Holdings LLC and Properties LLC - Philly Rental License

Investor · Miami, FL · Member since 2019 · 2 posts · 1 vote

Per my accountant's guidance, he suggested I set up two LLCs for liability reasons. A holding company that owns the assets and another that deals with PM/tenant activity. On the deed, TABS Holdings LLC owns the property. I applied for a rental license in Philly with TABS Properties which is the entity that deals with the PM/tenant, rehab, and rental collection. The city came back and said the rental license needs to match the entity on the deed. Is there any way around this? Will this open us up to litigation if a tenant wants to sue in the future?

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Stuart UdisPro Member

Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes

This seems to be overkill. Ultimately, if there is a legal dispute whether or not there is merit to the claim, the plaintiff's counsel will bring in whomever they feel warrants being named a defendant. The deed holder will be on the top of the list. Having an LLC that owns one property and a separate LLC that handles the PM and Tenant activities is the clearest case of an alter ego and will be quite easy for a plaintiffs attorney to break through to the deed holder entity which seems to be your objective. The best advice I can offer is to keep your rental license active, sign contracts each and every time you engage a vendor/independent contractor, make sure you have appropriate levels of insurance, and make sure any vendors/independent contractors you engage is properly insured and list you as additional insured. Perform these steps consistently and you will avoid far more liability than creating shell LLC's (and save money on unnecessary tax preparation services).

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Stuart UdisPro Member
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
2y
This seems to be overkill. Ultimately, if there is a legal dispute whether or not there is merit to the claim, the plaintiff's counsel will bring in whomever they feel warrants being named a defendant. The deed holder will be on the top of the list. Having an LLC that owns one property and a separate LLC that handles the PM and Tenant activities is the clearest case of an alter ego and will be quite easy for a plaintiffs attorney to break through to the deed holder entity which seems to be your objective. The best advice I can offer is to keep your rental license active, sign contracts each and every time you engage a vendor/independent contractor, make sure you have appropriate levels of insurance, and make sure any vendors/independent contractors you engage is properly insured and list you as additional insured. Perform these steps consistently and you will avoid far more liability than creating shell LLC's (and save money on unnecessary tax preparation services).

[email protected]
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Carrie Matuga
Lender · Riverside, CA · Member since 2017 · 248 posts · 98 votes
2y
I'm an investor in Philly. Do it exactly as the city asks. If things are not perfect, if you ever have an issue with a tenant your case will automatically be thrown out and judgement for the tenant. As it is, even if things are perfect, it takes a LONG time to get a tenant evicted in Philly. Reach out if you want to talk more.
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Jay ThomasPro Member
Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
2y
Unfortunately, the city is correct in requiring the rental license to match the entity on the deed. This is a common requirement to ensure transparency and accountability for property ownership and management.
While your decision to establish separate LLCs for liability protection is a prudent one, it's crucial to understand that this may not provide absolute immunity from litigation if the city discovers the discrepancy. Operating each LLC independently is essential to avoid the risk of piercing the corporate veil, potentially resulting in personal liability. Violating the city's licensing requirements could lead to fines, penalties, or even the revocation of your rental license, causing disruptions to your business and harm to your reputation. It's strongly recommended to synchronize your rental license with the deed entity, specifically TABS Holdings LLC, to adhere to regulations and mitigate potential legal risks. Exploring options such as amending the deed or dissolving TABS Properties LLC, and seeking legal advice for a tailored approach, is advisable. Taking proactive steps to ensure compliance is vital to prevent potential legal complications in the future.
[email protected]832-889-5607
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Greg Kasmer
Rental Property Investor · Philadelphia, PA · Member since 2021 · 778 posts · 504 votes
2y
Tabitha - I can share that the towns in the suburbs would like the property owner to be on the application, AND, in some cases, would like the personal information of the managing members of the LLC, not just the LLC information. I try and not provide personal information and keep that close to the vest, but I do provide information related to the LLC that owns the house. Good Luck!
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Tabitha Alvarado
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Investor · Miami, FL · Member since 2019 · 2 posts · 1 vote
2y
@Stuart Udis,@Carrie Matuga, @Jay Thomas, and @Greg Kasmer thank you so much for your quick response. I really appreciate your insight. I was able to connect with a Philly RE attorney yesterday and he shared, "The city used to let owners apply using the Properties LLC. However, they recently made a change where all rental licenses in Philly need to match the name on the deed which, would be the holdings LLC." I hope this thread helps future investors in Philly :)
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Steven Goldman
Lender · PA · Member since 2019 · 535 posts · 461 votes
2y
Quote from @Tabitha Alvarado:

@Stuart Udis,@Carrie Matuga, @Jay Thomas, and @Greg Kasmer thank you so much for your quick response. I really appreciate your insight. I was able to connect with a Philly RE attorney yesterday and he shared, "The city used to let owners apply using the Properties LLC. However, they recently made a change where all rental licenses in Philly need to match the name on the deed which, would be the holdings LLC." I hope this thread helps future investors in Philly :)
I can tell you from experience that in the City of Philadelphia you are best to always research the city ordinances as they relate to your project before you decide to purchase a turn key, rehab. or ground up. If you are going to do any significant renovations and you are not an owner occupier you are required to use a contractor who is licensed in the city. Many negative practices have been spawned by this requirement. Some contractors use other contractors licenses. It is important to build a team of experienced and licensed in Philadelphia. I recommend that you use a architect any time you are going to make a significant change to a property and make sure you select the architect not your contractor. The architect should assist not only in the planning but also in the contracting to avoid unnecessary disputes. We recommend they perform periodic inspections of ground up construction to insure the contractor is building in accordance with the specification. L & I in Philadelphia strictly enforces their code and if your as built is in variance with your submitted plans a torturous procedure requires you to submit modified plans and have them approved before the next necessary inspection. Time consuming and expensive. Your success will depend on your research, planning, execution and efficiency.
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Alan AsriantsBusiness Member
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
2y
Hey Tabitha, the rental license needs to be tied to the owner of the property. We have a management company and all of our clients have a rental license under their names and designated us as a managing partner.
[email protected]267-767-0111
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