Should I Employ an Attorney to Assist My Real Estate Business?

David A. Zobel

By David A. Zobel



Part 12 of a 12-part series by David A. Zobel on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Honestly, it just depends.

For many business owners, employing an attorney may seem like a costly and unnecessary burden. After all, draft formation documents and leases, as well as real estate tips, are available on the internet. No statutory requirement exists in Missouri to employ an attorney to form and operate your business (though, as we discussed in Litigation Considerations, you will likely need to hire an attorney to represent your company in court).

For others, engaging counsel throughout the formation and operation of their company is a critical tool to ensuring the success of their business venture. No attorney can predict, prevent, and avoid all troubles which might affect your business. However, an attorney in the real estate industry (like other industry professionals) may be more likely to identify and help you avoid pitfalls that he or she has seen in past experiences, more knowledgeable as to what tax or management strategy may be best as your company grows, and more apprised of ever changing statutes, regulations and trends. For business owners who see value in those matters, it may make more sense to consult with counsel.

While it may seem counter-intuitive, speaking with an attorney may actually help you determine whether you may want or need an attorney. Remember that while you can put an attorney on retainer, you are certainly permitted to seek advice and assistance from an attorney when issues arise.

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This post is part of a series designed to help folks understand and navigate the various pitfalls and legal considerations of real estate leasing. If you would like assistance with forming or operating your business or to address a specific issue confronting your company, one of our experienced real estate attorneys would love to meet with you.

If you would like to go back and re-read any of our earlier posts, you can find links below.

Introduction
Part 1: Do I Need a Legal Entity?
Part 2: What Type of Legal Entities are Available?
Part 3: Tax Treatment Considerations When Selecting Your Entity
Part 4: Your Entity’s Governing Documents
Part 5: Operational Considerations – Purchasing Real Estate – Title Insurance
Part 6: Operational Considerations – Purchasing Real Estate – Indenture Review
Part 7: Operational Considerations – Purchasing Real Estate – Loan Documentation
Part 8: Observing Corporate Formalities
Part 9: Insurance Considerations
Part 10: Drafting the Right Lease Agreement
Part 11: Litigation Considerations
Part 12: Should I Employ an Attorney to Assist my Real Estate Business?

Litigation Considerations

David A. Zobel

By David A. Zobel



Part 11 of a 12-part series by David A. Zobel on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Whether you encounter a tenant who breaches your lease, a contractor who improperly repairs your property, or an individual injured on your property, at some point your company may be faced with the need to pursue or defend against a lawsuit. It is important to understand what your company should consider when it comes to our court system.

What type of paperwork do you have?

The first item to consider when an issue arises is whether the issue is documented.

  • If your contractor failed to properly repair the property, do you have a copy of your contract? What about pictures of the repairs?
  • Regarding tenant disputes, were your discussions and agreements in writing or, if initially in person or over the phone, did you follow-up with a letter memorializing your discussion? Do you have a copy of any demands for unpaid rent or to do/cease doing some activity?
  • Regarding an accident at the property, did you have warnings in place or written rules concerning the source of the accident?

What type of documentation was in place at the time the issue arose and what you have available will be crucial in evaluating whether and how to proceed with a lawsuit, what defenses are available, and whether settlement may be appropriate if your company is served with a court summons.

You will likely need to retain an attorney to represent the company in court. Continue reading »

Drafting the Right Lease Agreement

David A. Zobel

By David A. Zobel



Authored by David A. Zobel with contribution from James M. Heffner

Part 10 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Congratulations, you have a space to lease and someone interested in leasing it. Now you need to define the rules and requirements which will control the relationship between you, as landlord, and the tenant – you need to draft a lease. (Of note, it is possible to have an unwritten or oral lease, but we strongly discourage that practice as it significantly increases the likelihood you’ll end up in court with a tenant arguing who is responsible for what and when). This could be the starting point for a one-year, 10-year, or longer relationship with your tenant, so it is important that everyone understand the parties’ respective rights and obligations from the outset.

The full scope of items you might or should consider incorporating into your lease will depend upon many factors, including the nature of your property and whether your tenancy is residential or commercial. Here are a few items to consider, regardless of your company’s particular circumstances.

