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Utah LLCs and Personal Liability – When Are Owners Liable?

Posted by Jeremy Shorts on January 18, 2010

What if I want to use my new company (“Best Tenants Ever, LLC”) to lease your property so my employees can live there while they are working on the job?  Being an attorney, I sign the lease as “Jeremy Shorts, on behalf of Best Tenants Ever, LLC”?  I claim to be the best tenant ever, but signing in this way means that my LLC, and not me individually, is responsible for performing on the lease.  This includes making monthly payments and other critical terms of the contract.  If rents are ever late (i.e. business is slow or the project closes down), your lawsuit would be against “Best Tenants Ever, LLC” and not Jeremy Shorts.  This situation has the potential to create serious problems if the lease goes into default.  As the landlord, there are simple things you can do to protect yourself.

Creating Personal Liability

Instead of having Best Tenants Ever, LLC liable for the lease, how do you also make me, Jeremy Shorts, personally responsible?  There are two main things to consider.  First, in addition to signing on behalf of my LLC, have me sign the lease in my personal capacity (i.e. do NOT let me write “Jeremy Shorts, on behalf of Best Tenants Ever, LLC”).  Second, in addition to the LLC signing the lease, have me sign a separate document (a Personal Guarantee) stating that I am personally liable to perform under the lease.  Either option creates the same result.  Anyone that signs the lease and those that sign a personal guarantee are obligated to fulfill the obligations of your lease.

Since you already have a lease agreement (if you don’t have one, Click Here for a free copy of mine), it is probably easier to have EVERYONE sign the lease.  There is no harm in obtaining signatures on the lease from: (1) Best Tenants Ever, LLC, (2) Jeremy Shorts personally, and (3) any other individuals who will be residing in your property.  As long as the lease allows for joint and severable liability (see paragraph 5 of my lease – Click Here), all parties or tenants on the lease are EACH 100% responsible to perform the tenant’s obligations under the lease.

Liability is a Two-Way Street

You can use this principal as a double edged sword.  When having tenants sign leases, take the above steps to ensure that they are personally responsible for all terms of your lease.  On the other hand, when you sign contracts or agreements related to your business, you should do what you can to avoid personal liability on your part.  Make sure that each signature clearly states that you’re signing on behalf of your LLC.  For example, you may sign your repair orders with your maintenance crew as “John Smith, on behalf of Million Dollar Rental Properties, LLC.”  Whenever you sign something, you should leave no doubt that it is your LLC (and not you personally) that is responsible for the contract.  If there’s ever any doubt, the owners of the business could be found personally liable for contracts.

Personal Liability Cannot be Forced

Entering into a contract is completely voluntary by both sides.  You cannot force me, as the owner of Best Tenants Ever, LLC, to sign the lease in my personal capacity.  Similarly, your maintenance crew cannot force you to sign contracts in your personal capacity if you are not willing to.  In these situations, the parties would simply part ways without having entered into a business relationship.

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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