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Dangers of Corporation Leases

CORPORATIONS AS RESIDENTS   While we strongly recommend against having corporations as residents in residential leases, sometimes it is necessary and often actually works out fine. How the lease is executed with the corporation becomes a big problem, and rarely do we see leases with corporations executed correctly. The name of the corporation, who signs, the personal guarantee and how it is signed will determine if you will potentially have a successful lease or major problems later. This article will not address the dangers of the corporate resident, but will rather show you how to enter into a lease with the corporate resident in the proper legal fashion.   The “Corporation Only” as a Resident   There will be times when the resident will be the corporation. Granted, a human being will be the occupant in the residential property, but the lease named resident will be a corporation and nothing more. This means that the corporation as resident is responsible for paying the rent, is bound to the lease and incurs all the obligations and benefits as a leaseholder. If the leaseholder corporation is in default of the lease, the manager’s only recourse will be to sue the corporation as the resident, and the manager will be bound by all the legal requirements and procedures necessary to sue a corporation. No individual person is responsible for payment of the rent or liable for failure to pay the rent.   Why Would a Lease Only Be in the Corporate Resident’s Name?   In the case of a medium to large corporation, no one is going to personally sign or guarantee a corporate lease in most situations. Usually the corporation is placing employees, officers or directors in the rental unit. The manager deals directly with the employee, officer or director of the corporation. Neither the occupant nor the corporation, officers, employees of directors will have any individual being liable under the lease. The corporation is the only liable party.   Who Is the Corporation?   Before you can even think of entering into a lease with a corporation, it is crucial to know the exact legal entity’s name as it is registered with the Florida Secretary of State or the state in which it is incorporated. “Joe’s Painting Company” is not the proper corporate name, if in fact the corporate name filed with the Secretary of State indicates, “Joe’s Painting and Contracting, Incorporated”. We see a massive amount of sloppiness in how the name appears on the lease. We recommend you always get a printout from the internet, and even possibly get a copy of the Articles of Incorporation. While you may not think this is important, when it comes time for the corporation to break a lease, skip out on you or get evicted, this sloppiness can really cause serious complications. Never assume that the name of the corporation that is being provided to you is in fact the exact legal name of the corporation. Always investigate and confirm.   How Is the Pure Corporate Resident Lease Drafted?   The corporate resident should be on the lease exactly as it appears in the Secretary of State records. The lease should clearly state who the occupants will be, and if you routinely do criminal background checks on your residents, failing to do criminal background checks on the occupants could be a Fair Housing violation. Years ago, a client found out that one of the occupants in a unit rented under a corporate name was in fact a registered sexual offender. Since the occupant never filled out an application and the manager never did a criminal background check, the occupant could not be evicted.   How Does the Pure Corporate Resident Sign?   In the signature section of the lease, the corporate name needs to be listed as the resident along with the name of the person signing the lease on behalf of the corporation.   Example: XYZ Engineering and Surveying, Inc., by John Smith, President.   Is John Smith now liable at all if the corporation fails to pay the rent or gets evicted? No. John Smith is simply signing as his authorized capacity as president of the corporation.   Who is Authorized to Sign on Behalf of the Corporation?   This is not an easy question to answer. Someone may have apparent authority, but due to the bylaws of the corporation, only certain people or persons can actually bind the corporation. Your attorney can help you investigate this. Never assume that the person signing the lease is in fact authorized. You will sadly find out that he was not authorized to sign when the corporation is trying to get out of the lease, and the corporation’s attorneys can prove that this person had no actual authority.   The Corporate Resident and the Person With Individual Liability   Unless you are dealing with a solid corporation with a proven track record and know for sure that the person signing the lease has the absolute authority to bind the corporation, you will want to have someone sign “individually” in addition to signing in a corporate capacity. This person signing “individually” is actually bound to the terms, conditions and all obligations of the lease as if there were no corporation in the picture at all. This is the best possible way you can execute a corporate lease.   Example: In the beginning of the lease, it will state that something like “Bill Jones and Mary Jones, Manager and XYZ Engineering and Surveying Corporation, through its agent John Smith, President AND John Smith Individually”   At the signatory section of the lease, you will have a place for Bill and Mary Jones to sign (unless you are signing on their behalf with a Power of attorney) and 2 more places for signatures:   XYZ Engineering and Surveying Corporation, by John Smith President _______________________ (sign here) and   John Smith, Individually ______________________ (sign here)   Common mistakes we see  
  1. The corporate name is incorrect or incomplete.
  1. The lease is signed by a person in the corporation that has no authority.
  1. The lease fails to include a signature line creating individual liability.
  1. There is a signature line, but it fails to state whether the person signing is doing so individually or on behalf of the corporation, causing legal confusion.
  Our Recommendation Besides all the dangers of entering into corporate leases in residential units which we promised not to address in this article, we strongly recommend that unless you are sure you know how to enter into a corporate lease, give your attorney a call so that you will know how to draft the lease correctly.