All Forum Posts by: Keith Barton

If providing a discount is what you want to do, why not consider 3 different price points:
1) the contract amount for rent due on the 1st of the month (e.g., $500);
2) a discounted payment for paying at least 3 or 5 days early (e.g. $475); and,
3) a late payment fee

Don't worry about whether or not a late fee is collectible. As long as there is no law in your jurisdiction that you are not allowed to charge a late payment fee, if it is in the contract and it is not done, that is a breach of contract and you can use that to evict the tenant if you want - even if the court won't let you collect it.

Giving a discount for paying rent on time can mess up the legal terms of the rent. Tenants are obligated to pay on time. Granting a discount for paying on time simply means the true monthly rent is the discounted price. Giving a discount for early payment of rent actually involves consideration (exchanging something of value for something of value) on the part of both the landlord and tenant. This does not screw up the regular rent due on the 1st.

Giving a discount for early payment sets up a psychological incentive to pay on time. For some reason, people often are much more motivated by saving money than by losing money.

An example (just for information purposes only) of some very basic language for the early rent discount might go something like:

Section x.y Early Payment of Rent
In consideration for Tenant's early payment of rent on or before the 27th of the month prior to the month for which rent is due, Landlord shall accept discounted rent under the terms of this Section x.x in the amount of Four Hundred Seventy Five Dollars ($475).

David Krulac
"But say they did not realize the extent of their injuries, for what ever reason until the 2 years expired, they may be entitled to file a suit up to 2 years after they discovered the injury."

That is not laches. The issue you discuss concerns the tolling of the statute of limitations: the countdown for the statute of limitations may be suspended for some reason. An event may occur on January 1, 2012; however, certain information is not learned until June 1, 2012. The delay in learning some critical information may toll the statute of limitations until June 1, 2012 (i.e., the statute of limitations will expire June 1, 2014)

Richard Sanderson
Thank you for giving information about how other states treat sales for assessment purposes. My guess is (since I haven't researched the matter) that County Auditors in Ohio are probably not supposed to use a transfer price automatically as the property's assessed value, but there frequently seems to be an awefully suspicious coincidence between the assessed value and a recent sale of property....

David Krulac I asked as my reading of your statement seemed to indicate that the statute of limitations may be longer than expected because of laches -- when the time frame to bring a claim could potentially be reduced because of laches.

Jon Motsenbocker LLCs are usually preferred if you plan to own real estate in the name of the business. If you have enough property and you are a landlord, it may make sense to use a combination off LLC and corporation: one or more LLCs to own the properties, and a corporation to provide rental property management services. It's usually a good idea to consult with a local professional unless you are very confident/comfortable in your knowledge of the issues involved.

David Krulac Can you elaborate on your use of the word "laches" in your post?

Laches is a technical legal term that refers to delaying an unreasonable amount of time before bringing a legal claim for a cause of action. Further, it is usually raised a defense against a legal claim wherein the statute of limitations has not yet expired.

For example, a breach of contract claim in Ohio used to have a statute of limitation of 15 years (recently reduced to 8 years, but let's assume it's still 15). Plaintiff (buyer) brings a legal claim against defendant (seller) for breach of contract because seller removed a fixture from the property that was supposed to stay with the property. Plaintiff bought the property 12 years ago, and sold it 10 years ago. The claim is still within the 15 year statute of limitations. However, the defendant can use the defense of Laches to potentially avoid liability under the claim. Why would the plaintiff wait 10 years after he sold the property (12 years after buying) to make a claim? He no longer owns the property, etc.... While there may be a reasonable explanation for the delay, if there is no reasonable explanation for the delay, the court may side with the defendant.

John Trout
1) Typically, real estate transfer taxes are assessed when the transfer of the deed to the property is processed by the county. Therefore, if you do not transfer the deed to a property (e.g., because the deed is held by an LLC and you purchase the LLC and continue to operate the LLC under the same name...) you may not have to pay the real estate transfer tax for acquiring that property under the LLC.
[HOWEVER, as Steve Babiak pointed out - any state can alter those rules to close a loophole (in this case PA, I don't know if any other states do this or not.)]

