The LandLord Advocate March 2013

Often, we are approached by our clients with specific questions or problems in which we are expected to provide “the answer”. Unfortunately, in many instances, “the answer” is almost always “it depends”. Much to our client’s chagrin, there is often not a clear cut, easy answer to their question.

Identifying on what the answer “depends”, can often invoke a 20-question extravaganza (or in some cases, full blow litigation). Luckily, burgeoning young “attorneys-to-be” are exposed to situations such as this in law school. The concept of arriving at the proper answer (and I will call it just that, a concept) is often referred to as BLACK LETTER LAW.

The fundamental of BLACK LETTER LAW is simple – despite the question, there is an answer. Meaning, there is a written law (X) that answers the specific legal question (Y).
For example, one BLACK LETTER LAW states that someone injured in a car crash has 2 years to file a case in court if they wish to seek compensation for their injuries. That law is written in BLACK ink in the general statutes and applies uniformly without exception – the basis of a BLACK LETTER LAW.

However, a recent HUD decision shows that such a precise definition is often not as clear cut as you might think.

Recently, HUD issued a decision that was reported in the Federal Register concerning 24 CFR Part 100, Implementation of the Fair Housing Act’s Discriminatory Effects Standard; Final Rule (note the emphasis added). It purports to establish the final rule on how disparate impact litigation is to be handled by any and all courts. In it, the decision states:

Under this test, the charging party or plaintiff first bears the burden of proving its prima facie case that a practice results in, or would predictably result in, a discriminatory effect on the basis of a protected characteristic. If the charging party or plaintiff proves a prima facie case, the burden of proof shifts to the respondent or defendant to prove that the challenged practice is necessary to achieve one or more of its substantial, legitimate, nondiscriminatory interests. If the respondent or defendant satisfies this burden, then the charging party or plaintiff may still establish liability by proving that the substantial, legitimate, nondiscriminatory interest could be served by a practice that has a less discriminatory effect.

Therein, this decision creates what we often refer to as a shifting burden of proof. And, in case you couldn’t follow the language (I sure can’t), it states that:

• The person claiming discriminatory impact must prove something, then
• The person defending can fight back by claiming something else, and then,
• The complaining person can parry yet one more time and if successful, will prove their case and win.

An example of just such a situation concerns a trailer park that limited the occupancy to three people per trailer. A family complained saying that such a policy discriminated against large families, a class protected under the “familial status” class of people. Park management said that it was not discrimination because it was applied evenly to all applicants. The court ruled that because it had a much greater impact on larger families than smaller families it was in fact discrimination.

The problem with this example is that the last burden shift (where the applicant would have to show how the “landlord’s substantial, legitimate, nondiscriminatory interest could be served by a practice that has a less discriminatory effect”) is missing. It is missing because this was the case that basically started disparate impact juris prudence. This missing burden shift has now been added to the BLACK LETTER LAW.

Why then, you might ask, does the title of this article state that BLACK LETTER LAW is hard to come by? I’ll tell you. Although the burden shifting scheme is now clearly established, there are a number of elements of that scheme that are still not clearly established, and in some instances, are only vaguely defined by this HUD decision:

• “or would predictably result in”
• “substantial, legitimate, nondiscriminatory interest”
• “less discriminatory effect”

Despite the decision’s efforts to try and define some of these phrases, we now find ourselves with additional layers of loosely defined vagaries, ripe with interpretation problems. While I could pen entire articles on the indefinite nature of these “defined” terms, commentators are reported in the decision who have already begun to challenge much of these ideas.

Ultimately, my point is this. When someone says to you “The answer in the law is clear, so here’s what you must do,” I suggest you take their suggestion with a grain of salt and either investigate it yourself or make sure the statement is coming from a source on which you can rely for accurate information. FYI, in my opinion, most Fair Housing Advocates do not meet that criterion…

Quick Tip:

Spanking back in vogue? Apparently it is in Ohio.

