Selling commercial property in North Carolina is mostly an exercise in limiting what follows you after closing. The contract decides what you are promising about the property, how long those promises survive, what the buyer can recover if one is wrong, and what you forfeit or keep if the buyer walks away. A North Carolina commercial real estate attorney also manages the parts of the sale that happen outside the four corners of the contract: tenant purchase rights, loan payoff or defeasance, the Section 1031 exchange, the excise tax and the successor liability rules that apply when a business is sold along with its building.
Holmes Law is the practice of Michael Holmes, an attorney licensed in North Carolina and five other states, who represents sellers of North Carolina commercial property remotely. Clients include individual investors and families holding property in LLCs, owners who occupy their own building and are selling it along with their business, and estates and trusts disposing of commercial holdings. This page is part of the North Carolina real estate practice area and walks through a North Carolina commercial sale from the seller’s side.
Seller Representations and Disclosures
North Carolina imposes no statutory disclosure form on commercial sellers. The Residential Property Disclosure Act in Chapter 47E is limited to residential property of one to four dwelling units, so a commercial seller’s disclosure obligations come from the contract and from the common law of fraud and misrepresentation.
That places the weight on the representations and warranties you agree to give. In recent versions of the North Carolina Bar Association and North Carolina REALTORS commercial form, Standard Form 580-T, the seller’s environmental statement is limited to its actual knowledge, and the seller must deliver leases, estoppels and reports already in its possession. Negotiated agreements go further, and buyers commonly ask for representations about:
- leases, rent rolls, security deposits and tenant defaults;
- environmental conditions, permits and notices from regulators;
- pending or threatened litigation and condemnation;
- compliance with zoning, building and fire codes;
- service contracts, employees and warranties;
- authority to sell and the absence of conflicting purchase rights.
Limiting post-closing exposure
A North Carolina commercial sales attorney will qualify representations by knowledge (and define whose knowledge counts), limit their survival period after closing, cap the seller’s total liability, set a minimum claim threshold, and pair all of that with an “as is, where is” clause and a release of known conditions. Documents you deliver should be accompanied by a disclaimer that you do not warrant third-party reports. An “as is” clause does not protect a seller who commits fraud or actively conceals a known defect, but it does shift the ordinary risk of condition to a buyer who had the opportunity to inspect.
Earnest Money and Liquidated Damages
Form 580-T provides that if the buyer defaults, the earnest money is paid to the seller as liquidated damages and as the seller’s sole and exclusive remedy, and it records the parties’ acknowledgment that the amount is compensatory and not punitive. North Carolina courts enforce liquidated damages provisions when actual damages are difficult to ascertain and the stipulated amount is a reasonable estimate rather than a penalty, so that language is there to support enforceability.
For a seller, the key negotiating points are the size of the deposit, when it becomes non-refundable, whether it is released to you before closing, and whether specific performance is available to you as an alternative. Because the Examination Period in the commercial form gives the buyer a free exit, a seller facing a long investigation period should consider staged, non-refundable deposits or extension fees.
The Deed, Title and Recording
The standard commercial form calls for a special warranty deed unless the parties agree otherwise, which warrants title only against defects arising during your ownership. The deed is prepared by counsel, signed before a notary and recorded with the register of deeds in the county where the land is located. Where the seller is an LLC or corporation, the buyer’s attorney will ask for evidence of authority, typically a resolution or consent of the members, managers or directors and an incumbency certificate, and for a certificate of existence from the Secretary of State.
The seller’s title affidavit, a lien waiver package for any recent improvements, and payoff letters for every deed of trust and financing statement are the seller’s responsibility. North Carolina’s Commercial Real Estate Broker Lien Act, beginning at G.S. 44A-24.1, allows a broker who has earned a commission under a written agreement to claim a lien on commercial real estate, so commission disputes should be resolved before closing rather than after.
Taxes on a North Carolina Commercial Sale
Excise tax
G.S. 105-228.30 imposes an excise tax on instruments conveying real property at one dollar per five hundred dollars of consideration or value, or fractional part, and requires the transferor to pay it to the register of deeds before recording. Form 580-T also assigns to the seller any deferred or rollback taxes, which matters when farmland or timberland enrolled in present-use value taxation is being sold for development. Under G.S. 105-277.4(c), the deferred taxes for the preceding three fiscal years become due when the land loses its eligibility.
Income tax and withholding
North Carolina has no general state withholding requirement on real estate sales by nonresident sellers. Nonresident individuals and pass-through owners still owe North Carolina tax on gain from North Carolina real property and must report it. The federal Foreign Investment in Real Property Tax Act requires the buyer to withhold 15 percent of the amount realized when the seller is a foreign person, unless an exemption or IRS withholding certificate applies. A domestic entity seller simply delivers a certification of non-foreign status. If the property is held in a disregarded LLC, the certification comes from the owner for tax purposes, not the LLC.
Depreciation recapture, the character of gain on personal property sold with the building, and the allocation of the price among land, improvements and personal property should be settled in the contract with your tax adviser, because the buyer’s allocation and yours should match.
Section 1031: The Relinquished Property Side
If you plan to defer gain through a like-kind exchange, the exchange must be set up before closing. A qualified intermediary is engaged, the purchase agreement is assigned to the intermediary, and the buyer is notified of the assignment; Form 580-T already obliges both parties to cooperate at the exchanging party’s cost. The sale proceeds must go directly to the intermediary. Taking control of the funds, even briefly, can disqualify the exchange.
