Real Estate 2025 Comparisons

A combination of federal, state and local laws, ordinances, rules and regulations working together create the patchwork of real estate law applicable in North Carolina. Federal statutes generally address fair housing, Americans with Disabilities Act, and environmental issues; state laws address recording priority, building codes, foreclosure procedures, landlord-tenant relationships and additional environmental issues; and local ordinances tend to address zoning, provision of utilities, and building code enforcement.

North Carolina continues to grow in population, achieving the fourth largest population gain of all states in 2024 by achieving the eighth largest growth rate (see, eg, Michael Cline, ‘North Carolina Now Home to Over 11 Million People’, North Carolina Office of Management and Budget, 6 April 2025). This growth has led to increased multi-family development and home prices, particularly in the large metropolitan areas of Raleigh and Charlotte. The growth has also offset reductions in office space post-pandemic, as the increased rate of remote working has reduced demand for office space. Higher interest rates have countered some of the price increases and activity.

North Carolina remains an attractive location for large economic development projects, led by an announced investment of more than USD4 billion from Novo Nordisk and four other announced investments of more than USD1 billion (Natron Energy, Fujifilm Diosynth Biotechnologies, Amgen and Johnson & Johnson) (Economic Development Partnership of North Carolina, 2024 North Carolina Economic Development Activity Report, 6 April 2025).

Similar to other jurisdictions, North Carolina will be affected by the National Association of Realtors litigation settlement. The NC Realtors have prepared a summary of these changes, most of which do not affect North Carolina differently than other states (NC Realtors, Overview of the NAR Settlement, 17 April 2025).

Affecting North Carolina specifically, the growth discussed above is driving higher property values and pricing many potential buyers out of the market. Various proposals to force municipalities to allow greater density or to limit property tax increases have been discussed, but none have obtained much traction.

North Carolina did recently enact the Unfair Real Estate Agreements Act (N.C. Gen. Stat. § 93A-85.1 et seq (2025)). The purpose of the Act is to “prohibit the use of real estate service agreements that are unfair to an owner of residential real estate”. A real estate service violates the Act if it is for a term longer than one year and does any of the following: (i) runs with the land, binding future owners of the residential real estate, (ii) allows for assignment of the right to provide services without notice or consent of the owner or buyer, or (iii) creates an encumbrance on the property.

Additionally, the Hurricane Helene Relief Bill adds to the already broad definition of “down zoning” and, more notably, requires that local governments obtain written consent from any and all owners of “down zoned” property (N.C. Gen. Stat. § 160D-601(d) (2025)). 

Property rights that can be acquired include:

• Ownership rights: Complete ownership of property, allowing possession, use, transfer and encumbrance.
• Easement rights: Non-possessory rights to use another’s property for specific purposes, such as access or utilities.
• Mineral rights: Rights to extract and profit from natural resources beneath the surface.
• Air rights: The ability to use or develop the space above a property.
• Riparian or water rights: Rights to use water sources near or flowing through a property.

The laws that apply to the transfer of title of real estate include recording laws which mandate whether and how deeds should be recorded in local land records to establish public notice of ownership and determine priority in competing claims. In determining priority between competing claims, North Carolina is a race state, meaning priority is given to the first party to record a valid claim with respect to the applicable property. Local laws also define the format for, and information required to be included in, deeds, memoranda of agreements, deeds of trust and other recorded documents.

Additionally, tax laws play a role in the transfer process, requiring property or transfer taxes to be paid or waived where appropriate to complete the transaction legally. All transfers of real property in North Carolina are subject to an excise tax payable at the time of recording the deed for the transfer other than transfers made for the following statutory exemptions: (1) by operation of law; (2) by lease for a term of years; (3) by or pursuant to the provisions of a will; (4) by intestacy; (5) by gift; (6) if no consideration in property or money is due or paid by the transferee to the transferor; (7) by merger, conversion or consolidation; and (8) by an instrument securing indebtedness (N.C. Gen. Stat. § 105-228.28 et seq (2025)). The excise tax is charged at a rate of USD1 per USD500 of value of the property. Additionally, the following seven of North Carolina’s 100 counties impose a local transfer tax of up to 1% of the value of the property: Camden, Chowan, Currituck, Dare, Pasquotank, Perquimans and Washington Counties.

