February – 2015
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Pay Attention to Names to Avoid Problems
Firm Adds New Attorney to The Legal Team
Smaller Cities Led Way in Rent Increases in 2014
Volume 16â€¢ Issue 2 FEBRUARY 2015 Landlord News 3600 South Yosemite Street Suite 828, Denver, Colorado 80237 email@example.com www.thslawfirm.com Denver Phone 303.766.8004 FAX Completed Eviction Forms To: 303.766.1181 or 303.766.1819 Colorado Springs Phone 719.550.8004 FAX Completed Eviction Forms To: 719.227.1181 PAY ATTENTION TO NAMES TO AVOID PROBLEMS More attention needs to be paid to owner legal entity names and apartment community names. Specifically, the industry needs to pay more attention to ensure compliance with legal requirements for community and owner legal entity names. Legally, names are required to be registered. Failure to comply with legal name requirements can affect court results, makes cases vulnerable to dismissal, and could result in increased attorneysâ€™ fees and costs. Name mistakes can usually be addressed in evictions, but not in collections. Name compliance requires entity and trade name registration, and a thoughtful evaluation of who will be bringing eviction and collection lawsuits against tenants. A legal entity is someone other than an individual. Some of the most common forms of legal entities are corporations, limited partnerships, and limited liability companies. Any legal entity (LE) that regularly does business in Colorado must be registered with the Colorado Secretary of State. LEs must register regardless if a company is a Colorado company or a company organized under the laws of another state. Colorado LEs are created by filing (registering) with the Colorado Secretary of State. Companies formed under the laws of other states, but do business in Colorado, are called foreign companies or foreign LEs. Coloradoâ€™s legal registration requirements are not unique. Every state requires both domestic and foreign LEs to register for several reasons. A primary reason is that registration fees generate revenue. continued on page 2 FIRM ADDS NEW ATTORNEY TO THE THS LEGAL TEAM The Firm is pleased to announce that another attorney has been added to our staff. Please join us in welcoming Kory J. Cook. Kory is a native of Texas and a graduate of the University of Texas at Arlington where he received his undergraduate BA degree in Arts, History. His love of the outdoors and the mountains, in particular, motivated him to move to Wyoming to attend graduate school. Kory received his Juris Doctorate from the University of Wyoming College of Law and is a member of the Colorado Bar. During his final year of law school he represented victims of domestic violence and did extensive work on client cases. While in school, Kory spent a semester working with multiple ADAâ€™s on various criminal prosecutions both in the office and courtroom. He also had the opportunity to work with the City Attorney resolving civil and employment issues. Additionally, Kory worked for the University of Wyoming Department of Compliance in the athletic department ensuring that the University was in compliance with NCAA regulations. Prior to law school, while establishing his Wyoming residency, Kory worked as a ski-lift operator at Snowy Range Ski Area seasonally and continued to do so part-time while attending law school. In the summer he volunteered for the Wyoming Conservation Corps where he could enjoy working outdoors while gaining diverse and hands-on experience in natural resource and environmental management. Kory enjoys the fast paced challenge of landlord law and is looking forward to working with the Firmâ€™s continued on page 2 PAY ATTENTION TO NAMES TO AVOID PROBLEMS continued from page 1 Another reason is to identify a registered agent in Colorado for service of process. With the exception of eviction lawsuits, only seeking possession, all lawsuits must be personally served. The handing of lawsuit papers to a person is service of legal process or service of process. If LEs were not required to register and designate an agent located within Colorado for service of process, faceless corporations, especially companies formed in other states, could avoid answering for legal wrongs in Colorado courts. For this reason, if an LE is operating in Colorado but is not registered, Colorado law prevents them from using the Colorado courts. Foreign LEs may also be required to post cost bonds, under some circumstances, to use Colorado courts. Most apartment communities are owned by LEs. Many Colorado communities are owned by foreign LEs. With the Colorado apartment building boom, this will only increase in the future. Based on our experience, foreign LEs fail to consistently register, either by neglect