The Mistake of a Business Owner in Landlord/Tenant Issues

Hypothetical: Peter owns two single-family homes and one duplex in St. Paul, Minnesota that he rents out to families. He has been renting them out for 10 years without any problems. The homes are owned personally in his name and there are no mortgages on the properties. The duplex has a shared meter. Peter does not have a rental license with the City of St. Paul. In addition, he requires that his tenants keep up the yard and remove the snow during the wintertime, which they have not been doing. All of the rental agreements are oral. The Smith family moves into the duplex. Two years after the Smith family moves in, they miss a rent payment due to one of their children slipping and falling on the unshoveled sidewalk at the duplex. Peter files for eviction. The Smiths countersue. Peter comes in to seek legal counsel.

Peter is shocked to learn that since he did not have a rental license, a judge could determine that no rent was due, and all of the rent from the prior two years is owed back to the tenants. In addition, Peter is flabbergasted when he is told that since there was an oral contract – rather than written – the tenant was not given any consideration for having to keep up the yard and remove the snow, and therefore, the tenant was not obligated to do so, and Peter has no remedy. Finally, Peter is dumbfounded to learn that since the lease was oral, the lease violated Minnesota’s shared meter statute. As a result, a judge will most likely order Peter to pay to the Smith’s three times the amount of the Smith’s shared meter bill plus attorney’s fees and costs.

To add insult to injury in Peter’s eyes, he also is counseled that because his rental properties are in his personal name rather than a limited liability company (LLC) that all three of his personal properties – including additional personal assets – are subject to being seized to pay for the judgment that will be in his personal name. Peter had been told by both his accountant and his commercial insurance broker that it was prudent to put the rental properties into an LLC. However, Peter did not believe that it was necessary or beneficial to him. Peter now wishes that he would have done so.

Peter is counseled regarding his options. Since he already filed for the eviction, Peter is advised to settle with his tenants and guided by his business attorney as to the best terms for him for settlement. In addition, Peter retains counsel to establish LLCs for each of his properties, and to draft a residential lease agreement that protects him. He also immediately applies for a rental license. The cost of retaining business counsel was a fraction of the costs that Peter was facing due to the mistakes he made while being a DIY’er (do-it-yourself). Pay a little know, or pay a lot later.

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.