From the closing date, you have 45 days to identify replacement property and 180 days, or the due date of your return for the year if earlier, to acquire it. Watch for three practical issues. First, an LLC that is taxed as a partnership cannot easily exchange if its members want to go separate ways; “drop and swap” restructurings need to be planned well in advance and carry audit risk. Second, a seller-financed note received at closing is boot unless structured through the intermediary. Third, if the relinquished property includes a business, the equipment and goodwill are not real property and do not qualify for real property exchange treatment. See North Carolina commercial purchase for the replacement side.
Tenant Rights of First Refusal and First Offer
Commercial leases frequently give a tenant a right of first refusal to match a third-party offer, a right of first offer before the property is marketed, or an option to purchase. These rights survive a sale if the buyer takes with notice, and a tenant in possession gives notice. A seller who ignores one risks a lawsuit from the tenant and a buyer who cannot get clean title insurance.
Before marketing the property, review every lease for purchase rights, identify what triggers them (a sale of the whole property, a sale of the entity, a portfolio sale), and follow the notice procedure exactly. A written waiver from the tenant, or evidence that the tenant was offered the property and declined, should be recorded or delivered at closing. Tenant estoppel certificates should also confirm that no purchase rights exist beyond those disclosed.
Selling a Business With the Building: Bulk Sales and Successor Liability
North Carolina repealed its bulk transfer law, Article 6 of the Uniform Commercial Code, effective January 1, 2005, so there is no general bulk-sale notice requirement for sales of inventory and equipment. Successor liability has not disappeared, however. Under G.S. 105-164.38(b), a person who buys a business or its stock of goods must withhold enough of the purchase price to cover the seller’s sales and use taxes until the seller produces a statement from the Secretary of Revenue that the taxes have been paid or that none are due. Buyers of operating businesses will insist on that statement, and sellers should request it early.
Other liabilities can follow the business under common law successor-liability theories where the sale is a de facto merger or the buyer is a mere continuation of the seller. Buyers protect themselves through asset-purchase structures and indemnities, which in turn affect your post-closing exposure as seller. The entity side of the transaction is handled through Holmes Law’s North Carolina business law practice.
Buyers of an operating business may also ask for evidence that the seller’s North Carolina withholding tax and unemployment insurance accounts are current, and for a tax clearance or payoff statement from the county tax collector for business personal property taxes. Providing these early keeps them from becoming last-minute closing conditions.
Loan Payoff, Assumption and Defeasance
Most commercial loans must be paid off at closing, and the payoff letter should be ordered as soon as the contract is signed. Many commercial mortgage-backed securities loans cannot be prepaid at all during most of their term; instead, the borrower must defease the loan by substituting a portfolio of government securities that replicates the remaining payments. Defeasance involves the servicer, a defeasance consultant, an accountant and a successor borrower, and it takes longer than an ordinary payoff. Other loans carry yield maintenance or step-down prepayment premiums.
Some buyers prefer to assume the existing loan. Assumption requires the lender’s consent, a fee, often a new guarantor and new environmental indemnity, and the lender’s own review timetable, which should be matched to the contract’s closing date. Negotiate who bears the cost and what happens if the lender refuses.
Sales by Estates, Trusts and Entities With Multiple Owners
Commercial property held in a decedent’s name is sold by the personal representative under a power of sale in the will or under Article 17 of Chapter 28A, and sales by heirs or devisees alone can be void as to creditors and the personal representative under G.S. 28A-17-12 unless its conditions are met. Property held in a trust is sold by the trustee under the North Carolina Uniform Trust Code, Chapter 36C, with a certification of trust. Property held in a multi-member LLC is sold under the operating agreement’s approval requirements, and disputes among members can delay or block a sale. Coordinating commercial holdings with the owners’ trusts and succession planning avoids most of these problems.
How Michael Holmes Helps North Carolina Commercial Sellers
Holmes Law represents commercial sellers on a scoped basis, including preparing or negotiating the purchase agreement, limiting representations and survival, reviewing leases for purchase rights, coordinating estoppels, managing loan payoff or assumption, working with your qualified intermediary, and preparing the deed and closing documents. Owners of smaller residential rentals may also find the North Carolina residential sales page useful.
Frequently Asked Questions
Does North Carolina require a disclosure statement for commercial property?
No. The statutory disclosure form applies to residential property of one to four units. Commercial sellers disclose through the representations they choose to give in the contract, and must not commit fraud.
Can I keep the buyer’s earnest money if they default?
Under the standard commercial form, yes, as liquidated damages and your sole and exclusive remedy, provided the buyer’s default comes after the Examination Period and is not excused. Negotiated contracts may provide otherwise.
Is there North Carolina withholding on a commercial sale by a nonresident?
There is no general North Carolina withholding requirement. Federal FIRPTA withholding applies to foreign sellers, and nonresident owners must report the gain on North Carolina returns.
What happens if a tenant has a right of first refusal?
You must offer the tenant the property on the terms the lease requires before selling to your buyer. If you skip that step, the tenant may be able to enforce its right against you or the buyer.
Does North Carolina still have a bulk sales law?
No. Article 6 of the UCC was repealed effective January 1, 2005. The sales tax successor rule in G.S. 105-164.38(b) still requires buyers of a business to hold back enough of the price to cover unpaid sales and use tax until the seller produces a clearance statement.
Who pays the excise tax on a North Carolina commercial sale?
The seller, as transferor, under G.S. 105-228.30, and the standard commercial form also allocates rollback taxes to the seller.
Speak With a North Carolina Commercial Real Estate Attorney
A commercial sale is easiest to close when the contract, tenant rights, loan and exchange are planned together from the start. Michael Holmes can represent you from the letter of intent through the recorded deed. Contact Holmes Law to discuss selling your North Carolina commercial property.
This page is general information about North Carolina law, not legal advice for your situation. Reading it does not create an attorney-client relationship.