The Impact of COVID-19 on Commercial Properties and Tax Assessment Appeals: The Potential for Lower Property Taxes

COVID-19 and governmental shutdown orders are having a profound impact on businesses and commercial property owners. Businesses are experiencing the effects of revenue shortfalls and changes in occupancy, consumer habits and industry trends which may continue to be felt long after stay-at-home orders are lifted. Experts expect that some businesses will not survive, and commercial property owners should be prepared to face increased vacancies and less favorable economic terms.

If this is the case, the fallout of COVID-19 has the potential to result in reduced real property values, and open the door for tax assessment appeals seeking lower assessed values and property taxes. This is particularly the case for commercial properties under the income approach.

The income approach is the most common method for valuing commercial properties, which values the property as an investment, looking at factors that include income, expenses, vacancy, investment risk and property stabilization. COVID-19 has the potential to change the benchmark of what constitutes a “stabilized property” and the material factors in valuing income generating properties. Lower expectations for market rents and occupancy, coupled with increased investment risk, can result in lower assessed values and property taxes due to COVID-19.

In most counties in Pennsylvania, property owners can begin filing 2021 tax assessment appeals this summer with deadlines that range between August 1, 2020 and early October. As a result, many property owners will be required to preserve an appeal to 2021’s assessed value long before they actually experience how COVID-19 impacts them next year.[1] Property owners should begin considering whether their properties are candidates for lower assessed values and property taxes as a result of COVID-19, and prepare accordingly.

If you have questions about tax assessment appeals and COVID-19, please contact Jason M. Yarbrough at jmy@muslaw.com, any member of the Real Estate & Lending Group, or any other Meyer, Unkovic & Scott attorney with whom you have worked.

[1] The filing deadline varies by county. 2021 annual tax assessment appeals in Allegheny County can be filed between January 1, 2021 and March 31, 2021.

This material is for informational purposes only.  It is not and should not be solely relied on as legal advice in dealing with any specific situation.
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