  1. Identify and Include the Appropriate Parties.

Landlords: The lease should identify your company as the landlord and the party to whom rent should be payable. If you operate several companies which each own a leased property and you set up another company to manage those companies (streamlining rent and other issues), please ensure you have a written property management agreement in place between your two companies and each tenant lease identifies and distinguishes each of your company’s roles.

Tenants: If your company is leasing residentially, ensure that everyone that is going to live at your property is made a party to the lease so they can be made jointly responsible for the lease’s requirements. Co-signers (often parents of the individual tenants) should also be properly identified and required to sign the lease. If your tenant happens to be another company, you may want to consider requiring the managers or members of that company to sign a personal guaranty – depending on how secure you feel that the company will fulfill the obligations of your lease. Continue reading »

Insurance Considerations

David A. Zobel

By David A. Zobel



Authored by David A. Zobel with contribution from Michael J. McKitrick

Part 9 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

As a caveat to this discussion on insurance, we recommend that you consult with an independent insurance agent/broker to ensure that you obtain the most appropriate type and extent of insurance coverage that your specific business will need.

Having said that, there are some general insurance issues every residential or commercial leasing business should consider.

First, foremost, and fundamentally – don’t skip over insurance and do not assume your personal policies will cover your company’s property or operations.  Most personal policies do not cover businesses. Continue reading »

Observing Corporate Formalities

David A. Zobel

By David A. Zobel



Written by David A. Zobel  with contribution from Jeffrey R. Schmitt

Part 8 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

It is absolutely critical to keep in mind at all times that your limited liability company or corporation is not an alter ego or simply an extension of yourself. The entity’s bank account cannot be used as your personal bank account, you should not use the entity’s  money to cover personal debts, and, in general, your personal assets should not be relied on to continually cover your entity’s debts. This is true even if you are the sole member or shareholder. The entity is and must be treated as a separate “person” from yourself, with its own assets, activities, and representations.

Keeping that distance is often referred to as observing corporate formalities. Failing to do so can remove the very asset protections that your legal entity was designed to impart. Each business model is different and all necessary formalities cannot be listed for each company, but below are some general guidelines for observing the necessary formalities. Continue reading »

Recent Tax Sale Emphasizes Importance of Periodic Review of Your Entity’s Registered Agent and Contact Information

David A. Zobel

By David A. Zobel



A recent turn of events in a San Francisco neighborhood should prompt you and your entity to confirm that your contact information is up-to-date. As reported by the San Francisco Chronicle, residents of a private street, lined with multi-million dollar homes, recently learned that their street had been purchased by real estate investors at a tax sale after the homeowner’s association failed to pay its annual $14 property tax bill for several decades. The association claimed it was unaware of its tax obligations because the county tax bills were apparently sent to the address of a former accountant who hadn’t worked for the homeowners since the 1980s. The residents have filed a lawsuit seeking to undo the tax sale and while their success in that endeavor is uncertain, two things are certainly true—this was a costly and completely avoidable mistake.

While it is prudent to review all of your entity’s contact information to make sure creditors, vendors, and others can easily and consistently communicate with your entity, there are two specific records that are critically important—the contact information of your registered agent and the mailing address for your local real estate taxes. Continue reading »

Operational Considerations – Purchasing Real Estate – Loan Documentation

David A. Zobel

By David A. Zobel



Written by David A. Zobel with contribution from James M. Heffner

Part 7 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Once you’ve established your legal entity, the next step will be purchase the real estate you wish to lease (or invest in). The type of real estate which will be appropriate for your business will vary depending on a number of factors, including your location, level of investment, and potential tenant base. Not surprisingly, thorough research, inspections, and planning are critical to ensuring success. In this series of posts, we’re outlining several important issues when selecting a property to purchase: title insurance, indenture review, and ensuring appropriate loan documentation.