2) The county often re-assesses the tax value of property when it is sold. If you acquire the property by purchasing the LLC and no deed transfer takes place, there will be no reassessment because of a deed transfer. However, the county uses a certain schedule in assessing the tax value of properties. Therefore, a property acquired in this way could be reassessed anyway, just according to schedule rather than because of transfer. Besides - the assessment (even if assessed because of transfer) may not change the real estate taxes on the property....

3) Acuiring property by purchasing an LLC rather than purchasing the property and transfering the deed - could give you some measure of annonimty IF the process of acquiring the LLC does not reveal in public records that you are the new owner of the LLC.

As David Krulac mentioned - there is potential negative baggage - acquiring the LLC most likely means you inherit any trouble attached to the LLC. Here's the kicker - the troublesome matter could stem from an event that happened before you acquired the LLC, but because the LLC is on the hook for the trouble, AND because you now own the LLC, YOU are stuck dealing with the issue and the result.

There are other issues involved with transferring business entities instead of the property owned by the entities. Whether it makes sense to do so depends on many issues....

About Contracts (I like to look at concepts like a funnel - there's a 30,000 foot view of the whole process, then the view gets more narrow as we go down - maybe my take on things will help put the pieces together)....

Ever build model cars/boats/planes as a kid? Think of a contract as a model (although a very sophisticated one) used to represent an agreement.

1) What is a transaction? In terms of purchasing real estate - a seller wants to sell property, and a buyer wants to buy property. The buyer has an understanding of what will happen in the deal, and the seller has an understanding of what will happen in the deal. The understanding of both the buyer and the seller need to be the same.

2) In simple technical terms, as Ned Carey said, a contract needs:
A) An offer (in purchasing real estate it is an offer to purchase, or an offer to sell);
B) Acceptance of the offer; and,
C) Consideration (each party exchanges something of value - money is exchanged for property and property is exchanged for money).

Also - there needs to be a "meeting of the minds" - both parties must have a mutual understanding of, and a mutual agreement to, the terms of the deal.

3) A contract is the means by which we capture this understanding and record it in such a way that it can be used to resolve disputes that may arise from the deal. Hence the model analogy: a contract serves as a model of the understanding of the parties.

4) State Variation. Each state has its own laws about transfering ownership of property. There are many similarities, but there are plenty of differences. Make sure you meet all the requirements in the state the property is in. Using a contract drafted for a deal in another state may not pose a problem - or it might be a huge problem. AND, THIS IS ONE OF THOSE ISSUES YOU ARE LIKELY TO HAVE NO CLUE ABOUT unless you are an attorney who practices real estate law in that state (or you happen to be a very sophisticated and knowledgeable non-attorney.)

5) Technical Language. In addition to the core part of the agreement as the parties understand it, under the procedures established by law (by statute, caselaw, or both), there are many technical details that need to be stated in the contract to make sure the deal goes through as the parties want it to.

For example, assume timing is critical: you absolutely, positively must have event X happen by May 1 or the deal is off as far as you are concerned. Simply stating a deadline of May 1 is not good enough to reflect your intention. The contract must also state "time is of the essence" (you should also state that the May 1 deadline cannot be extended without your agreement in writing). Without that silly phrase "time is of the essence", a court could do 2 things (assuming the matter went to court): A) NOT hold the other party accountable for failing to meet the May 1 deadline; AND, B) possibly hold you accountable if you back out of the deal because the May 1 deadline was not met!

6) Reusing Whole Contracts. Adapting an entire prior contract to your specific needs could be as simple as changing the names, the property information, the price, and the dates. However, a prior contract could be completely unsuitable to your needs. Was the contract drafted for the benefit of the buyer or the seller? Are you in the same position as that for which the contract was drafted? Is the deal a straight purchase and sale, or is it a lease-option deal? Is the deal a residential or commercial deal? Is it a condominium or not? Are there tenants in the property? etc....

