If, like many landlords, you own or manage only a few rental properties, you are unlikely to have a lawyer on staff or even “on retainer” (where you pay a lawyer in advance to handle routine questions and issues). Fortunately, you shouldn’t need to constantly consult a lawyer or even keep one in the wings, “just in case.” You do have to be able to recognize those situations when expert help is needed — even if it’s just for some advice and coaching.
Landlords are fundamentally no different than any other type of business owner — they aim to make their business profitable while steering clear of liability. In certain situations, hiring (or consulting with) a lawyer to help you achieve these goals is a smart move. Here are some of the most common scenarios that will benefit from a professional’s review or help.
Evicting a Tenant
In most states, an eviction lawsuit takes much less time than regular civil cases. But in exchange for expedited treatment, landlords must follow highly detailed rules, from notifying the tenant of the lawsuit to filing the right papers and forms. In addition, because it’s the tenant’s home that’s at stake, many judges will set the bar very high when it comes to ruling in the landlord’s favor. Winning an eviction lawsuit, even one that you’d think is a slam-dunk, isn’t so easy.
Still, many landlords try to evict a tenant themselves, often with success. But you may be better off hiring a lawyer if:
- this is your first eviction
- the tenant is fighting the eviction and has a lawyer
- the tenant is an employee whom you’re firing
- the tenant is filing for bankruptcy, or
- you must comply with rent control or housing program rules for eviction.
Being Investigated or Sued for Illegal Discrimination
You don’t need a lawyer every time a prospect or tenant accuses you of illegal discrimination. In fact, landlords who diligently comply with fair housing laws can still get these accusations from prospects they reject or tenants they evict for legitimate business reasons. But if a prospect or tenant sues you for discrimination, or if HUD or a fair housing agency agrees to investigate a claim, you’ll probably want to consult a lawyer.
HUD administrative law judges can award a civil penalty of $16,000 per violation for first-time offenders, in addition to actual damages, attorneys’ fees, and other relief. Your liability can be much higher if your case goes to court or you settle. Also, if you become the subject of a discrimination lawsuit or investigation, it can make the press and harm your business’ reputation. A lawyer can help you resolve the dispute and end the investigation or lawsuit as soon as possible.
Sued for Injury or Illness
If a tenant or guest sues you and claims that she got hurt or sick because of your carelessness, you’ll almost certainly want to hire a lawyer to defend you. Personal injury cases are typically high stakes, and personal injury lawyers know their way through these cases much better than you do. Also, you may find it difficult to confront a tenant who has suffered a serious loss, even though you believe you should not be held responsible.
Any lawyer you hire will be emotionally detached from the case and experienced in effectively negotiating these types of situations. Fortunately, if you have liability insurance and pay your premiums, your insurer should provide you with a lawyer to defend you against personal injury claims.
Sued for Major Property Damage
Tenants or guests may also sue you if they think that your failure to maintain the rental property caused damage to their property. For example, if you don’t maintain the roof and a leak occurs during a normal winter rain, soaking the tenant’s furniture, the tenant may look to you for compensation.
In situations like this, your liability policy would also kick in. When the claim is high, you may decide to refer the matter to your insurance company and take advantage of its obligation to provide a lawyer. When the claim is low, especially if it’s brought in small claims court, you’ll probably want to handle it yourself, but could still benefit from a coaching session of an hour or so.
Audited by the IRS or the State
If you learn that the IRS or your state tax agency will be auditing your return, you don’t always have to hire a lawyer. For example, an audit in which an additional few thousand dollars of taxes is at issue probably isn’t enough to justify the expense of a lawyer. But you’ll probably want to hire a lawyer (or another tax professional) to help you with an audit when there’s a lot of money at stake.
If you made a serious mistake on your taxes that the government hasn’t yet noticed — for example, you didn’t report certain income or you took deductions for which you’re not entitled — hiring a lawyer before the auditors uncover the mistake can help you avoid a potentially damaging and embarrassing situation.
Defending Your Reputation
If a serious crime or accident occurs on your property, or if one of your employees makes headlines for an unflattering reason, your business could suffer from the negative publicity (on top of any lawsuit that may take place).
Especially if you’re not used to dealing with public relations, you should consider talking with a lawyer about how to handle the press. The lawyer can advise you on what you should — and shouldn’t — say, or speak for you, and perhaps recommend action you can take to draw positive attention to your property and business.
Anytime You’re Going to Court
Aside from evictions, personal injury, and discrimination lawsuits, you may need to go to court for one of a number of other reasons, either as plaintiff or defendant. For example, a former tenant may take you to housing or small claims court, claiming you wrongfully withheld the full amount of his security deposit. Or you may decide to bring a civil action against a contractor to get compensated for shoddy or incomplete work.
If you’re going to court, or if you’re entangled in a legal dispute that may lead there, at the very least consider consulting a lawyer, even if it’s just to get some coaching. Whether to hire a lawyer should depend on: the complexity of the situation, how much is at stake, your budget, your confidence in handling the matter (or part of it) yourself, and your experience (if any) with a similar matter in the past.
Changing Your Business Structure
You may decide your business would be better served as a limited liability company instead of as the S-corporation you’ve been running for years. Or, after operating as a sole proprietorship, you may want to get a partner involved. It’s wise to consult a lawyer to discuss your options and what each one entails.
Depending on your choice of business structure, you may need to file certain documents with your state on a one-time or annual basis (which you can often handle yourself). Any decision regarding your business structure will have important tax and legal ramifications, which your lawyer can explain.
Buying or Selling Property
Buying or selling property may be common, but it’s filled with more complexities and legal risks than many people are aware of, especially if that property also has a business (such as a building full of tenants) that goes along with it.
A lawyer knows the steps and can walk you around common pitfalls, from negotiation to closing. For example, a lawyer can help resolve environmental or structural issues that come to light in an inspection report, and can commit the seller to removing liens, mortgages, judgments and tax levies to ensure you get “clean title” — that is, ownership that’s free of claims.
Dealing With Problem Employees — Or Employment Problems
Employment issues can arise whether you manage a large staff or have just one person helping you with your business. If you need to fire an employee for a valid reason but are afraid the employee may sue you for discrimination, or if tenants complain that an employee is harassing them, even a quick consultation with a lawyer may help steer you away from legal trouble.
Protecting Your Intellectual Property Rights
When surfing the Web, did you happen to find a company logo that’s strikingly similar to the one you paid a graphic designer to create for you several years ago? Did you spot language on another landlord’s website or marketing materials that looks eerily familiar? These types of issues relate to your business’ intellectual property rights. If you try to enforce them on your own — for example, by contacting the alleged offender about the apparent violation — and get nowhere, consult a lawyer who’s an expert on copyright and trademark issues.