A Note on Loan Documentation

If you purchase your property with cash, you can skip over this section. However, if you are going to seek a loan from a traditional lender, you will want to make sure the loan is properly documented. This includes, to the extent possible, working with your lender to ensure the business entity (not the members/shareholders) is listed on the loan documents. Ideally, your entity will be listed as the borrower on the promissory note and the grantor of the deed of trust (mortgage) on the property to be acquired by your entity. This helps to distinguish the transaction as one of the business rather than that of the members and shareholders personally. Every lender is different and will have its own lending requirements.

As a side note, it is becoming increasingly common for real estate transactions to involve some form of tax credits as the credits can be critical in ensuring the economic success of a particular deal. The principles above concerning appropriate loan documentation are also applicable to seeking and securing tax credits.

Personal Guarantees and the Lender Exception to Asset Protection

When you seek a loan in the name of your company, the lender may still request the principals of the acquiring entity to personally guarantee the loan. This will be more likely the case with new entities, entities without other assets, and where the debt to equity ratio of the loan to property value is high. A personal guaranty of the principals helps assure the lender that if the company fails to pay the promissory note, the lender can still seek repayment from the individual(s) that caused the company to get the loan. Continue reading »

Operational Considerations – Purchasing Real Estate – Indenture Review

David A. Zobel

By David A. Zobel



Written by David A. Zobel  with contribution from Jeffrey R. Schmitt

Part 6 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Once you’ve established your legal entity, the next step will be purchase the real estate you wish to lease (or invest in). The type of real estate which will be appropriate for your business will vary depending on a number of factors, including your location, level of investment, and potential tenant base. Not surprisingly, thorough research, inspections, and planning are critical to ensuring success. In this series of posts, we’re outlining several important issues to consider when purchasing a property: title insurance, indenture review, and ensuring appropriate loan documentation.

Indenture Review

Most title searches will disclose that the property you are purchasing is subject to certain local rules and agreements between neighbors. The terms used for these neighbor agreements will vary depending on the nature of the property. Condominiums are subject to declarations and by-laws while houses are typically subject to neighborhood or subdivision indentures. (For simplicity, we’ll refer to all of these agreements as indentures.) Continue reading »

Operational Considerations – Purchasing Real Estate – Title Insurance

David A. Zobel

By David A. Zobel



Part 5 of a 12-part series by David A. Zobel on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Once you’ve established your legal entity, the next step will be to purchase the real estate you wish to lease (or invest in). The appropriate type of real estate for your business will vary depending on a number of factors, including your location, level of investment, and potential tenant base. Not surprisingly, thorough research, inspections, and planning are critical to ensuring success. In this and the next two posts in this series, we’ll outline several important issues at this juncture: title insurance, indenture review, and ensuring appropriate loan documentation.

Title Insurance

When you purchase real estate you may be purchasing more (and maybe less) than the land and improvements you actually see. The land is likely encumbered by third parties who may have rights (possibly superior to your rights) to your land which could restrict your use and ownership in various ways. Encumbrances can be minor, such as a minimum set-back restrictions simply preventing owners from building up to a property line, but others can be more severe, such as utility or access easements, and even unreleased mortgages and liens – requiring the purchaser to pay up or lose the property. Continue reading »

Your Entity’s Governing Documents

David A. Zobel

By David A. Zobel



Authored by David A. Zobel with contribution from Michael J. McKitrick

Part 4 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Simply put, every company should have an agreed-upon, written set of rules identifying how the company is to be run and by whom. The names for these sets of rules vary depending upon the type of entity you have, e.g. operating agreements, partnership agreements, and shareholder agreements, but they are generally known as the company’s governing documents.

Common issues described and controlled by these governing documents include:

  • Ownership structure of the company including the source and amount of owner contributions)
  • Capital contributions and division of profits and losses
  • Roles and restrictions of the owners in managing the company
  • Decision-making process for the company including notice and voting procedures
  • How and where the company’s books and records will be kept
  • Policy regarding transfer of owner interests
  • Dispute resolution
  • Wind up and dissolution of the company

Additionally, if certain owners make special agreements with the company, including arrangements for the company to use an owner’s vehicles, tools, or other personal property, the nature and scope of those arrangements should be stated in a written, signed agreement. This helps avoid confusion as to the extent of company assets and observance of corporate formalities. Continue reading »