Practice Pointers: Business Organization Issues in Landlord/Tenant Law

Landlord/tenant issues are often affected by the particular type of business organization involved in these matters.  

A landlord is either a sole proprietor or a business organization, most often a limited liability company (“LLC”) or corporation.  A sole proprietor does business in his or her name.  This is common for many residential landlords, who often are renting a unit in their home.  As a sole proprietor, the landlord personally enters into leases with the tenants and reports any rental income on their individual taxes.

One of the main drawbacks about being a sole proprietor is that the landlord is personally liable for anything that occurs as part of the landlord/tenant business.  For example, if a tenant were injured and the landlord was at fault, the landlord would be personally liable for these damages.  For this reason, landlords should consider putting their landlord/tenant business into an LLC or corporation.  Not only does this protect the landlord, it also may offer several tax advantages as well.  Landlords should consult both a business attorney and tax adviser to determine if this is the right fit for them.

Tenants need to know what type of landlord they have when dealing with a landlord/tenant matter.  This is particularly important when determining who to bring to court for a landlord/tenant case.  If the landlord is an LLC or corporation, the tenant needs to serve the businesses’s registered agent (which can be found on the Secretary of State’s website).  A registered agent is a business or individual designated to receive notice of a lawsuit, and the tenant should include the registered agent in any demand letter or legal papers sent to the landlord.

The type of business organization for a landlord is also important for court proceedings.  With the exception of small claims court, an LLC or corporation must be represented by an attorney in court.  For this reason, landlords organized as LLCs or corporations need to obtain legal counsel before bringing an eviction or other lawsuit against tenants.  Tenants, in turn, should make certain that their landlord is represented by a licensed attorney in court.