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<p>That is not a problem, in the lease, you can specify who will be living there and it will require an amendment to have others to stay there.
Thumper is right, I should only entertain these risks if I really like the tenants and I should some how protect myself.</p>
<p>Regarding my roles in the property. Even thought my name is not on the title, but basically I am fully in charge, my mom is not capable to deal with her financials any more.</p>
<p>Keep your thoughts coming.</p>
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<p>At the very least, I would charge market rent! They shouldn’t have a problem with it if they’re going to be using the rent as a tax deduction.</p>
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<p>Maybe if they run the numbers, they’ll find that they don’t come out ahead at all. Market rent now and that same rent will hold throughout the next three years–that could be a deal that the corporation would find a good one.</p>
<p>Although mommaj has a good point–good tenants are golden…you don’t want to be penny-wise and pound foolish.</p>
<p>Check with a real estate attorney to ensure that a corporation can legally rent the place. If the house is zoned in a single-family residential area, it could be a zoning violation to rent to a corporation.</p>
<p>An LLC would be just as liable for the rent as an individual. It’s a legal contract. It’s up to the IRS and an accountant to determine if the rent is a legitimate business expense or not.</p>
<p>You can put escalator clauses in a three-year lease. (Year 1 rent is: XXX, year 2 rent is XXX plus 100, etc.)</p>
<p>My question would be: have you gotten credit references on the LLC? If you haven’t, do that. (We own an LLC; we supply credit references for all kinds of things, regularly.)</p>
<p>They are elderly, correct? What if one of them dies and the other can’t afford the rent or simply wants to walk away from the long term lease and live in a smaller place? And who do you go after if the LLC is an adult child who can then as you said dissolve the LLC? There is nothing in this for you. It sounds like something the son cooked up to give them a way out. Say no. Say you have offered them discounted rent and the opportunity for a long term lease, but you will not change the reerms of the tenant named on the lease. Besides, you would then have to run a credit check on the son and the LLC, and if it doesnt pass muster you might have to decline to renew them. Do you want to do that? No. So say sorry, no can do. Resign on the lease as the tenants. And build in a slight escalation in rent with each year.</p>
<p>I think this is very regional specific as to the laws of the area. However, we did this, it went south and we were left with very little recourse. Our tenants also made a case how for tax reasons their company pays their rent and the company needed to be the leasee. Well, the business went south, as many do these days, and they stopped paying rent. It got very nasty, but in the end after they moved out we tried to sue for back rent and damages (a lot of damages). It was VERY hard to go after the corp, we basically had to “pierce the corporate veil” and show they were personally responsible. 18 months later and we are still in court…</p>
<p>Don’t do it.</p>
<p>geogirl, Your experience is my major concern. </p>
<p>We have a Million plus house. A tenant can do a lot of damages if they want. While I don’t think these two will do, but I have to think about it. The coproration, no matter how good of rating they have now, could disappear any time and we will have difficulties to tract it down.</p>
<p>OTOH, there is a risk either way. The individuals could disappear without a trace also. The next door neighbor had that a few years ago, the Tenants just packup one day in the middle of the lease and disappeared without trace. They of course forfited the deposit, but the landlord did not even know they have moved out, so when she did, it was a few weeks later.</p>
<p>When you have a good tenant, it is golden, when you have a bad one, you have to prepare for it. It is PITA to be a lanlord, and the risk comes with the job. I will take less in exchange for good tenants.</p>
<p>Artlovers,
You are in the drivers seat. It is your house. You make the rules when it comes to the leasing agreement. You simply tell them that you are happy to renew a lease with them and you are pleased to offer this to them as they have been good tenants, but your lease will need to be with THEM, not a third party. Period. You have a responsibility as the trustee of the trust to manage the property appropriately. You simply tell them that you cannot offer a lease to a third party. End of discussion.</p>
<p>Just say no.</p>
<p>Again, all the concerns raised above are eliminated if the tenants personally guarantee the lease and the lease specifies that the landlord must approve who occupies the place. Everyone is making much too much of a pretty simple situation. OP values these tenants, and can keep them with no more risk than he currently has. No brainer.</p>
<p>What happens if their son tells them not to? Just wondering…</p>
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As an attorney with some experience in real estate, I can tell you that very little about this situation is simple. Zoning, land use, commercial v personal real estate issues are all involved. Not to mention the fact that, since the OP knows that part of the reason for this arrangement is to obtain tax benefits, the OP could (not likely, but possible) be complicit in tax fraud.</p>
<p>OP, talk to an experience real estate and tax attorney before signing anything.</p>
<p>Well, as an attorney with some real estate experience, I respectfully disagree that there are any sunstantive issues here. The property is being used as a residence (that should of course be specified in the lease), presumably the permitted usage under the zoning laws. It’s completely over the top to think that OP could have any tax fraud exposure, since he has no actual knowledge of the purpose of the arrangement, its details, or its tax implications. But certainly the OP should not hesitate to seek local legal advice for comfort, and ask the tenants to foot the bill, since the change is at their instigation. As a landlord, I know how precious a good tenant is, and how daunting it is to find a replacement, so understand that OP would like to find a way to make this happen.</p>
<p>Well, thank you all for your participation in the discussion. your inputs are invaluable to me and I am really glad I posted this issue here.
