Quitclaiming into LLC, and lease

[Bienes Raices]

In the event that you own a property in your own name for a while and then decide to quitclaim it into an LLC that you've formed, what do you do about the lease if you have tenants currently there? Do you create a brand new lease with the LLC listed as the landlord?

[Andy J.]

No, that would be altering an existing contract, you don't want to do that. You want to use a legal document known as an assignment. If you look around the forums/blogs you should be able to find an example. It would essentially say something similar to:

ASSIGNMENT OF CONTRACT


_______________________________________(hereinafter "Assignor"), the Buyer under an agreement dated________________, 20_________ (hereinafter "Agreement") by and between Assignor and ____________________________________(hereinafter "Seller"), hereby assigns all right, title and interest in said agreement to_________________________________________
(hereinafter "Assignee") for the sum and consideration of $______________________________ received by Assignor.

Assignee agrees to perform all covenants, conditions and obligations required by Assignor under said Agreement and agrees to defend, indemnify and hold Assignor harmless from any liability or obligation under said Agreement. Assignee further agrees to hold Assignor harmless from any deficiency or defect in the legality or enforceability of the terms of said agreement.


Dated this _____ day of _____________, 20____________




______________________________
Assignor




______________________________
Assignee

Keep in mind this document was created for assigning purchase contracts so you should alter it (meaning your lawyer should alter it) to suit assignment of leases.

If you were to just strike out your name, change, and initial you would be altering a bilaterally binding agreement i.e. the tenant agreed to rent from you, not from your LLC and visa versa. Changing this without their consent would not affect their binding lease contract with you personally, which would defeat the purpose of transferring to an LLC (asset protection).

By assigning your contract (which you can unless there is a specific non-assignment clause in your lease) you are transferring the obligations of the contract to someone/something else, your LLC in this case. This does not require your tenants' approval, but again I recommend you let them know anyway.