A transfer of title to real estate occurs through the execution and delivery of a deed by the seller to the buyer. The deed, which must meet specific legal requirements outlined by North Carolina law, serves as the legal instrument that transfers ownership of the property. To make the transfer effective against third parties and ensure public notice of the new ownership, the deed must be recorded in the county recorder’s office.

Title insurance (both for owners and lenders) is common in real estate transactions.

Real estate due diligence often begins with a title search of the subject property to verify ownership, review documents affecting the property and identify any encumbrances, such as liens, easements or restrictions, that could affect the property. Additionally, surveys should be obtained to confirm the property’s boundary lines and identify potential disputes. Physical inspections may be conducted to assess the condition of the property, including structural integrity, environmental concerns and compliance with building codes. Buyers may also review zoning laws and land use regulations to ensure the property can be used for their intended purpose. Buyers of commercial property should also conduct a Phase I Environmental Site Assessment. Additional diligence may be needed based on the proposed use of the property.

Typical seller representations and warranties include assurances regarding title to the property, compliance with zoning and environmental regulations, and absence of liens or encumbrances. Buyers typically rely on performing their own due diligence, including inspections and environmental assessments, to verify the condition of the property. Remedies for misrepresentation include termination of the contract and claims for damages. Seller representations and warranties typically survive closing for a limited period, with common survival periods ranging from six to 12 months. It is also customary to include a cap on the seller’s liability for breaches.

For residential transactions, a statutorily mandated disclosure form is required prior to executing an offer to purchase. The North Carolina Real Estate Commission’s form of disclosure is available online (North Carolina Real Estate Commission, Residential Property and Owners’ Association Disclosure Statement, 17 April 2025).

An investor should consider the following areas of law:

• Contract law which governs purchase agreements, including contingencies, disclosure requirements, and provisions for resolving disputes.
• Zoning and land use regulations which govern whether the intended use of the property aligns with local ordinances and restrictions.
• Environmental laws, such as the Coastal Area Management Act and wetlands regulations, which may impose additional requirements for properties in sensitive areas.
• Taxation laws, including property taxes, transfer taxes and capital gains taxes, should be evaluated alongside potential exemptions or benefits, such as 1031 exchanges or Opportunity Zone incentives.
• For rental properties, landlord-tenant laws outline lease obligations, eviction procedures and tenant rights. Additionally, certain municipalities have regulations prohibiting or restricting short-term rentals.

A buyer of real estate may be held responsible for soil pollution or environmental contamination on a property, even if they did not cause it. To mitigate this risk, buyers should perform due diligence investigations, negotiate contractual protections with sellers and explore liability-limiting programmes prior to closing on the purchase of the property to gain a thorough understanding of what issues impact the property. Additionally, a Phase I Environmental Site Assessment should be completed prior to any real property transfer.

A buyer should review and analyse the zoning code for the municipality and the county where the subject property is located to determine permitted uses. Most municipalities make zoning codes available online or at their planning department. Many municipalities will issue zoning letters on request stating whether there are any current violations of the zoning code with respect to the property.

It is possible to enter into development agreements with relevant public authorities following open dialogue and negotiations about the best way forward for all involved parties. The specifics of the development agreement are governed by statute (N.C. Gen. Stat. § 153A-349 et seq; 160A-400 et seq (2025)).

Governmental taking of land is possible under the legal principle of eminent domain. This allows the government or authorised entities to take private property for public use, provided that just compensation is paid to the property owner. The process begins with the government determining the need for the property for a public purpose. The entity must make a good-faith offer to purchase the property at fair market value. If the owner accepts, the transaction proceeds as a voluntary sale. If the owner refuses, the government files a condemnation action in court. The court determines whether the taking is lawful and establishes the amount of just compensation owed to the property owner, often based on property appraisals and expert testimony. North Carolina law also allows property owners to challenge the taking if they believe it is not for a legitimate public purpose or if the compensation offered is inadequate.

An excise tax is levied on each instrument by which any interest in real property is conveyed to another person or entity unless the conveyance qualifies for an exemption under North Carolina law. The tax rate is USD1 on each USD500 or fractional part thereof of the consideration or value of the interest conveyed. The seller pays the tax to the register of deeds of the county in which the real estate is located before recording the instrument of conveyance. If the instrument transfers a parcel of real estate lying in two or more counties, the tax must be paid to the register of deeds of the county in which the greater part of the real estate with respect to value lies.