I just had a long discussion with the tenants. I told them if they want the corporate on to the lease, I need to:</p>
<ol>
<li>raise the rent to market.</li>
<li>They have to put down 4 months of deposit(a substaintial amount).</li>
<li>They have to be personally guaranteeing the lease. (as suggested by mommaj.</li>
<li>Any breach of lease by tenants, two months of rent in the deposit will be forfited, before the damages have been accounted for.</li>
</ol>
<p>They ended up backing off the request and are willing to sign a personal lease where they are the lessee.</p>
<p>It turned out that IRS will NOT let them go if ANY ONE of their name is one the lease, regardless if the lessee is a corporation or not. A Personal Guarantee will put their name on the lease. I won’t lease to them with a bare corporate lease without naming the tenants anyway. </p>
<p>In my mind in a true corporate situation, a Corporation, such as Apple Computer, can lease a SFR resident and let the executive live there, it is common place. But at the end of year the value of the housing will be either included in their salary or a 1099 is going to be issued.</p>
<p>I told my tenants, I would sign the lease yesterday if Apple Computer was the lessee. :)</p>
<p>Aren’t LLCs a pass-through entity for tax purposes, but a corporation from a legal perspective (limited liability corporation). If so, there is really no tax dodge going on here. </p>
<p>I started my career in local banking and it was standard we had the owners of the company to add personal guarantees as part of the loan documentation package.</p>
<p>Glad it is all working out. I thought they might be testing the waters with you. You gave them your terms…and they agreed to them. Good outcome!</p>
<p>Yes, NJmom, it is. However, in this case, it is the tenants Son’s company, not my Tenants’. The tax dodging intent was obvious. Had I sign the lease with the corporation, without naming a tenant. The next day, their son could close the corporation and I have no recourse any more. In Cal. you need 60 or 90 day notice to a tenant that lived in your premises more than a year to START the eviction process (Unlawful Detainer law suit). If so, I may hold the bag for longer than I would like.</p>
<p>Artloversplus, there are numerous incorrect assumptions on your part re California landlord/tenant laws. It would be helpful for you to take a good look at this:
[Landlord/Tenant</a> Book Index - California Department of Consumer Affairs](<a href=“http://www.dca.ca.gov/publications/landlordbook/index.shtml]Landlord/Tenant”>http://www.dca.ca.gov/publications/landlordbook/index.shtml)</p>
<p>One thing you need to know is that it is illegal to require more than 2 months security deposit, unless the unit is furnished, in which case it would be 3 months. What you were asking for from these tenants is not allowed under California law. Also, an unlawful detainer can be started after giving 3-day notice to pay (or to “cure the violation” or quit. A 3-day notice can be given the day after rent is due (provided you are using a standard lease, which states that rent is due on a particular day, usually the 1st). Then, the 3 days begin the next day, giving a total of 5 days. Then, you can start eviction proceedings. The 60 day notice refers to the notice needed to change the terms of the rental agreement (not a lease–you can’t change terms of a valid lease) or to ask them to move out. But, if they fail to pay rent or are violating the terms of the lease or rental agreement, then you give a 3-day notice to pay or cure violations. If you are going to be managing this property, I urge you to familiarize yourself with the laws, to protect yourself and the property. If you proceed incorrectly, you could create problems for yourself. There are required disclosures about possible lead paint, required smoke and carbon-monoxide detectors and more. You might want to buy this book:
[The</a> California Landlord’s Law Book - Legal Book - Nolo](<a href=“http://www.nolo.com/products/the-california-landlords-law-book-LBRT.html]The”>The California Landlord's Law Book - Legal Book - Nolo)</p>
<p>Good luck, it sounds like you’ve solved the immediate problem, and hopefully these tenants will pay on time and take care of the property. Still, I don’t see why you don’t charge market rent. This is a business.</p>
<p>sopramom,</p>
<p>Yes, I probably should be more knowledgeable in terms of deposits.</p>
<p>However, other than 3 day notices. There are other requiements on evictions.</p>
<p>[ExpressEvictions.com</a> - FAQ](<a href=“http://www.expressevictions.com/faq.php]ExpressEvictions.com”>Frequently Asked Questions | Eviction Questions | Express Evictions)</p>
<p>I am in the process of an Unlawful Detainer law suit so I think I know it better.</p>
<p>In my state, we are not permitted to keep any part of the sec dep merely as a penalty for breaking a lease- even if it is written into the contract as such. In our state, a LL can keep sec dep to make up for a loss due to a breach but not as an automatic penalty. I am sure laws vary by state.
If the unit is in Calif., according to the link 92mom provided, it would not be permitted to hold back sec dep merely as a penalty. There are legal reasons to withhold sec dep, and as an automatic penalty is not permitted.</p>