Renter setting up LLC at private contractor?

4 Replies

BP-I am currently house hacking my first property (renting by the room in a townhome) and have a new tenant moving in next week. He just informed me today that he is setting up an LLC to be a consultant/private contractor for work. The lease agreement (obtained from a fellow house hacker in town) states the following (which said tenant agrees with all terms):

  1. USE OF PREMISES. No part of the Premises shall be used at any time during the term of this Colorado Lease Agreement by Tenant for the purpose of carrying on any business, profession, or trade of any kind. 

Is this something I need to forbade/is there any risk associated with him setting up his LLC as a tenant? On the surface, I don't see any major problems with allowing him to be employed as a private contractor. I don't believe he will be carrying out his business from my house, but just working for a company that will only hire him as a contractor and know it is common to set up an LLC. Am I missing something?

Did you ask him?  Why did he tell you this?  Is it because he may not have any employment as a new contractor so expect your rent to be late - or he will need to use the place as his business as well to get started?  He told you what he told you for a reason.  Go find out what it is and make sure he knows rent is due on the day due and that no business can be conducted on the premises (put it in writing).  

@Patricia Steiner thanks for the input. I know he is unemployed at the moment as he just finished grad school in Europe. I verified that he has ample liquidity in his bank account to pay rent and I am comfortable with it as he will be on month to month so I am not worried about non-payment. I don't think he will have people in and out of the house for business so mostly just worried about him using my address as the address of his LLC. Is that a valid concern?

I think it could be a concern for the owner of the property as it could affect his mortgage should an issue arise.  I would recommend he use his attorney/CPA's address or a family member's instead.  It's a great question you posed and I actually had to spend some time researching an answer - so I learned something new today too.  Thanks!