Calculating and collecting NNN on new construction project.
First new construction leasing office condo project and first NNN lease for me.  I'm the owner/agent.

Trying to figure out NNN monthly cost and hung up on RE taxes.

I know my insurance cost, I know my association (CAM) costs, but being new construction the RE taxes are unknown. I can estimate, but what is the proper way to collect NNN monthly if this is an estimate?Once I know the true RE tax amount for the year do I send tenant new NNN amount?  Or a catch up bill?

Does this happen every year RE taxes are sent out?

To do this just select option 1 or 2 better?

Thanks for your help!

&amp;#x200B;

NNN Payment section of lease:

 *b. Type of Payment. Options one and two below address the manner in which Operating Costs are paid under this Lease. To select the pure triple net option, check option 1. To select the base year option, check option 2.* 

*OPTION ONE: TRIPLE NET. As additional Rent, Tenant shall pay to Landlord on the first of each month with payment of Tenant's base Rent one-twelfth of Tenant's Pro Rata Share of Operating Costs.* 

*OPTION TWO: BASE YEAR. The Base Rent paid by Tenant under this Lease includes Tenant's Pro Rata Share of Operating Costs for the calendar year in which the Commencement Date occurs (the “Base Year”). As additional Rent, Tenant shall pay to Landlord on the first day of each month commencing on the first day of the first year after the Commencement Date, with Tenant's payment of Base Rent, one-twelfth of the amount, if any, by which Tenant's Pro Rata Share of Operating Costs exceeds Tenant's annualized Pro Rata Share of Operating Costs for the Base Year.*
[{"id": "i5n1r3u", "text": "The way I have seen it is that there is an estimated budget that is sent out and at the end of the year when the costs are known there is a reconciliation. The reconciliation piece could mean a credit to the Tenant or an additional charge.\n\nEdit: You may be able to call the assessor to get an estimate.", "replies": [{"id": "i5n3enq", "text": "I agree with this. Talk to a local tax attorney and have them come up with a year 1 assumption. Bill tenants based on that and then reconcile once you get the actual bill.", "replies": [{"id": "i5n79y6", "text": "Thanks. What is the difference on option 1 or 2 language?", "replies": [{"id": "i5nete8", "text": "Someone else commented about the options in your post....You need to decide which one you want to go with. Definitely don't let tenants decide. Once you pick one, use it for all leases. The first option is a straight pass through of all expenses on a pro rata basis. The second option establishes a base year for expenses, usually the year in which the lease is signed. Tenant then pays their pro rata share of any INCREASE in expenses above that base year. (ex: base year expenses are $100. year 2 expenses are $150. If you had 1 tenant leasing the entire space/building, that tenant would owe $50 for year 2 expenses). So in option 2, the landlord is responsible for that other $100. Theoretically, then, your base rent should be higher in scenario 2.", "replies": [{"id": "i5nfmiq", "text": "Thank you! Makes total sense now. Definitely Option 1 for this deal Clean and easy.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "i5n43ne", "text": "Thanks!", "replies": [], "depth": 2}], "depth": 1}, {"id": "i5n9idb", "text": "Have you never heard of a 13th invoice? Basically year-end adjustments regarding recoveries. It's standard practice.", "replies": [{"id": "i5nar64", "text": "Nope. I have now though. Thanks. I have mostly industrial and flex. All gross leases until now.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i5nbbav", "text": "To determine an estimate for what taxes will be, I would take the amount of the appraisal (which you may have gotten for your loan) and assume that will be the assessed value. From there, just apply the mil rate.\n\nAs others have pointed out so far, you will reconcile your books at the end of the fiscal year and either send an additional invoice, or credit any overpayment towards next month's invoice. For this reason, your estimate doesn't have to be perfect.", "replies": [{"id": "i5neq6y", "text": "Makes sense. Thanks!", "replies": [], "depth": 2}], "depth": 1}, {"id": "i5ne1m6", "text": "https://www.reddit.com/r/CommercialRealEstate/comments/tk7xt1/how_do_you_predict_taxes_on_new_development_when/\n\nI asked the same question not long ago.\n\nYou should get a better lease in regards to the second half of your question.  I have no idea why you'd give tenants options and both of those need additional language with them", "replies": [{"id": "i5nf4ow", "text": "The replies from your linked thread were very helpful. Thanks.\n\nBetter lease for second part of question? Unclear what you mean on this. I'm using a CBA lease. Very solid in my parts (Idaho). I as the LL selects the option - not the tenant.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i5ng8bx", "text": "These are typically paid as a monthly estimate with true-up early in the next year based on actuals. I'd be as concerned with how the lease defines operating costs - especially vacancy adjustments with a new property and expense caps.", "replies": [{"id": "i5ngvsv", "text": "Thanks. This is a condo business office park.  Association dues are set and will be passed on as CAM fee to the tenant. Vacancy will not be a factor. No cap on expenses which is good for me the LL. \n\n&amp;#x200B;\n\n*8. OPERATING COSTS.