Excise taxes on conveyances do not apply to any of the following transfers of an interest in real property:

• By operation of law.
• By lease for a term of years.
• By or pursuant to the provisions of a will.
• By intestacy.
• By gift.
• If no consideration in property or money is due or paid by the transferee to the transferor.
• By merger, conversion or consolidation.
• By an instrument securing indebtedness.

Additionally, the following seven of North Carolina’s 100 counties impose a local transfer tax of up to 1% of the value of the property: Camden, Chowan, Currituck, Dare, Pasquotank, Perquimans and Washington Counties.

There are currently no restrictions on foreign investors acquiring real estate in North Carolina.

Most acquisitions of commercial real estate are financed through commercial loans with banks or other financial institutions, with the subject property acting as the collateral. Mezzanine debt is also a possibility in larger transactions. Certain real estate purchases may also include tax-equity investors.

The most common form of security created is a mortgage or deed of trust, which grants the lender a lien on the property as collateral for the loan. In addition to the mortgage or deed of trust, lenders often require the borrower to execute other security instruments, such as an assignment of rents and leases, personal or corporate guaranty, and/or a fixture financing statement.

There are currently no restrictions on granting security over real estate to foreign lenders in North Carolina. The applicable lender may be required to register with the Secretary of State.

Nominal recording fees will be applied to any document recorded in a North Carolina county. Notary fees vary based on the notary but are typically nominal as well.

Before an entity can give valid security over its real estate assets, it must have clear authority to grant the security, which typically requires authorisation from its governing body and compliance with its governing documents, such as operating agreements or by-laws. The entity must have clear legal title of the property being used as collateral, and the security instrument must be executed in writing, notarised, and recorded in the Register of Deeds office in the county where the property is located.

A lender must typically follow the non-judicial foreclosure process under a power of sale clause, which requires the lender to provide a notice of default, file a notice of hearing with the Clerk of Superior Court in the county where the property is located, and prove the borrower’s default and the lender’s right to foreclose at a hearing. If approved, the property is sold at a public auction, with a ten-day upset bid period allowing additional bids. Alternatively, judicial foreclosure is used when the deed of trust lacks a power of sale clause, requiring the lender to file a lawsuit and obtain a court order, a process that is more time-consuming and costly.

The typical period of time necessary to successfully enforce and realise on real property security through non-judicial foreclosure is 90 to 120 days, provided there are no significant delays such as borrower bankruptcy or disputes over default. This process includes required steps such as filing a notice of hearing, obtaining approval from the Clerk of Superior Court and completing a foreclosure sale, along with a ten-day upset bid period that may extend the timeline if additional bids are submitted. For judicial foreclosures, which involve court proceedings and are used when the deed of trust lacks a power of sale clause, the process can take significantly longer, typically ranging from six to 18 months or more due to litigation and procedural requirements. The exact timeline depends on factors such as the complexity of the case, borrower challenges, and compliance with statutory notice and procedural requirements.

Properly recording the deed of trust with the Register of Deeds is essential, as priority follows the “first in time, first in right” rule, with earlier-recorded liens generally taking precedence. Lenders may also negotiate subordination agreements with pre-existing lienholders or pay off prior liens, such as mortgages or mechanic’s liens, to secure first-priority status.

Subordination can occur through a subordination agreement, where the existing lienholder voluntarily agrees to subordinate their lien to the newly created debt. Subordination agreements must be in writing and recorded in the land records in the county where the subject property is located to provide public notice. Additionally, under North Carolina law, lien priority is generally determined by the order of recording, following the “first in time, first in right” principle.

Lenders holding or enforcing security over real estate can face liability under federal and state environmental laws, particularly if they participate in the management of a facility. However, liability protections are available under CERCLA’s secured creditor exemption and through environmental due diligence.

A borrower’s insolvency does not automatically void security interests created in favour of a lender. However, the enforceability and priority of such security interests may be affected under federal and state bankruptcy laws in limited circumstances.

Borrowers pay the recording fees to record the loan documents in the county where the property is located.

Planning and zoning are primarily governed at the local level by municipalities and counties, under the authority granted by state enabling legislation, such as N.C. Gen. Stat. §160D.

Zoning ordinances, building codes and historic preservation laws typically apply to the design, appearance and methods of construction available for new or existing buildings.

The council or commission for the municipality or the county, as applicable, where the subject property is located are responsible for regulating the development and use of parcels within their jurisdiction, subject to N.C. Gen. Stat. §160D. These enforcement obligations are often delegated to planning and zoning commissions and boards of adjustment or other specialised commissions.

