USA – NORTH CAROLINA Law and Practice Contributed by: John Livingston and Brittani Miller, Kilpatrick Townsend & Stockton LLP
5.6 Annual Entity Maintenance and Accounting Compliance
years. Maintenance and repair responsibilities are often divided, with tenants typically being responsi - ble for maintaining and repairing the premises they occupy, while landlords usually handle structural maintenance of the building. Rent is most commonly paid on a monthly basis in advance, though specific payment schedules may vary depending on the lease agreement. 6.5 Rent Variation The rent payable under a commercial lease does not usually remain the same for the duration of the lease term. Many leases include provisions for rent escala - tion during the lease term. 6.6 Determination of New Rent Rent increases are set forth in the lease. They may be tied to inflation, such as adjustments based on the Consumer Price Index, or fixed annual percentages agreed upon by the parties. Often appraisals or other determinations of fair market rent are used to deter- mine the rent during any renewal of the lease term. 6.7 Payment of VAT VAT is not payable on rent, and there is no sales tax or rent tax in North Carolina. Rental income received by the landlord is subject to federal and state income tax, with landlords required to report rental earnings and allowed deductions for property-related expenses. 6.8 Costs Payable by a Tenant at the Start of a Lease At the start of a lease, tenants usually pay a secu - rity deposit, fees necessary to obtain any insurance required under the lease, and any applicable improve - ment costs that are the responsibility of the tenant. Often, tenants are required to pay the first month’s rent upfront at lease execution. 6.9 Payment of Maintenance and Repair The responsibility for maintenance and repair of com - mon areas is negotiable. Under a net lease, tenants generally share the costs of maintaining and repair - ing common areas with other tenants in the build - ing, if any, based on their proportionate share of their premises relative to the overall property. However, if a specific tenant causes damage requiring repair or maintenance, that tenant is typically responsible for
There are nominal statutory fees that vary by entity type. Other annual maintenance and accounting com - pliance costs for real estate investment entities vary widely based on the entity type and complexity of operations. LLCs and LPs generally have lower costs, while REITs have higher compliance expenses due to additional governance and regulatory requirements. 6. Commercial Leases 6.1 Types of Arrangements Allowing the Use of Real Estate for a Limited Period of Time The law recognises leases, licences and use agree - ments to allow an organisation or person to occupy and use real estate for a limited period of time without buying it outright. 6.2 Types of Commercial Leases The types of leases include: • gross leases, where tenants pay fixed rent while landlords are responsible for property-related expenses such as taxes, insurance and mainte - nance; • net leases, which require tenants to pay rent plus certain expenses including but not limited to taxes, insurance and maintenance; • modified gross leases, which split property expenses between the landlord and tenant (often with the landlord responsible for expenses for a “base year” and tenant responsible for amounts above that); and • ground leases, which allow tenants to lease land and construct improvements, which may revert to the landlord upon lease expiration. 6.3 Regulation of Rents or Lease Terms Rent and lease terms are freely negotiable. 6.4 Typical Terms of a Lease The length of a lease term can vary widely based on the needs of both the landlord and tenant, ranging from short-term agreements to multi-year arrange - ments. Most residential leases are for nine or 12 months. Many commercial leases are for five to ten
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