7) Reusing Clauses. Many clauses in a contract reflect terms and conditions that are common to most deals. Therefore, many clauses can be used over and over again in contracts. However, standard clauses can be, and are, rewritten to reflect specific elements of a given deal. Do you know what the standard language is? Do you know what the standard language means? Do you know what changes were made? Do you know what the changes mean? Do you know the consequences if this clause is not worded correctly?

SUMMARY
So what's all this mean? In short - reusing someone else's contract is fraught with risk. It may not bite you, but if it does bite you, it could be very serious. After all, contracts don't mean much until the sh*t hits the fan, then they can mean everything....

Therefore, it makes a lot of sense to at least consult an attorney for early deals that are of the same type. If you are confident a contract is good for a certain type of deal, and you do that type of deal over and over again, it may be perfectly OK to modify the relevent terms of the same contract over and over again. If you change things up and start doing new types of deals - then have an attorney help with the structure of the new deals....

There are 3 big "components" (can't come up with a better term at the moment) to forming an LLC (or any business entity):

1) Formal paperwork to be filed with the state;
2) Internal paperwork (e.g., operating agreement, bylaws, meeting minutes [if any], etc...); and,
3) Understanding proper procedures

FORMAL PAPERWORK
The formal paperwork with the state is pretty simple and straight-forward: typically you need to state the proposed name of the entity, the address of the entity, name a statutory agent who will receive notice of official information, name of who is forming the entity, and signature of the person forming the entity. You may also need to state the entity's purpose and how long the entity plans to be in business (the state sometimes assumes these will be a default answer unless otherwise stated.) Each state has its own rules, so there might be some other variation, but there's not usually too much variation.

Send in the completed paperwork and the filing fee and (as long as the name you want is allowable, and the forms are completed correctly) you have a business entity.

INTERNAL PAPERWORK
The internal paperwork should be tailored to your individual circumstances. Again, each state varies in its requirements, but state statute will create a default set of rules for operating the business entity. If you have no operating agreement (for an LLC), or other equivalent document, the statutes dictate how things should be done. You should ALWAYS have your own document (even if you don't want to change the default operation under the statutes). Title companies need to see your operating agreement when you purchase property. Banks need to see your operating agreement if you ask for money. People with whom you do business may want to see your operating agreement. If you are ever sued, your operating agreement may play a big role in the lawsuit.

Form documents may or may not meet your needs. Do you understand what the form document means (all of it)? Do you know what may be missing from a form document? Do you know what should NOT be in the form document?

Don't get me wrong - I'm not trying to be all doom and gloom on services such as these - I'm simply saying you really should be aware of what you are getting and whether it meets your needs. If you can do that by using a company formation service, then that's great - you'll save yourself money. You may never look at your operating agreement again (except to hand copies over to the people mentioned above.) But if the sh*t hits the fan, and the operating agreement doesn't serve your needs, you'll wish things had been different.

UNDERSTANDING PROCEDURES
Even with all the paperwork in order, you can get in trouble if you don't understand how to do things the right way. I don't mean criminal trouble (unless you really screw something up), I mean financial trouble (which may or may not involve a lawsuit).

Whether you choose a company formation service or use an attorney to form your company - make sure you understand how to properly sign documents, manage the business finances, keep your business entity operations separate from your individual operations, tax planning to meet your needs, even something as simple as sending email or snail mail letters to those with whom you want to do business, business cards, letterhead, etc....

Whether you use a formation service or hire an attorney, it behooves you to understand each of these 3 components.

Brian W. Anything that compromises the separation between the LLC and you as an individual can serve to weaken any liability protection offered by the LLC. Therefore, having the insurance policy list both you and the LLC as the owner; and, the fact that (as I understand it) there is still a mortgage on the property granted by you as an individual - both will make protection against liability weaker than it would be if the LLC was the only insured and the LLC granted the mortgage.

How much weaker? That I cannot say....

Jerry W. Have you been keeping an eye on the caselaw with regards to single member LLCs? The number of courts that disregard liability protection for single member LLCs is growing. I'm not saying it is universal. I'm not saying it is guaranteed. I'm not saying one should not form a single member LLC. I am saying that one should be aware that there are risks: a single member LLC may not provide the protection that is foremost in one's mind when forming an LLC.