Investor · Long Island, NY · Member since 2016 · 13 posts · 7 votes
We just recently created an LLC for a rental property that has some month to month tenants. Will this be a problem? Do I need to create a formal lease where the LLC is named as the building owner, or is it okay to keep it month to month and just make sure that the tenant write checks payable to the LLC?
Side question: If a tenant pays rent in cash, I would simply deposit this cash into the LLC bank account. On paper, it would be hard to differentiate whether this is a capital contribution or a rent payment. Does it matter? Do I need to do something so that the source of cash deposits is easily distinguishable?
@Joe Lee, if you have created the LLC and transferred ownership from yourself personally into the name of the LLC you should have the tenants sign a new contract. You can keep them month to month if you so choose, you do not need to have them sign a long term lease, but I would have a new rental agreement signed. Think about why you have created the LLC in the first place, for legal protection right? If someone gets hurt on your property and you are named on the lease agreement not the company they can go after you personally.
As far as your side question, if you are comfortable accepting cash from your tenants I would recommend getting a receipt book and keep a copy for yourself and issue a copy to the tenant.
You don't need to have them sign a whole new lease. You can update the current terms with a simple Addendum that highlights what information is being updated (landlord name, term, etc). (Post Edited to Remove Solicitation)
As far as cash payments, they can easily pay with a cashier's check made payable to the LLC or you can just offer a receipt for the payment and deposit into your LLC account.
I've always hated cash payments, but fair housing requires non-discrimination for source of funds and payments, so being remote, I get MoneyGrams or cashier's checks.
Payments always to to the name of the lessor signing the lease, so if you want the LLC to see income, then the lease needs to be in that name and the payments directly to that account.
Since the parties to the agreement are changing, I don't think an addendum to the existing lease is the proper vehicle. Since signatures of all parties to the agreement are required anyway, why not just get a new lease form in place.
It looks like the general consensus is to formalize month to month tenants in a lease or general contract naming the LLC as the landlord.
Having a receipt book seems to be a good idea - that way there is a paper trail of all rent payments that are made in cash. I don't think asking the cash tenants to pull cashier's checks or money orders will go over well with them.
Since the parties to the agreement are changing, I don't think an addendum to the existing lease is the proper vehicle. Since signatures of all parties to the agreement are required anyway, why not just get a new lease form in place.
Depends entirely on local law; as most lease rights are assignable without executing a new lease. The correct answer is as follows;
Talk with an attorney licensed to practice in your jurisdiction on these matters.