or because of bad advice. Many communities are fee managed. Even if owner managed, owners typically have a separate management company. In many instances, a foreign LEâ€™s only connection to Colorado is the ownership of a single apartment community located in Colorado. These facts erroneously lead some to conclude that the foreign LE is not operating in Colorado, especially when the asset is managed by a third party. However, even if not managing the asset and the foreign LE only owns a single apartment community in Colorado, the foreign LE is still legally doing business in Colorado, and must be registered. If the ownership LE is registered, this is not the end of potential problems. Another common mistake is failing to register the communityâ€™s trade name. For strategic or marketing reasons, many businesses legally operate under a different name. For example, Apple Computer, Inc. was always just known as Apple. Apple was the trade name for Apple Computer, Inc., and was so well known that Apple Computer, Inc. eventually became just Apple, Inc. A trade name is usually a shorter, simpler, and more appealing name for a business to be known to the public. continued on page 3 FIRM ADDS NEW ATTORNEY TO THE THS LEGAL TEAM continued from page 1 diverse client base. Both Kory and his wife Elizabeth (Liz) are excited to be in Colorado where they can indulge their interests in hiking, backpacking, cycling and snowboarding. Welcome Kory to the THS Team by introducing yourself at the next client lunch. …….. SMALLER CITIES LED WAY IN RENT INCREASES IN 2014 BIGGEST GAINS CAME IN PLACES LIKE DENVER VACANCY RATES CONTINUE TO DECLINE Rents in the U.S. continued to rise in 2014 due to strong demand and short supply. Making it the fifth consecutive year for rising rates. The national average rental rate was $1,124.38 per month in 2014. While rental rates have continued to rise, vacancy rates fell to 4.2%, the lowest point since 2000. The biggest surprise in the rent increases for the year was the fact that the largest jumps came in the smaller and mid-size metros with Denver leading the way with the highest rise at 7.9 percent. Economists are predicting only minor change in the apartment market for 2015 because strong demand will continue to claim most of the new units that arrive on the market. Two main groups continue to fuel that demand: Existing renters continue to rent because they canâ€™t yet qualify for a mortgage or afford to buy a home, and job growth is expected to embolden more new renters to leave behind their parentsâ€™ homes or roommates for their own apartments. According to the chief economist of the NAA, demand from new and existing renters is strong enough to absorb nearly all of the new supply coming on line. …….. Landlord News FEBRUARY 2015 Page 2 PAY ATTENTION TO NAMES TO AVOID PROBLEMS continued from page 1 Almost every community name is a trade name, and not the LE owner name. However, to be legal, the communityâ€™s name cannot simply be made up in a marketing meeting, and then printed on signs and inserted into leases. To be legally enforceable, the LE ownerâ€™s trade names must be registered with the Colorado Secretary of State. Because multifamily assets rebrand often, and are being bought and sold regularly, the trade name issue arises frequently. Foreign LEs not registered cannot file trade names. Only properly registered LE owners can file trade names. Property management agreements (PMAs) should identify all owner trade names, and make the owner responsible for registering the LE, filing annual reports for the LE, and filing any applicable trade names. Even if everything is in order at the secretary of stateâ€™s office, human error can still cause problems. Specifically, onsite personnel responsible for generating leases may insert the incorrect name into the lease. For example, you manage The Links at Curbside; the Links at Curbside is owned by (the LE name is) Links Master Holding Company IX, LLC. Instead of putting the correct LE name in the lease, an onsite team member lists the Landlord as â€œThe Linksâ€ or â€œCurbsideâ€. If the landlord listed in a lease is the name of a LE that doesnâ€™t exist, including a trade name that hasnâ€™t been registered, the landlord doesnâ€™t exist. The landlord is literally a non-existent landlord. Accordingly, even if the person completing the lease puts in the name of the community (â€œThe Links at Curbsideâ€), this is still a problem unless the owner has registered â€œThe Links at Curbsideâ€ as a trade name. If the landlord/ owner identified in the lease is wrong, the tenant wonâ€™t say anything because itâ€™s usually a name the tenant expects. This mistake (wrong or non-existent landlord listed in lease) is common. With the rise of the