Legal Pitfalls for Real Estate Investors and How to Avoid Them

Legal Pitfalls for Real Estate Investors and How to Avoid Them

For real estate investors, legal pitfalls are many and varied. While a lot of lawsuits come against landlords or managers first, it certainly doesn’t mean the owner will be unaffected or not sued themselves.

• Liability: Unclear or Non-existent Contracts

As a real estate investor, you’re going to be dealing with a lot of contracts. From the lease agreement for tenants to deals and work-for-hire contracts to sellers and buyers, there’s a lot to go wrong. When these contracts fail to be as clear and thorough as possible, particularly when it comes to the lease agreement, there’s room for that lack of clarity and coverage to be exploited for a lawsuit.

Solution:

Never use a free contract template you found on the Internet. If you expect a contract to maximize protection and be favorable without being unfair, you’ve got to take the time out to draft one yourself. What makes a good contract? Leave no room for interpretation. Keep the language simple and professional, not needlessly complicated or intimidating. The more difficult a contract is to decipher, the more likely it is to be broken and the less likely it will hold up in court. Avoid making your contract one-sided; any extreme unfairness can also turn the jury against you in the event of a dispute. Remember, too, to take into consideration your local laws. You lease agreement may seem good, but if it’s at odds with tenant landlord law, it doesn’t matter. When drafting any legally binding document, real estate investors would do well to consult an attorney in the field. Having a solidly developed, thorough legal document is worth the time and cost.

Liability: Property Negligence

There are a lot of things that can go wrong with real estate that can be blamed on negligence. Granted, a lot of things can be claimed as negligence that aren’t actually true cases of negligence. Example: a tenant trying to sue for slipping and falling on the property during icy weather in a state where shoveling is not required of management by law.

Solution: Employ Reputable Property Management & Be Proactive

Find companies and individuals who have good reputations and work well with you Property management can make or break an investment property and they are essential to your success.

Topics: Real Estate Investment, Legal Duties, Liability

Work cited: Chris Clothier, September 25, 2015