Landlord: To Be Or Not To Be?
Once the housing bubble burst, a lot of people have opted to rent out their home (when relocating) rather than selling, while others have decided to purchase low-priced properties to generate additional income (in the form of rents). However, if you have other assets, any rental property should be placed in an LLC or other entity to limit your personal liability as a result of anything that may happen at the leased premises. While considerations related to liability should be paramount, and even a great reason to talk to an experienced Connecticut landlord/tenant attorney (like me!!!), placing real property into an entity like an LLC creates other challenges and potential expenses beyond creation of the entity itself (we can help with that), and conveyance of the property into the entity (call us now).
For starters, if the property has a mortgage, you should make sure that any conveyance into an entity is not an event of default under the mortgage. This is usually the case if there is any beneficial change in ownership. Simply put, you need the bank’s permission prior to conveying the property into any entity with a different ownership interest as the property prior to conveyance. For example, if Dick and Jane own the property together, then Dick and Jane must also own the company to which the property is conveyed. This also means that any additional members in the entity may trigger the need to file a gift tax return at year-end (one more reason to give us a call).
The biggest problem, however, presents itself when your tenant doesn’t pay their rent as promised. Evicting a tenant for failure to pay rent is a two-part process.
First is a summary process proceeding, which if successful only gets you occupancy of the premises. Changing the locks or eviction through other “self-help” methods is illegal (don’t do it). Don’t let the name “summary process” fool you either. You can easily spend two months or longer trying to remove your tenant(s), which can even include that pesky family member who has long outstayed their welcome. Sorry mom! The second part is a lawsuit to recover damages, including but not limited to, back rent.
In addition, if your rental property is in an LLC, you will need to hire an attorney to help you. Many people fail to realize that they cannot appear in court on behalf of their single-member LLC. The LLC is an entity all of its own, independent of you, which is why you are able to enjoy the limited liability. This means that when you appear in court you are representing your business and not yourself, which unless you are an attorney (I’m lucky!) is considered the unauthorized practice of law.
So, what can you do? You can draft your lease (or even better, we can draft your lease) to include a provision where the tenant needs to pay the costs to evict, and/or recover back rent. However, you should keep in mind that even a judgment DOES NOT guarantee that you will be able to recover the monies due… as my dad always told me… “Life isn’t fair!” Therefore, you should make sure that you know where your tenants are employed, carefully screen them (I would recommend a credit check), and possibly even require a personal guaranty. The more information you have, and the greater the assets of your tenant (and personal guarantor), the better the chance that you will be able to recover any monies owed. Otherwise, you may find that it is not worth the cost to pursue a judgment in the first place.
Contact the Experienced Connecticut Landlord/Tenant Attorneys at The APEX Law Firm
As far as the summary process action goes – the sooner the better. I would stick with the age-old adage that no good deed goes unpunished. It is still a time-consuming process and the longer the tenant is in the property and the rent is unpaid the greater the damages to you; monies that you may never receive. As always, if you are in the process of learning this lesson the hard way, please call The APEX Law Firm in Hartford County at (860) 900-0900 or visit us online and our experienced Connecticut landlord/tenant lawyers will be happy to help you show your tenants (or pesky relatives) the door.