The process to obtain entitlements to develop a new project begins with a developer submitting applications to the relevant municipal or county planning department for zoning approvals, variances or special use permits, depending on the nature of the project. Site plans and architectural designs are reviewed to ensure compliance with zoning ordinances, building codes and other regulations. Public hearings are often part of the process, particularly for rezonings or projects requiring conditional or special use permits. During these hearings, third parties, such as neighbouring property owners, have the right to participate, voice objections, or provide input on the proposed development. Local governing bodies then decide whether to approve or deny the application. Depending on the type of approval sought, the decision can either be legislative in nature or quasi-judicial, where more formal procedures are required.

An applicant may appeal a relevant authority’s decision by following the appeal process outlined by the applicable authority. For example, in Wake County, a person appealing a Zoning Board decision has 30 days to submit their appeal in writing to the Planning Director and the Land Development Administrator. Once a hearing before the Board of Adjustment has been set, Zoning Administration staff sends notice of the appeal and hearing to the applicant. The Board of Adjustment will consider evidence presented by the applicant and other comments submitted by interested parties, and then the Board of Adjustment will make its decision. Recourse can be sought from the courts where the government has taken action contrary to applicable law.

It is possible to enter into agreements with local or governmental authorities and utility suppliers to facilitate a development project. There are statutory development agreements as discussed in 2.8 Permitted Uses of Real Estate Under Zoning or Planning Law; other agreements with governmental entities that do not meet those requirements may not vest complete rights to the developer.

Restrictions on development and designated use are enforced through local zoning ordinances, building codes and permitting processes. Enforcement begins with the requirement to obtain necessary permits, such as zoning permits, building permits and certificates of occupancy, which confirm that proposed development adheres to applicable regulations. Violations, such as unauthorised land use, failure to comply with setback requirements or exceeding density limits, may result in penalties issued by local enforcement officials or the stopping of construction of a project or activities being conducted illegally.

Investors have several entity options for holding real estate assets, including the limited liability company (LLC), which is commonly used due to its flexibility, limited liability for members and favourable tax treatment. Individuals, corporations, non-profit corporations, limited partnerships and other less common entities can hold real estate as well. Other options are the real estate investment trust (REIT), suitable for large-scale or institutional real estate investments with tax advantages but complex compliance requirements, and the limited partnership (LP), where limited partners have liability protection but general partners do not.

LLCs

For LLCs, the main features and tax benefits and costs are as follows.

Main features:

• Members enjoy limited liability, meaning their personal assets are protected from the entity’s debts and liabilities.
• LLCs are flexible in terms of ownership, profit allocation and management structures.
• Can be member-managed (owners manage the business) or manager-managed (designated managers handle operations).

Tax benefits and costs:

• LLCs are taxed as pass-through entities by default, meaning profits and losses flow directly to members and are reported on their personal tax returns, avoiding corporate-level taxation.
• LLCs can elect to be taxed as a corporation (C-Corp or S-Corp) for specific tax advantages.
• Members of an LLC may be subject to self-employment taxes on their share of profits if taxed as a partnership.
• Moderate. Filing fees for Articles of Organisation are USD125, plus annual reports costing USD200.
• LLCs allow for deductions related to certain expenses.

REITs

For REITs, the main features and tax benefits and costs are as follows.

Main features:

• Shareholders have limited liability.
• Managed by a board of directors or trustees; investments are pooled and professionally managed.
• Must have at least 100 shareholders and cannot have more than 50% of shares owned by five or fewer individuals.
• Must distribute at least 90% of taxable income to shareholders as dividends.

Tax benefits and costs:

• REITs are generally exempt from corporate income tax if they meet regulatory requirements, including distributing 90% of taxable income.
• Shareholders are taxed on dividends received, which may be taxed as ordinary income or qualify for preferential tax rates.
• REITs require significant legal and administrative costs to meet Internal Revenue Service (IRS) and Securities and Exchange Commission (SEC) compliance, including public reporting and shareholder requirements.

LPs

For LPs, the main features and tax benefits and costs are as follows.

Main features:

• General partners have unlimited liability, while limited partners have limited liability and are not involved in management.
• General partners manage the partnership, while limited partners are passive investors.
• Flexible ownership structure, with profit allocations set by the partnership agreement.

