The LandLord Advocate Feb 2013

In our December 2012 newsletter, we dealt with due diligence concepts when dealing with a new acquisition [click here for access to the tip’s full content]. This month, we recommend that purchasers (or the property management company for the new owner) set aside a substantial block of time for an uninterrupted analysis of who (or what entity) now owns the new property, and to communicate that new name to not only existing tenants, vendors, and prospective tenants, but also their landlord lawyer.

There are a number of key components that should be covered:
FIRST, make sure that you have the new owner’s legal name in full with the appropriate legal designation. Written communication works best for learning and passing along the owner’s name. Problems on this front usually result from someone in the chain-of-command using the phone to obtain or communicate the ownership name to someone else.
Below are a number of examples, each significantly different under the law (please note that the names John Smith, 100 Accent Drive, Accent Property are fictitious and do not represent any real person or entity – they are just for illustration purposes):

• John Smith: Mr. Smith owns the property in his own name, and all of his personal assets are at risk to address contract obligations or other liabilities (e.g., personal injury claims) that he incurs regarding the leased property.
• 100 Accent Drive LLC: In this case, one or more people (called “members”) came together to create and operate a Limited Liability Company. John Smith may be the only member, but – as long as he actually operates and communicates his work through the LLC – any contractual obligations or other liabilities incurred, are limited to the LLC’s assets (not his personal assets). NOTE: There are specific statutes, regulations, and case law that apply to LLC formation and operation, which the member(s) must follow to obtain its protections.
• 100 Accent Drive LP: This represents a Limited Partnership, which may include John Smith as a partner. It is another method to limit liability to the limited partnership’s assets, and has its own statutes, regulations, and case law that apply to its formation and operation, which the owner must follow diligently.
• 100 Accent Drive Corp.: This represents a Corporation, and John Smith may be its Chief Executive Officer and/or President. It is yet another method to limit liability to the corporation’s assets, and like the LLC and LP, has its own statutes, regulations, and case law that apply to its formation and operation, which the owner must follow also diligently.

It is important that you know the owner’s name as all communications – leases, vendor contracts, marketing materials, and legal cases, to name a few – must carry the owner’s legal name in full to afford the owner the use of the applicable law.
For example, if “100 Accent Drive LLC” owns the new commercial or residential property with John Smith as its only member, Mr. Smith has the opportunity to limit his personal liability to the LLC’s assets. However, if Mr. Smith constantly uses his own name (and the words “I” and “me”) for owner in all of his leases, vendor contracts, and marketing materials, the law may decide that he chose to operate as an individual owner and decline to afford him the protections applicable to a LLC. Why? Because Mr. Smith did not operate or communicate outwardly that the LLC was taking those steps, and the law does not require the other parties involved to “figure out” who really owns the property; rather, they get the benefit of whatever law applies to the way Mr. Smith communicated.

SECOND, make sure that everything carries the new owner’s full name – in it’s entirety. For example, if “100 Accent Drive LLC” is the owner, and you only write “100 Accent Drive,” you will not have accomplished this step. The receiver of the communication will not know that you are representing a LLC, because you have not included that designation in the name. The same holds true for using “100 Accent Drive LP” – this is a completely different entity that is uninvolved (indeed, it may actually exist, and be completely unrelated to the owner), and regardless the recipient of the communication will not know that a LLC is the actual ownership entity.
Although this may sound obvious, make sure that you do not truncate and simply use “Accent Drive LLC” in your communications and documentation. Why? Because Accent Drive LLC is not the owner – 100 Accent Drive LLC is. We present this example, because at least once a year we experience a property acting in the name of an entity that does not exist, often because the entity name was changed before or after closing, and that change was not communicated effectively throughout the organization.

THIRD, the new owner cannot – without legal authority in the closing documents or elsewhere – act on behalf of the seller. In most instances, the new owner should never use the seller’s legal name in any lease, vendor contract, marketing materials, or legal cases. Rather, the closing should include a document assigning things like leases to the new owner, which effectively substitutes the new owner’s name into the lease and allows the new owner to operate in its own name under the lease.
Importantly, in the absence of such a document for a vendor contract, the new owner should be sure to communicate with the applicable vendors that there has been a sale, that the new owner is not assuming the old contracts, and that there exists a need to enter new vendor contracts (in its own name) as necessary.

FINALLY, regarding existing legal cases, none of this happens automatically. The new owner must communicate with their landlord attorney about the property ownership transition, and have that lawyer file the necessary paperwork to bring the new owner into the existing cases.
Contact your landlord attorney if you planning, in the middle of, or just recently completed a new acquisition, so that you can address these subjects clearly and completely.

Quick Tip:

Decline in under-35 home ownership means unauthorized occupants are coming.

The U.S. Census Bureau has recently released data reporting a 7.3{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} drop in homeownership by households headed by those under 35 years of age. This data, reflecting information compiled over the last eight years, shows a drop in ownership from 43.6{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} in the summer of 2004 to 36.3{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} at the end of September 2012.
A recent U.S. News & World Report article cites two major reasons for this significant decline:

• First, lenders have imposed strict lending requirements for mortgage financing, and under-35 households are experiencing a weak labor market that exacerbates their efforts to meet those requirements.
• Second, some of these households had previously owned a home, but lost it to foreclosure and have either become renters or moved-in with family and ceased being a “household” entirely.