*\r  \n*a. Definition. As used herein, \u201cOperating Costs\u201d shall mean all costs of operating, maintaining and repairing*\r  \n*the Premises, the Building, and the Property, determined in accordance with generally accepted*\r  \n*accounting principles, and including without limitation the following: all taxes and assessments (including,*\r  \n*but not limited to, real and personal property taxes and assessments, local improvement district*\r  \n*assessments and other special purpose assessments, and taxes on rent or gross receipts); insurance*\r  \n*premiums paid by Landlord and (to the extent used) deductibles for insurance applicable to the Property;*\r  \n*water, sewer and all other utility charges (other than utilities separately metered and paid directly by*\r  \n*Tenant or other tenants); janitorial and all other cleaning services; refuse and trash removal; supplies,*\r  \n*materials, tools, and equipment used in the operation, repair, and maintenance of the Property;*\r  \n*refurbishing and repainting; carpet replacement; to the extent serving areas other than just the Premises,*\r  \n*heating, ventilation and air conditioning (\u201dHVAC\u201d) service, repair and replacement when necessary;*\r  \n*elevator service, repair and replacement when necessary; pest control; lighting systems, fire detection*\r  \n*and security services; landscape maintenance; management (fees and/or personnel costs); parking lot,*\r  \n*road, sidewalk and driveway patching, resurfacing and maintenance; snow and ice removal; repair,*\r  \n*maintenance, and, where reasonably required, replacement of signage; amortization of capital*\r  \n*improvements as Landlord may in the future install to comply with governmental regulations and rules or*\r  \n*undertaken in good faith with a reasonable expectation of reducing operating costs (the useful life of*\r  \n*which shall be a reasonable period of time as determined by Landlord); and costs of legal services*\r  \n*(except those incurred directly relating to a particular occupant of the Building); and accounting services,*\r  \n*labor, supplies, materials and tools. Landlord and Tenant agree that if the Building is not ninety percent*\r  \n*(90%) occupied during any calendar year (including the Base Year, if applicable), on a monthly average,*\r  \n*then those portions of the Operating Costs that are driven by occupancy rates, as reasonably determined*\r  \n*by Landlord, shall be increased to reflect the Operating Costs of the Building as though it were ninety*\r  \n*percent (90%) occupied and Tenant's Pro Rata Share of Operating Costs shall be based upon Operating*\r  \n*Costs as so adjusted. Operating Costs shall not include: Landlord's income tax or general corporate*\r  \n*overhead, depreciation on the Building or equipment therein; loan payments; real estate broker's*\r  \n*commissions; capital improvements to or major repairs of the Building shell (i.e., the Building structure,*\r  \n*exterior walls and roof), except as described above; or any costs regarding the operation, maintenance*\r  \n*and repair of the Premises, the Building, or the Property paid directly by Tenant or other tenants in the*\r  \n*Building, or otherwise reimbursed to Landlord. If Tenant is renting a pad separate from any other*\r  \n*structures on the Property for which Landlord separately furnishes the services described in this*\r  \n*paragraph, then the term \u201cOperating Costs\u201d shall not include those costs of operating, repairing, and*\r  \n*maintaining the enclosed mall which can be separately allocated to the tenants of the other structures.*\r  \n*Operating Costs which cannot be separately allocated to the tenants of other structures may include but*\r  \n*are not limited to: insurance premiums; taxes and assessments; management (fees and/or personnel*\r  \n*costs); exterior lighting; parking lot, road, sidewalk and driveway patching, resurfacing and maintenance;*\r  \n*snow and ice removal; and costs of legal services and accounting services.*", "replies": [], "depth": 2}], "depth": 1}, {"id": "i5nobeu", "text": "I\u2019m assuming you\u2019re doing all the leasing and the lawyering. \n\n13th invoice as noted above But it\u2019s pretty standard for NNN world!", "replies": [], "depth": 1}, {"id": "i5onbz8", "text": "Give a fixed number and adjust the next year or 2 when the actual cost is final. Let them pay with rent - \u201ckiss\u2019 ))", "replies": [{"id": "i5ooju0", "text": "I like this, KISS is always good.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i5r3qhr", "text": "It\u2019s more of a math problem than anything in my experience. \n\nFigure out how the county assessed compared to appraised value, in my county, assessed is typically 30% of appraised value for commercial properties, 11.5% for residential, etc. You should be able to find this part. Then assume appraised value is the value of the construction costs / permit values. \n\nFrom there, find your mill levy. 1 mill is a $1 for every $1,000 of assesses value. \n\nTake appraised estimate noted above, multiply by assessed value factor to come to assessed value. Then it\u2019s assessed value / 1,000 * mill levy, now you have an estimate.", "replies": [], "depth": 1}, {"id": "ibttjxw", "text": "Option 1 - estimate the CAM charges including Taxes and Insurance, charge the tenants at the beginning of the month and then reconcile at the year end.\n\nFor taxes - you can estimate by comparing other properties in the area , or asking a tax consultant.", "replies": [], "depth": 1}]