Tax benefits and costs:

• Income and losses are passed through to partners.
• General partners are subject to self-employment taxes; limited partners are not taxed on passive income.
• Filing fees for Certificates of Limited Partnership are USD50.

REITs are commonly available investment vehicles in North Carolina, existing in both public and private forms. Public REITs are traded on stock exchanges and regulated by the SEC, while private REITs cater to accredited investors. REITs are available to foreign investors, although subject to tax obligations under the Foreign Investment in Real Property Tax Act (FIRPTA). REITs offer significant advantages, including tax efficiency through exemption from corporate income tax, consistent income generation via the mandatory distribution of at least 90% of taxable income, professional management, portfolio diversification, and access to real estate markets without direct ownership responsibilities. To qualify as a REIT, entities must meet strict requirements under the Internal Revenue Code and comply with reporting and distribution mandates.

There are no statutory minimum capital requirements for forming entities used to invest in real estate; however, sufficient funding is needed to cover formation costs, operational expenses and investment needs to avoid insolvency issues.

Governance requirements for real estate investment entities in North Carolina vary by entity type, with LLCs and corporations requiring formal filings, operating agreements or by-laws, and annual reporting, while partnerships and trusts operate under more flexible governance rules.

The Financial Crimes Enforcement Network (FinCEN) issued an interim final rule that removes the requirement for US companies and US persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act. Thus, through this interim final rule, all entities created in the USA – including those previously known as “domestic reporting companies” – and their beneficial owners will be exempt from the requirement to report BOI to FinCEN. Foreign entities that meet the new definition of a “reporting company” and do not qualify for an exemption from the reporting requirements must report their BOI to FinCEN under new deadlines, detailed below. These foreign entities, however, will not be required to report any US persons as beneficial owners, and US persons will not be required to report BOI with respect to any such entity for which they are a beneficial owner.

LLCs

Governance requirements:

• LLCs are governed by the North Carolina Limited Liability Company Act.
• LLCs must file Articles of Organisation with the North Carolina Secretary of State.
• LLCs can be member-managed (managed by the owners) or manager-managed (managed by designated managers).
• An operating agreement (though not legally required) typically outlines governance rules, member rights, voting procedures, profit distributions and dispute resolution.
• Annual reports must be filed with the state along with a USD200 fee.

REITs

Governance requirements:

• REITs are typically structured as corporations or trusts and must comply with the governance requirements for those entities.
• Public REITs are subject to SEC regulations, requiring detailed governance structures, regular reporting and transparency.
• REITs must have a board of directors or trustees and distribute at least 90% of taxable income to shareholders.
• Shareholder meetings and voting are required for corporate decisions.

LPs

Governance requirements:

• LPs are governed by the North Carolina Uniform Limited Partnership Act.
• LPs must file a Certificate of Limited Partnership with the Secretary of State.
• An LP consists of general partners (who manage the partnership and have unlimited liability) and limited partners (who are passive investors with limited liability).
• A partnership agreement governs operations, profit-sharing and decision-making.

There are nominal statutory fees that vary by entity type. Other annual maintenance and accounting compliance 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.

The law recognises leases, licences and use agreements to allow an organisation or person to occupy and use real estate for a limited period of time without buying it outright.

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 maintenance;
• 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.

Rent and lease terms are freely negotiable.

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 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.

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.

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 during any renewal of the lease term.

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.

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.        

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 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 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.

If the premises are individually metered, the tenant will either pay their utility costs directly to the utility provider or reimburse the landlord for their proportionate share of the utilities if the landlord supplies the utilities. If the premises are not separately metered, the tenant typically pays their proportionate share of utility costs directly to the landlord. Landlords cannot charge for electricity more than the cost charged by the utility provider except under specific circumstances.

The responsibility for real estate taxes is negotiable. Under a net lease, tenants generally share the costs of real estate taxes based on their proportionate share of their premises relative to the overall property. Under a gross lease, landlord is responsible for the cost of the real estate taxes.

The responsibility for the cost of insurance is negotiable. Under a net lease, tenants generally share the cost of insurance to insure the overall property based on their proportionate share of the overall property and they are also required to obtain and maintain insurance premiums for their personal property, employees, if any, and other insurable items. Under a gross lease, the landlord is responsible for the cost of the insurance.

Landlords can and often do impose restrictions on how tenants may use the property, and any tenant use must comply with the terms of the lease as well as local laws and regulations.

