Condo neighbor LLC?

All,

One of the owners in my condo building is renting his unit (and has been for the past year and a half, to the same couple). He sent a note to the accociation members saying he is thinking of making his rental an LLC so he has limited liability if a tenant causes problems and also allows him to get the tax deductions he is currently ineligible for. He says there is no risk to the accociation.

I have to admit I am out of my element so am looking for any advice on whether this is innocuous or something to talk to him further about.

Background: I am in a 4 unit building (so own about 25% of the building). Everyone in the association gets along great, and we all have a great relationship with these renters, too.

Any advice much appreciated!

While I advocate nothing:

A limited liability company (not corporation) is a hybrid business entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC, although a business entity, is a type of unincorporated association and is not a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation, and it is well-suited (as is often used) for companies/businesses with a single owner.

Most LLC's I have encountered (and I have formed them for my own businesses), were simply a single owner (as in my case) trying to protect their liability (losses) if sued. Like if someone sued my business, they could not get my personal assests like home, savings, stocks, etc.

While I am not waving as large a red flag as Melissa might be and I hate to give this advice, it might be time for the HOA to lawyer up as he has fired the first shot. Why? Well it could have to do with CC&R's about ownership, rentals, etc. and unless you know, it could get real sticky, real fast.

Of course I could be wrong.

The question is not whether you want him to do this but whether he is allowed to do it.

If there is nothing in the CC&Rs to prevent ownership by a corporation then you have no choice.

You SHOULD read carefully and if he is transferring ownership you should require him to do anything you normally do upon transfer of ownership (fees, etc.).

Also, do corporation owners get to vote? Do they need to designate a representative?? Just go by the book here.

I agree with Peter and Fred.

Hi Tracy:

It sounds as if he may have a number of rentals and is putting them under the LLC to prevent those who rent from being able to sue him personally thereby protecting personal assets.

If we inject some common sense then we can determine … When a developer first builds then majority of lots are owned generally by a Corporation or LLC depending on how the developer set up his business. Even though owned by a company whether Corporate or LLC, any developer owned lot abides by CCR along with any other builders who also purchase some lots under their company names.

From the HOA standpoint it does not matter who owns the property because any liens or actions are taken against the property. Whoever owns that property then is responsible for payments and any lien insures that they cannot sell without the lien being cleared. It would not matter if the owner is an Individual, Corporation, LLC, or Partnership.

I also agree more with Fred and Peter.

Based on my experience with dealing with LLC's it has not been a positive experience. Is it good for an individual to do and protect their personal assets? Sure. Is it good for an HOA? Not really. It's like putting up a road block from legal actions the HOA can do. They are protecting their personal assets. The very thing the HOA goes for whenever they take legal actions. Liens or foreclosures go after one's personal assets to collect. A LLC can use their status as a LLC to hide behind.

We tried to collect against a LLC once. They were owners who owned multiple properties. It turns out they also owned multiple properties in foreclosure by the bank. I was lucky enough to find out this information. We were able to put a lien in place shortly before the bank foreclosure. Unfornately, we were unable to collect on that lien. I had wished we had better controls on allowing LLC's to own or manage properties in our HOA. It's best to do research and find out what legal limitations they have when it comes to collecting. That way you can incorporate these in your rules in the future.