This new data reinforces and further supports the commentary and conclusions provided in our December 2012 Quick Tip (“Increase in “shared households” raises risk of unauthorized occupancy”) that there may be an economic dimension to the increase in shared households. This new data on decreasing home ownership seems to establish that economic component.
As we previously outlined, an increase in shared households might ultimately lead to a rise in unauthorized occupancy, which – according to our clients – creates most of the systemic problems in their residential communities. The newly released data regarding the decline in under-35 homeownership now adds a sense of urgency to the subject.
We recommend that you pay close attention to reports of unauthorized occupancy, and vow to act to address them immediately. As we noted in our previous Quick Tip, unauthorized occupancy can negatively affect the residential community’s overall commitment to lease compliance, and may ultimately increase the wear and tear on the units while undermining your financial assumptions and results.
Meet with your landlord attorney to discuss unauthorized occupancy, and how the law and improved operational processes can help you address the subject to keep your communities stable and thriving.

Quick Tip:

Be involved or be left out.

Self-governance and the need to get involved – two subjects you’ve heard us discuss in the past. However neither could be more important than they are right now.

The concept of self-governance is not new. Many people don’t realize that we are a country founded on the ideal of self-governance. In fact, many of our founding fathers believed a centralized government was a bad idea in any shape or form. However, not finding themselves in the majority, the concept of self-governance was replaced with the Constitutional limitations now in place to direct our government.

Each day, there seems to be another news source discussing the various bills that are proposed to become law. Many of these bills, if passed, may ultimately effect and your livelihood. It’s for this reason that you would be well served to assume a little self-governance and get involved – not only nationally, but also at the state and local level.

Just recently, I saw a U.S. Senator speaking on the Senate floor who indicated that a 600-page bill was coming up for a vote – and that the entire body of the Senate had less than 24 hours before they would be called upon to vote on it. Expected to read and comprehend 600 pages in just 24 hours – really? Is that the effort we are expecting from our government representatives?

At the state level, CT lawmakers are working vigorously to pass more laws, many of which will be impacting you as property owners and landlords. Luckily, they are conducting public hearings seeking input from their constituents on the proposed laws. If you want to have some input, now is your chance. Or, if you prefer, you can have someone else determine your fate – the choice is yours.

Many people suggest that they have done their part simply because they have voted – that from that point forward, it’s the job of their lawmakers to keep them safe and better their lives. I suggest that this position is inadequate and irresponsible. Ensure your rights are protected by getting involved. Self-governance requires more participation than one card of bubble dots on Election Day.

Quick Tip:

Multi-family housing and factors impeding future growth.

The National Association of Homebuilders (NAHB) held its International Builders’ Show in Las Vegas last month. At it, panelists presented a “Housing and Economic Outlook” for 2013 in which they said that multifamily housing was leading the recovery of the nation’s residential real estate market. They noted a 38{b3839be935df112798d4ec5997aa1a27aa9a9725854b075bcbd0000f0c7f06fc} increase in multifamily housing starts in 2012 over 2011, along with increasing price trends (including rents and apartment building values) and improving real estate markets. Indeed, they cited the Multifamily Production Index experiencing a 36-pont increase from its low in 2008 to 2012, essentially returning to 2005 levels.

While these are signs of a strong market for multifamily housing, the panelists also projected that builders’ most significant problems in 2013 are likely to be building material prices and continued gridlock/uncertainty in Washington, D.C. making buyers cautious. We focus here on the latter reason for concern.

In our corresponding Quick Tip, we talk about the critical need for you to be involved in our political systems, local, state, and federal, and the continuing efforts to pass legislation that could affect property owners and managers in those systems.

Remember, effective involvement can be individual or organized, and both are powerful. Individual action just requires that you make a decision to act, and get involved.

The most effective organized effort is usually through trade groups. The CT Apartment Association (CTAA) is such an organization, and one that we have repeatedly recommended to our readers. Moreover, this June, the National Apartment Association (NAA), of which CTAA is a member, is holding its annual 2013 Education Conference and Exposition, which we have attended each year and highly recommend to you.

Contact us if you have any questions about CTAA, NAA, the upcoming NAA Education Conference and Exposition, or any current legislative matter that may concern or affect you.

Quick Tip:

“Thank You for calling the Landlord Law Firm, this is Shannon”.

Many of you who are reading this newsletter have spoken with Shannon. She is owner of that warm, welcoming voice you hear almost every time you call the Landlord Law Firm. She has handled that post, along with many other responsibilities since 2011 when we first announced her addition to the firm. However, who’s the real Shannon Buonocore? In this month’s firm profile – we’ll tell you….

Shannon is essentially a Floridian who was born in the wrong place. When she’s not at the gym piloxing or cardio kick boxing, she is looking for a sunny spot in the sand to pull up her beach chair and dive into her favorite book. Not always the easiest thing to do in North Haven, but a large parking lot may be an acceptable alternative when things get tough. Apparently, the chair is always in her car, so feel free to ask for a seat if you run into her somewhere. She’ll have one.

Another of Shannon’s favorite places is her kitchen where each Sunday you can find her proudly cooking up a storm to feed an army of people the traditional Italian Sunday dinner. And, considering the size of her family, you can bet that cooking storm is a large one!

Finally, if she’s not in her kitchen or ankle deep in the sand, you can usually find Shannon at the ball field. She’s the voice that is drowning out all others as she cheers on her two boys at their baseball games. Shannon’s passion for her own boys of summer and their diamond ability goes hand in hand with her entire family’s MAJOR Boston Red Sox addiction.

If you’d like to know anything else about Shannon, feel free to call the Landlord Law Firm. She’ll be the first one on the line.

DISCLAIMER:

The reading of this newsletter does not form an attorney-client relationship. The contents of this newsletter are for informational purposes only and do not constitute legal advice. Nothing in this newsletter is intended to imply or predict the outcome of any legal matter that you may be considering or be involved in. The Landlord Law Firm makes no warranties of any kind regarding the information contained in this newsletter.