All Forum Posts by: Edward Schenkel

Here is another useful tip for leases. Always include a provision that allows you to claim attorney's fees and court costs if you are forced into a dispute or lawsuit with a tenant. Many states, including Connecticut, do not allow a landlord to claim attorney's fees unless there is a specific provision in the lease that allows the landlord to claim attorney's fees if there is a dispute. If you do not have this in your lease, the Tenant will hold more leverage over your. If you can point to the lease and show the tenant the clause regarding attorney's fees, you will have leverage in your dispute.

 @Marian Smith, thanks for the question. 

It is usually the landlord suing the tenant but sometimes it is the other way around. Sometimes a tenant will try to withhold rent or use as a defense in a lawsuit based upon something the landlord did or failed to do. Some common disputes I see are concerning the landlord failing to do his or her duties under the lease (e.g. make repairs); slip and falls by a tenant or a guest of the tenant; injuries caused by landlord's failure to properly exercise his or her duties; environmental issues at the property (typically commercial, e.g. alleged that an underground oil tank started leaking causing damage to business); disputes over the security deposit; illegal clauses in a lease; failure to reimburse the tenant for a repair he or she made; Entering a tenant's property illegally; failing to disclose environmental issues such as lead paint; or trying to evict the tenant illegally. Usually it is about the security deposit or the landlord failing to make repairs under the lease. 

With that being said, it is important to include a provision in the lease that allows you to claim attorney's fees if you have a dispute with the tenant (including eviction). This is important as many states do not allow you to claim attorney's fees unless there is a provision in the lease. 

The hold harmless agreement is another animal in itself. They need to be carefully drafted and sometimes courts hold that hold harmless / damage limitation clauses are invalid if they pertain to certain things. This area of law is state specific. Message me if you want to talk more about this. 

Ed

@Liz C, your question is a bit of a loaded question. With respect to the LLC as a trustee - the laws are state specific. However, in states like Connecticut, where I primarily practice, you cannot simply create a LLC and make it the Trustee of a trust. There is a statute that governs the exercise of fiduciary powers of corporate trustees (other than banks) that you have to follow to give the LLC trustee powers so to speak. You cannot just create the LLC and have it serve as the trustee. In Connecticut, the LLC, before it can become a trustee, must go through a process with the State including applying for a license. If you have any specific questions about this procedure, you can message me. (also, this does not apply to an individual serving as a trustee).

Regarding having the LLC set as the beneficiary - at first blush I do not see a problem with having a LLC as a beneficiary, but it is somewhat unusual. It may vary from state to state but in CT I believe it is ok. If you end up setting this up under CT law, I would be happy to research this issue to confirm that a LLC can serve as a beneficiary but at first blush I think it is ok.

Your last question regarding setting up a land trust in NY - I am licensed in NY; however, I have only worked on land trusts in CT. In CT, it is somewhat straightforward where we set up a LLC and a Trust, and the Trust is the sole member of the LLC, However, when we set up the trust, you need to be careful that you comply with the requirements of the law. Again, if you end up setting this all up in CT, I would be happy to help you out. Does this help?

I agree with some of the other comments here. It is not uncommon that a mortgage contain a provision providing that in order to transfer any interest in the property, (including to a real estate holding LLC) the bank must consent. If there is a similar provision in your mortgage, you technically do need the bank's consent. With that said, I have never seen a bank declare a default if an owner conveys the property to a single member llc where he or she is the owner. The bank is concerned about getting paid and its security. With that said, I would not be surprised if there are some rare cases where a bank did declare a default due to the conveyance without consent. If you want to do it by the book, you should get the bank's consent. You take a small risk that the bank could declare a default if you convey it to your LLC. You could always convey it back to you though if the bank did declare a default, but again - by the book, you should get the bank's consent.

 To be honest, due on sale is something that I am not familiar with. It may be something unique to your state. Is this the same thing as conveyance tax?

 Dear Cathie, 

These type of questions are always part legal and part accounting / tax. I would ask your accountant / tax professionals this question and see what they say as well. 

From a legal perspective, I would suggest having separate LLCs for each business venture. Therefore, I would suggest have a separate LLC own each piece of real estate (and ask your accountant whether to register at a S Corp or other, my clients accountants typically recommend S Corp) and have a separate LLC be the partner for your house flipping venture.

For the house slipping venture, the LLC can either be a member of another LLC (we will call it House Flipping, LLC for purposes of this discussion) and your partner can be the other member of house flipping, LLC. In the alternative, you can have a partnership agreement between your LLC and your partner. It might be easiest to have the house flipping venture structured with the House Flipping LLC structure where your LLC and your partner or the two members of House Flipping LLC because then you have an entity owned 50/50 with you and your partner that can also take title to the houses you flip and you can share risk equally,

I would suggest setting it up this way from a legal perspective so that if something went wrong on the house flipping venture, someone can only sue House Flipping, LLC and not go after your other multi families. Similarly, if someone slipped and fell at one of your multi family houses, they can only go after that one multi family house and not the other homes or house flipping llc.

I would strongly suggest setting up an operating agreement for house flipping LLC if you decide to move forward that business venture. You can feel free to message me about the details of the operating agreement. Also, when you set up the LLCs, there are managed member LLCS and member managed LLCs. If you have multiple members, you want to understand the differences before you set up the LLCs. Message me or call me if you have questions. Did this answer your question?

Is anyone interested in hearing another tip on leases?

 Hey @Paul B. The only additional risk that I see is that a plaintiff may be more inclined to file a lawsuit if the defendant has assets. The Plaintiff's attorney will see your equity as an asset it can go after if the Plaintiff gets a judgment. One of the things I always look at when a client approaches to me to file a lawsuit is what can we get if we win. If there is equity in real estate, great. If the only thing the defendant owns is real estate that is under water and he or she has no job and no other assets, I would probably advise against it because it will be difficult to get anything from the judgment unless you want to put a lien on the real estate and hope the value goes up so if you foreclose you will get something. In short, equity = an asset that a P can go after so yes, it means a plaintiff will be more likely to sue you if he or she has a claim against you. My advise  - just don't get sued:) and if you do get me to defend you :P

 One other thought too. If you provide seller financing, make sure you are a named insured on the insurance certificate like a regular bank.