A tenant’s ability to alter or improve leased real estate is typically governed by the lease agreement, which usually requires the landlord’s prior written consent for any modifications. Common conditions include the landlord’s approval of detailed plans or specifications, the tenant’s compliance with applicable building codes and zoning regulations, and the use of licensed and insured contractors. Additionally, tenants are often required to indemnify the landlord against any liabilities arising from the alterations. At the end of the lease term, tenants may also be required to restore the property to its original condition unless otherwise agreed upon in the lease.

Residential leases are subject to the North Carolina Residential Rental Agreements Act, which imposes obligations on landlords to provide habitable premises and outlines tenant rights, including protections against retaliatory eviction and rules for security deposits under the Tenant Security Deposit Act. Commercial leases are primarily governed by negotiated lease agreements.

If a tenant becomes insolvent and files for bankruptcy, an automatic stay under federal bankruptcy law temporarily halts the landlord’s ability to pursue eviction or enforce lease obligations, unless the landlord obtains court permission to proceed. Lease agreements typically remain enforceable, but the tenant may choose to assume or reject the lease during the bankruptcy process. During such period, the tenant must comply with the terms of the lease. If the tenant rejects the lease, the landlord can terminate the agreement and file a claim for damages, including unpaid rent, subject to limitations under bankruptcy law.

A tenant does not automatically have the right to continue occupying the premises after the expiration or termination of a commercial lease. However, if the tenant remains in possession of the premises beyond the agreed-upon term without the landlord’s consent, the tenant becomes a holdover tenant, and the landlord may pursue legal remedies. The lease agreement may specify the consequences of holdover tenancy, such as requiring the tenant to pay a higher rent rate. If the lease does not address holdover tenancy, the landlord may initiate an eviction proceeding to regain possession of the property.

To ensure that a tenant leaves on the date originally agreed, the landlord should provide clear notice before the lease term ends, reminding the tenant of the expiration date and their obligation to vacate.

A tenant’s ability to assign their leasehold interest or sublease all or a portion of the leased premises depends on the terms of the lease agreement. Generally, commercial leases require the landlord’s prior written consent for an assignment or sublease, and the landlord may impose certain conditions on such assignment or sublease including the requirement that the assignee or sublessee meets the landlord’s financial and operational qualifications and agrees to comply with all terms of the original lease. Additionally, the tenant may be required to remain liable under the lease, even after the assignment or sublease. Landlords may also impose administrative fees or require indemnification from tenant for any damages or costs resulting from the assignment or sublease.

Events that may give a landlord the right to terminate a lease include the tenant’s failure to pay rent or other amounts due and owing under the lease or violations of lease terms. The lease may also include provisions allowing termination for property damage or if the tenant abandons the premises. For tenants, the right to terminate may arise if the landlord breaches material lease obligations, such as failing to provide access or services necessary for the tenant’s use of the property. Additionally, both parties may have the right to terminate under casualty or condemnation clauses, which address unforeseen events such as natural disasters or governmental actions that render performance impossible. Termination rights may also be tied to bankruptcy of either party or mutual agreement to end the lease early. The lease agreement typically outlines the procedures for termination, including notice requirements, cure periods and any penalties or damages.

Leases are not required to comply with registration requirements; however, they must be executed by both the landlord and tenant to be valid. If both parties agree, a memorandum of lease can be recorded in the county where the property is located in order to protect the tenant’s leasehold interest against future purchasers of the property. Recording is subject to applicable fees, which are typically paid by the party requesting the recording, along with any associated notary fees.

A tenant can be forced to leave the leased premises prior to the originally agreed-upon expiration date in the event of default, such as failure to pay rent, violation of lease terms or illegal activity. To evict a tenant, the landlord must provide the tenant with proper notice of default and an opportunity to cure the issue if required by the lease agreement. If the tenant does not remedy the default, the landlord can file an eviction complaint in the jurisdiction where the property is located. If the court rules in the landlord’s favour, the tenant may be ordered to vacate the property. The entire process usually takes several weeks, depending on court schedules, but delays can occur if the tenant appeals the decision or contests the eviction.

The government or a municipal authority, under certain circumstances, typically through the exercise of eminent domain and condemnation, may have the ability to terminate a lease, depending upon the amount of property taken and the terms and conditions of the lease agreement. In the event of an exercise of eminent domain, the landlord typically receives any compensation paid by the government or municipal authority, and the terms of the lease dictate how much, if any, of such compensation the landlord would be required to pay to the tenant.

