Office Tenants Learn to Avoid Property Taxes : Real estate: A soft market allows renters to negotiate contracts that protect them from increases.

For commercial property owners, the evaporation Friday of the leading legal threat to Proposition 13 prompted only passing interest because most landlords hand along the cost of real estate taxes to tenants.

Still, more tenants recently have begun using their clout in the current soft office market to negotiate tougher leases that protect them from property tax increases in the event of a sale, said Joseph J. Honick, president of the California Commercial Tenants Assn.

“Right now you have a tenants’ market, so there are more people asking for concessions” to prevent the passing through of property taxes, Honick said.

Clayton S. Hovivian, an associate broker with Travers Realty Corp. in Los Angeles, said he recently negotiated such a lease for office space in the new Glendale City Center. The agreement places a ceiling on the amount of additional real estate taxes that the Glendale law firm Hagenbaugh & Murphy would pay if their building is sold.

“Over time there can be a significant cost difference” in the property taxes assessed, said Hovivian, who added that many more of his clients are asking him to negotiate such protection.

Macy’s on Friday withdrew its court challenge to the tax-cutting initiative, which requires that real estate be reassessed for tax purposes only when it changes ownership. That means someone who buys property in California today will pay property taxes based on its relatively high 1991 market value, while the taxes on similar property that has not changed hands in years can be considerably less.

Yet, even for tenants who don’t have written protection from property taxes passed on by landlords, the financial burden is relatively small. Ordinarily, they pay taxes only on the proportion of space that they lease in a building. Thus, a company that leases 25% of the floor space in a high-rise would pay only about 25% of the real estate taxes owed by the owner.

So although building maintenance and utility costs alone can amount to 20% to 25% of the overall cost of a lease, the impact of property taxes on a building tenant “is probably less than 5%,” said Frank Coari, vice president of JMB Properties, a Los Angeles commercial real estate brokerage.

Few tenants move even after a substantial increase in property taxes, Coari added, because of the tremendous expense of relocating.

San Diego business attorney John Malugen said that in today’s depressed real estate market, a few companies are actually cutting deals intended to trigger a property reassessment. Such clients want their property revalued to take into account the dramatic drop in some commercial real estate values in recent months.

* PROPERTY TAX

R. H. Macy & Co. withdraws its challenge to Proposition 13. A1