entity interests, and new construction. Some transfers are excluded. Confirm with a tax advisor.
Why it matters to the deal
On NNN leases, tenants often reimburse property taxes, so a reassessment can raise their costs. Check the lease language. For buyers, the seller's tax bill understates future expenses.
| Item | Amount |
|---|---|
| Prior assessed value | $1,000,000 |
| Purchase price / new assessed value | $2,000,000 |
| Increase | $1,000,000 |
| Base rate (1%) on the increase, annual | $10,000 |
| Ownership changed with 6 months left in the fiscal year | × 6/12 |
| Supplemental bill (before local assessments) | ≈ $5,000 |
Illustrative; actual bills add local assessments and follow the county's proration.
The supplemental tax bill
After a purchase, the county issues a supplemental assessment for the difference between the old and new assessed value, prorated from the date of change in ownership to the end of the fiscal year (Revenue & Taxation Code §75 et seq.). It arrives separately from the regular bill, often months after closing, and isn't paid through most escrows. Budget for it.
Disputing a value
Owners can file an assessment appeal within set windows. WCA describes its approach on tax appeals.
Frequently asked questions
Does buying a commercial building increase property taxes in California?
Usually, if the purchase price exceeds the prior assessed value. It resets on change of ownership.
Is the commercial property tax rate 1%?
The base rate is 1% of assessed value, plus local voter-approved assessments that vary by location.
Do NNN tenants pay the higher taxes?
Often, if the lease passes taxes through. Read the lease.
Sources
NNN, modified gross or full service: what your lease makes you pay
Who pays taxes, insurance and maintenance under the common commercial lease types, and the CAM clauses small tenants miss.
Commercial lease renewal: a 12-month negotiation timeline
When to start, what to gather and which terms to put on the table before your commercial lease expires.