In the event of a tenant breach and lease termination, in addition to charging the tenant for the remaining rent due for the term of the lease, landlords can seek damages for physical damage to the property and other losses directly caused by the breach, such as lost rental income, expenses incurred to re-lease the property (eg, advertising, broker fees or tenant improvements) and attorneys’ fees, if these remedies are provided for in the lease agreement. However, landlords are obligated to mitigate damages by making reasonable efforts to re-rent the property. Security deposits may also be applied to unpaid rent or damages, subject to the terms of the lease agreement.

Landlords typically hold security deposits in the form of cash, but letters of credit are also common.

The most common structures used to price construction projects are the fixed-price (lump sum) structure, where the contractor agrees to complete the project for a predetermined price, covering all labour, materials and overhead costs, and the cost-plus structure, where the contractor is reimbursed for the actual costs incurred during the project, including labour, materials and subcontractor fees, plus an agreed-upon fee, which may be a percentage of the other construction costs. In a cost-plus contract, the parties may agree to a maximum price.

Responsibility for the design and construction of a project is typically assigned through various contractual arrangements, which determine how obligations are allocated among the parties involved, such as owners, contractors, architects, engineers and subcontractors. Below is an overview of the different methods and typical allocation of responsibilities.

Design-Bid-Build

Overview:

• The project owner contracts separately with a design professional (architect or engineer) for the design phase and a general contractor for the construction phase.

• The design is completed before bidding begins, and the contractor is selected through competitive bidding.

Responsibility allocation:

• Owner: Responsible for overseeing the process, hiring the design professional and managing the bidding process.
• Design professional (architect/engineer): Responsible for creating the project’s plans and specifications, and ensuring compliance with building codes and regulations.
• Contractor: Responsible for executing the construction work according to the design specifications. The contractor assumes liability for construction defects but is not responsible for design errors.

Design-Build

Overview:

• The owner hires a single entity (design-build firm) to handle both design and construction under one contract.
• This approach streamlines communication and minimises conflicts between design and construction teams.

Responsibility allocation:

• Design-build firm: Responsible for both the design and construction phases. The firm assumes liability for both design errors and construction defects.
• Owner: Responsible for providing project requirements and oversight but relies heavily on the design-build firm for execution.
• Subcontractors: Typically hired by the design-build firm to complete specific portions of the work.

Construction Manager at Risk

Overview:

• The owner hires a construction manager during the design phase to provide input on costs, scheduling and constructability.
• The construction manager acts as the general contractor during construction and guarantees the project will be completed within a specified maximum price.

Responsibility allocation:

• Owner: Responsible for hiring the design professional and construction manager.
• Design professional: Responsible for completing the design and ensuring compliance with codes and regulations.
• Construction manager: Responsible for pre-construction services, managing subcontractors, and delivering the project within the guaranteed maximum price.
• Subcontractors: Perform the actual construction work under the construction manager’s supervision.

Integrated Project Delivery (IPD)

Overview:

• This collaborative method integrates all parties – owner, architect, contractor and other stakeholders – into a single contract.
• IPD emphasises shared responsibility, risk and reward to achieve project goals efficiently.

Responsibility allocation:

• Owner: Responsible for assembling the IPD team and approving major decisions.
• Design professional: Collaborates with the team to ensure design aligns with project goals and construction feasibility.
• Contractor: Works closely with the design team to optimise construction methods and manage execution.
• Subcontractors: Actively participate in the collaborative process.

The allocation of responsibilities generally depends on the chosen method and contract terms, but common divisions include:

• Owner: Provides project requirements, funding and oversight. Ensures compliance with legal and regulatory frameworks.
• Design professional: Develops plans and specifications, and ensures the design complies with codes and standards. Can be liable for design errors under certain methods (eg, Design-Bid-Build).
• Contractor: Executes construction work according to design specifications. Liable for construction defects and delays.
• Subcontractors: Perform specialised portions of the work (eg, plumbing, electrical) under contractor supervision.
• Construction manager (if applicable): Provides cost estimates and scheduling, and manages construction risks.
• Design-build firm (if applicable): Assumes combined responsibility for both design and construction phases.

Construction risk is managed through indemnifications, warranties, limitations of liability, waivers of damages, insurance requirements, performance and payment bonds, and force majeure clauses, each tailored to allocate and mitigate risks effectively. Indemnification clauses transfer liability, but state law prohibits broad indemnity for an owner’s sole negligence, ensuring such provisions are narrowly drafted. Contractors generally warrant that work will be completed in a good and workmanlike manner and consistent with applicable laws, and agree to a period within which they must cure any defect (between one and three years).

