Lease Sequence: Actual Property Taxes | Womble Bond Dickinson

COVID-19 took many, many things, changed many other things, and brought many new things. One of the new things COVID-19 brought with it was a slew of rental disputes. Rent disputes – usually, but not always, tenants seeking a way out of a lease – are always part of the legal landscape, but the frequency and creativity of rental disputes has accelerated recently. Because of this, we’ll spend a little time on leasing issues in our next few posts. Today we’re looking at a common area for rent disputes: property taxes.

Real estate taxes in leases

It is a common feature of commercial leases – and a necessary part of a triple net lease – that the renter pays all property taxes associated with the rented premises. In RME Management, LLC v Chapel HOM Assocs., 251 NC App. 562 (2017), a commercial lease that – as usual – is required as follows with regard to the payment of property taxes by the tenant: “The tenant expressly agrees to pay all installments of taxes and assessments made by him payable under this contract when duesubject to the renter’s right to dispute this tax or assessment in good faith, unless the landlord’s title is jeopardized by forfeiture, foreclosure, sale under tax order or otherwise. ”

Property taxes in Orange County, the location of the property in question in RME Management, LLC v Chapel HOM Assocs., 251 NC App. 562 (2017) are invoiced in July and are, according to state law, “due and payable on September 1st of the fiscal year for which taxes are levied”. To this end, the lease appears to require the payment of property taxes “September 1st,” as required by state law. But state law doesn’t stop there. It is further claimed that property taxes are “payable at face value or face value if paid before January 6th after the due date” and only “[t]Axles paid on or after January 6th after the due date are subject to interest. “

In previous years, over time, the tenant paid property taxes after September 1st.

The arguments

When the tenant failed to pay property tax on September 1, the landlord sent a letter to the defaulting tenant on September 21, “because he had not paid all the taxes required under the lease”. The tenant responded citing state law and argued: “According to NCGS § 105-360, 2015 property taxes are to be paid until January 5, 2016 without interest. Property taxes are not delinquent and interest will not accrue until January 6th, 2016. Therefore, there is no insolvency in paying property taxes and no default under the terms of the rental agreement. “

The disposition

The landlord filed a class action lawsuit that the Small Claims Court dismissed. Upon the landlord’s appeal, the district court issued a summary judgment to the tenant (yes, you can request a summary judgment on an appeal on a minor claim matter, such as an appeal against a summary eviction decision), the rationale being based on state law and the law is based on the course of business between landlords and tenants: “Here, the course of business clearly shows that the parties have historically not interpreted the lease agreement in such a way that taxes have to be paid by midnight on September 1st each year; You understood that the terms “pay” and “pay when due” were used in their ordinary sense and not within the technical, literal definition requirements of [N.C.G.S. 105-360].

The appeal decision

The appeals court upheld the court’s issuance of a summary judgment and ruled that the tenant was not in default under the lease because he had not paid property taxes on September 1st. The Court essentially stated that (1)[a]Another principle of contract drafting is that “the parties generally assume that they will take into account all existing laws when concluding the contract”, which means that in the language of NCGS 105-360 taxes are to be paid “at face value or at face value if paid previously January 6th after the due date will be included in the rental terms and will be part of the rental terms. (2) To agree to the landlord’s position and demand payment on September 1st, the tenant would mean that he can only fulfill his obligation by paying property taxes only on September 1st “, which is” a nonsensical, hypertechnical construction of the Lease and Property Tax Act of North Carolina is “.

The Court did not examine the course of trade between the landlord and tenant with regard to its impact on the lease.

Take that away

It seems to us that this dispute was not about property taxes, but rather about the landlord’s efforts to end the rental period on a reasonable basis. And that’s not uncommon, provided there is an actual standard. It turned out that paying real estate taxes here wasn’t such a failure.

847 SE2d 229

[View source.]