USA – NORTH CAROLINA Law and Practice Contributed by: John Livingston and Brittani Miller, Kilpatrick
related expenses such as taxes, insurance and maintenance; • net leases, which require tenants to pay rent plus certain expenses including but not lim - ited to taxes, insurance and maintenance; • modified gross leases, which split property expenses between the landlord and ten - ant (often with the landlord responsible for expenses for “base year” and tenant respon - sible 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 arrangements. Most residential leases are for nine or 12 months. Many commercial leases are for five to ten years. Maintenance and repair responsibilities are often divided, with tenants typically being responsible for maintaining and repairing the premises they occupy, while land - lords 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 escalation 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 determine the rent dur- ing 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 security deposit, fees necessary to obtain any insurance required under the lease, and any applicable improvement 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 common areas is negotiable. Under a net lease, tenants generally share the costs of maintaining and repairing common areas with other tenants in the building, if any, based on their proportion - ate 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 covering the full cost of the repair or maintenance. Under a gross lease, the landlord is responsible for the
cost of such repair or maintenance. 6.10 Payment of Utilities and Telecommunications
If the premises are individually metered, the ten - ant will either pay their utility costs directly to the
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