Don’t Require Tenant to “Reimburse” You for Real Estate Taxes You Haven’t Yet Remitted

Don’t use “reimburse” to describe a tenant’s lease obligation to pay its pro rata share of real estate taxes if your intention is to collect that money before remitting those taxes to the government. The word “reimburse” means to pay back. So, requiring reimbursement may preclude you from collecting the tenant’s pro rata share until after you actually pay the tax bill.

Example: A California landlord learned this lesson the hard way. The landlord sent a delinquent tenant a three-day notice demanding $25,000 in unpaid charges under the lease, including $10,000 for its share of real estate taxes. The tenant didn’t pay, and the case went to court, where the tenant claimed that the notice was invalid. The argument: The lease requires us to “reimburse” the landlord for our share of real estate taxes on the property, but there’s nothing to reimburse because the landlord hasn’t actually paid those taxes yet. Thus, the notice shouldn’t have listed the $10,000 tax share as a payable debt. The court agreed and dismissed the landlord’s case [WDT-Winchester v. Nilsson, 1994 Cal. App. LEXIS 807].

Solution: Don’t fall into this trap. If your intention is to bill tenants for taxes before remitting them to the government, make sure your lease uses the word “pay” rather than “reimburse” to describe the tenant’s responsibilities. This will give you the flexibility to bill tenants for either an estimated tax share at the start of the tax year or an actual tax share as it accrues at the end of each month before sending a check to the tax authority.