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Landlords & LLCs – Why You Should Create One

Posted by Jeremy Shorts on December 31, 2009

Opening Disclaimer & Warning

In this post I discuss the benefits of setting up a business entity which will hold title to rental properties and rental contracts.  There are clear benefits for doing so, but it is absolutely critical  to have the help of a professional as you work through these issues.  If these transfers are not done properly, you can create significant problems.  For example, by transferring title to a property into your LLC you can void your title insurance policy and/or cause your mortgage to go into default.  These issues can be worked through, but it is important that you have an attorney handle these critical aspects to ensure that additional problems do not arise.

Should You Set Up An LLC?

Many landlords are curious about whether they should set up an LLC (or another business entity) to hold their rental properties.  There are a few significant reasons why I always encourage clients with rental properties to do this.

Lawsuits & Liabilities

Any accidents or injuries suffered by your tenants or their guests create potential liability for the owner of the property.  If the property is owned by the landlord in their personal name, the landlord has personal exposure to a lawsuit.  If the property is owned by a business entity, much of the risks and liabilities are shifted to the business entity.  This provides an extra layer of protection and piece of mind for landlords.

Also, if the lease agreement is in the landlord’s name (as opposed to their LLC) then any lawsuit based on the rental agreement (i.e. eviction proceedings), will have to include the landlord personally.  Even if the landlord is the plaintiff of the lawsuit, most clients would rather have a business entity listed in the lawsuit to provide extra distance to any potential legal issues.

Financial Considerations

If a lawsuit develops, the landlord can suffer significant credit issues that may have been avoidable.  Through Utah Lawyer Loans, I often counsel clients as they refinance or purchase properties.  During the loan application, all borrowers must state whether they are a party to any lawsuits.  Stating YES on this question can easily throw the entire loan process into a tailspin.  Creating a proper business entity can help to protect and shield a landlord from some of these issues.

Timing is Everything

As you’ve read this,  if you thought to yourself – “I should set up an LLC,” it’s important to take the steps now to protect yourself.  It is too late to take meaningful action after your tenant is injured or after you need to evict a tenant.  There’s no better time than now.  Contact me for a free consultation.

Visit my website for free rental contracts and eviction forms: www.utahevictionlaw.com
Contact me for a free consultation.
Jeremy Shorts – Attorney at Law
Phone: 801-610-9879
Email: jeremy@utahevictionlaw.com


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