COVID-19 took many, many things, changed many other things, and brought a lot of new things. One of the new things COVID-19 brought was a whole host of lease disputes. Lease disputes – usually, but not always, tenants looking for a way out of a lease – are always a part of the legal landscape, but the frequency and creativity of lease disputes have been accelerating as of late. As such, we’ll spend a little time in our next few posts on lease matters. Today, we’ll look at a common area for lease disputes: real property taxes.
Real Estate Taxes In Leases
It’s a common feature of commercial leases – and is a necessary ingredient of a “triple net” lease – for the tenant to pay all real estate taxes associated with the leased premises. In RME Management, LLC v. Chapel H.O.M. Assocs., 251 N.C. App. 562 (2017), a commercial lease required – again, as is common – as follows with regard to tenant’s payment of real estate taxes: “The Lessee expressly agrees to pay all installments of taxes and assessments required to be paid by it hereunder when due, subject to the right of said Lessee to contest such tax or assessment, in good faith, provided the title of the Lessors shall not be placed in jeopardy by forfeiture, foreclosure, sale under tax warrant, or otherwise.”
Real estate taxes in Orange County, the situs of the property at issue in RME Management, LLC v. Chapel H.O.M. Assocs., 251 N.C. App. 562 (2017), are billed in July and, under State law, are “due and payable on September 1 of the fiscal year for which the taxes are levied”. To this end, stopping there, it appears that the lease requires payment of the real estate taxes “on September 1”, as required by State law. But the State law doesn’t stop there. It continues that real estate taxes are “payable at par or face amount if paid before January 6 following the due date” and only “[t]axes paid on or after January 6 following the due date are subject to interest charges”.
Over time, in prior years, tenant paid the real estate taxes after September 1.
When tenant did not pay the real estate taxes on September 1, landlord sent a September 21 letter to tenant defaulting tenant “for failure to pay all taxes as required pursuant to the lease”. Tenant responded, citing to State law and arguing: “Pursuant to N.C.G.S. § 105–360, 2015 real property taxes are payable without interest through January 5, 2016. Real property taxes are not delinquent, and interest does not begin to accrue until January 6, 2016. As such, there exists no delinquency in the payment of real property taxes and no default under the terms of the Lease.”
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