Recently, I saw a report out of Ohio about a spanking incident that I thought was worth sharing. Now fear not, it wasn’t actually a child being spanked. It was a tenant “acting like a child,” at least according to the landlord – and it was the landlord who determined that such behavior deserved a spanking. And yes, this time I’m talking about the traditional spanking – and with a belt no less!
While it’s hard to believe, this is apparently a true story – and, one from which we can perhaps learn a lesson or two:

• Lesson one – self-help approaches to dealing with tenant problems are often not advisable, even when you deem them deserved. They typically put the landlord in a bad position legally, while giving the tenant an opportunity to do some legal spanking of their own.
• Lesson two – leave the tenant “spanking” to your attorneys. If your operations are properly refined and your approach to management professional, simply deliver the needed info to your attorney and let them take it from there. While it might be a little less gratifying for you, in the end you will have a much better chance for a positive outcome. Not to mention allow you to avoid the criminal charges spanking our friend in Ohio received for his actions.

Quick Tip:

The importance of knowing who you work for.

Who employs you? Not whom you “work for,” but rather the legal entity name that cuts you a paycheck. This is important because you can only sign things for that entity or person (assuming you have the authority to do so), and not for other entities or people, unless there is something else giving your that authority.

This dilemma often arises in the property management context. For example, let’s say that you are a property manager for a management company operating a property on behalf of a separate, different legal owner. In that situation, you cannot sign a lease with your own name and title for the legal owner of the property, because it does not employ you. Rather, there must be some other connection, such as a management agreement (a contract) between the owner and your employer, which gives your employer (and thus, you) the authority to sign the lease. In that case, you are signing the lease for the owner in your capacity as an agent of the owner – the “agency” arising out of the management agreement.

This critical distinction goes beyond who is signing the lease, to who is actually the “landlord” in the lease. Continuing with the above example, the legal owner of the property is entering the lease as landlord, not your employer (the management company). In short, the landlord is always the legal owner of the property. You (on behalf of the management company) may be filling-out the lease and signing it as an agent, but the management company does not own the property and therefore cannot lease it – only the owner can do that.

It is important to note that these rules apply with owner-operators as well, where the people or principals behind the legal owner of the property (as partners, stockholders, or members) also created a separate management company to manage their portfolio. Although this is not usually described as a “third party” arrangement, the law treats it the same.

Contact your landlord attorney if there is a difference between who you work for, and who owns the property, and you cannot easily see that distinction in the way you enter leases (and other contracts, such as with vendors), so that you can address these subjects clearly and completely.

Quick Tip:

What’s in a name? Part II.

Last month, we recommended that purchasers of commercial or multi-family residential buildings (or the property management company for the new owner) focus on having the property owner’s legal name and appropriate legal designation correct in the master documents for the properties that you own or manage. It is especially important to ensure you are using the appropriate legal name consistently throughout master documents such as the lease, vendor contracts, marketing materials, and legal cases [click here to access last month’s article].

Since the release of last month’s article, we have experienced first hand how this issue can arise even where the ownership has “stayed the same.” Specifically, the owners (or at least the principal people or organizations owning the properties) have not changed, but some legal event has occurred that changed the ownership legal name.

For example, we have had clients report to us that the principals refinanced a property, and – as part of that transaction (for a variety of reasons) – also changed the ownership legal name to something similar, but different in a material way. For example, using the fictitious names from last month’s article, a property undergoing refinancing may have gone from “100 Accent Drive LP” to “100 Accent Drive LLC.” The principals involved wanted to keep the name similar, because of its descriptive nature (e.g., the property’s mailing address is 100 Accent Drive), while reflecting that a completely different legal entity now owned the property.

Keep in mind that a name change can occur for many reasons:

• A larger company may decide to reorganize its operating structure – requiring an owner legal name change.
• This same large corporation may undergo restructurings, where they shift assets from one ownership entity to another.
• A company may move all of its commercial assets into one entity, while using another entity for its residential complexes.
• An owner with multiple buildings in one entity may decide to place each property in a unique ownership entity.

All viable occurrences that could propagate a legal name change.

Regardless of the reason, owner legal name changes occur often, and it is well worth a few hours of your time to ensure that you have the information correct throughout all of your documents. As we mentioned in last month’s article, the best way to get confirmation is in writing (or by email) – phone calls are notoriously ineffective for confirming an owner’s legal name.

Contact your landlord attorney if you are having trouble nailing down the correct owner legal name, or if a change to that name was not completely disseminated throughout the organization or master documents, so that you can address these subjects clearly and completely.

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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.