Schedule-related risk on construction projects is managed through various contract mechanisms, including liquidated damages clauses, no-damage-for-delay provisions, force majeure clauses, milestone payments, incentive clauses and extension of time provisions. Liquidated damages clauses allow owners to receive monetary compensation for delays if milestone or completion dates are not achieved, often expressed as a daily penalty, provided the amounts are reasonable and not punitive, as excessive penalties are unenforceable. No-damage-for-delay clauses, which limit contractors to time extensions rather than monetary compensation for delays, are generally enforceable unless delays result from owner interference, bad faith or unforeseen events. Force majeure provisions offer relief for delays caused by uncontrollable events, typically in the form of schedule extensions. Milestone payments and incentive clauses tie contractor compensation to timely progress or early completion.

Parties are allowed to agree that an owner is entitled to monetary compensation if certain milestone and completion dates are not achieved, provided the amounts are reasonable and not punitive.

It is common for owners to seek performance and payment bonds as security for the contractor’s performance of the work.

A contractor and/or designer is permitted to place a lien against the property in accordance with Chapter 44A of the North Carolina General Statutes in the event of non-payment for labour, services or materials provided during construction or improvement projects. To remove the lien, property owners can (i) pay the amount claimed, (ii) negotiate a settlement, or (iii) dispute the lien’s validity in court. If the lien is invalid or improperly filed, the owner can seek its removal through legal proceedings.

A certificate of occupancy must be issued before a project can be inhabited or used for its intended purpose.

VAT is not payable on the sale or purchase of corporate real estate. Instead, these transactions are subject to other taxes, such as the real estate transfer tax, which is levied at a rate of USD1 per USD500 and typically paid by the seller, although this can be negotiated between the parties. Sellers may also owe income taxes on profits from the sale.

Under N.C. Gen. Stat. § 105-228.29, certain real estate transactions are exempt from the real estate excise tax. Exemptions include:

• By operation of law.
• By lease for a term of years.
• By or pursuant to the provisions of a will.
• By intestacy.
• By gift.
• If no consideration in property or money is due or paid by the transferee to the transferor.
• By merger, conversion or consolidation.
• By an instrument securing indebtedness.

Structuring the transaction as an entity sale, where ownership of the entity holding the portfolio is transferred rather than the properties themselves, avoids direct real estate transfer taxes. This is not common in North Carolina as transfer fees are relatively low. Utilising a 1031 exchange allows sellers to defer capital gains taxes by reinvesting proceeds into like-kind properties.

Municipalities do not impose business rates or specific taxes on the occupation of business premises as seen in some other countries. However, businesses occupying premises are subject to property taxes, which are assessed annually by counties and municipalities based on the value of the real estate and, in some cases, the business’s tangible personal property. Some occupations require state-wide licensing permits, which have nominal fees.

Foreign investors in US real estate are subject to federal income tax withholding under the Foreign Investment in Real Property Tax Act (FIRPTA). North Carolina also requires state income tax withholding on certain real estate transactions involving foreign individuals or entities. FIRPTA withholding exemptions may apply if the property is sold for less than USD300,000 and the buyer intends to use it as their primary residence, or if the seller provides a certificate from the IRS showing reduced or no withholding is required. North Carolina withholding exemptions may apply for transactions where no taxable gain is realised, but proper documentation must be provided.

For rental property, foreign investors earning rental income from the real estate are subject to federal income tax and there are no exemptions.

Commercial properties may qualify for depreciation deductions, allowing owners to offset business income by depreciating the cost of the building over time. Property taxes paid on commercial real estate are generally deductible as a business expense at both the federal and state levels, and mortgage interest on loans used to acquire, construct or improve commercial properties may be deductible as business expenses. Gains from the sale of commercial properties may be subject to federal and state capital gains taxes, but owners may be able to defer these taxes through a 1031 exchange by reinvesting proceeds into similar real estate. Operating expenses, such as repairs, property management fees, utilities, insurance premiums and advertising costs, may also be deductible. There may also be tax credits available in certain circumstances such as low-income housing, historic rehabilitation and qualified opportunity zones. Specific tax circumstances should be reviewed with accountants and tax attorneys.