auto-generated lease, the error of inserting of the wrong landlord into the lease has decreased. However, auto-generated leases only compound the error if the wrong name is programmed, and auto-generated leases donâ€™t fix the non-existent landlord problem. ïƒ¢ The final name related issue that causes problems is the real party in interest doctrine. Only a party who has a real interest in the matter and outcome must bring every lawsuit. In rental world, only the owner and the management company could have an interest in enforcing the lease against a tenant. The interest of the landlord (owner) is usually apparent. However, the interest of the management company (manager) may not be so clear. As agent for owner, manager only has those rights set forth in the PMA. Most PMAs give manager the right to enforce the lease by bringing suit in managerâ€™s name directly against a tenant. Thus, the mangerâ€™s authority set forth in the PMA makes manager a real party in interest to lawsuits to enforce the lease, and this issue can be addressed in court if the tenant argues that manager is not the real party in interest (the proper plaintiff) to an eviction case. When you become a client, we ask you who should be the plaintiff in your eviction cases. What is the name of the company that will be evicting the tenant? Because we have represented many clients for years, the name issue is frequently not given much thought until there is a problem. Managers should evaluate the name issue, and review both the PMA and the lease. Because some owners want to remain anonymous and for other reasons, the PMA may require that all lawsuits be filed in the name of manager. Conversely, if you want to file lawsuits in the name of the owner, the PMA should give you the specific right to bring eviction actions and other litigation as agent for owner and in the name of the owner. Best practices would be for the plaintiff (whose name lawsuits will be filed in) to be addressed in the PMA. Leases should also be reviewed for consistency with the PMA, and should support the name you use to file eviction cases. For example, if the PMA says all suits will be brought by agent in name of owner, the lease should be consistent (identify the owner as landlord), and thus make the owner a the real party in interest to any lawsuit. If the lease names the owner as landlord, manager may experience problems if eviction cases are filed in the management companyâ€™s name. Because the management company is not the landlord, the tenant may contend in court that the tenant does not have a rental relationship with the management company. Under the real party in interest doctrine, your case is vulnerable to dismissal. Similarly, if the lease lists the management company as landlord and you file your evictions in the name of the owner, your case would also be vulnerable to a motion to dismiss. continued on page 4 Landlord News FEBRUARY 2015 Page 3 PAY ATTENTION TO NAMES TO AVOID PROBLEMS continued from page 1 If the PMA and lease support your name decision, the name in which you bring lawsuits is primarily a preference decision. Some management clients prefer filing in the ownerâ€™s name for two reasons. The management company doesnâ€™t want to be known for or otherwise get a reputation for filing hundreds, if not thousands, of lawsuits against tenants. Some management companies argue that by filing lawsuits under the name of the owner, it is clear that the owner is responsible for the litigation, including responding to counterclaims, paying legal fees, and paying any damages. The rationale is that an owner canâ€™t ignore a lawsuit when it is a named party. Similarly, some managers may be concerned that an owner might take the position that a lawsuit is the management companyâ€™s problem if the owner is not a named party. However, because most all PMAs require the owner to indemnify manager for all costs associated with litigation absent negligence on managerâ€™s part, ownerâ€™s generally cannot ignore litigation issues, even when litigation is in the name of manager. Overall, most management clients opt to bring litigation in the name of the owner. Filing eviction cases in the name of the owner reinforces the partiesâ€™ contractual obligations, i.e. lawsuits are the ownerâ€™s problem absent negligence. However, even if manager files all lawsuits in name of owner, manager wonâ€™t always be left out of the fray because managers have no control over tenants. Often, even when a manger brings suit in the name of the owner, the tenant will name manager in a counterclaim. After all, the tenant doesnâ€™t know the owner; the tenant deals with and knows manager. In some cases, both manager and owner will always be named. Fair housing discrimination charges that donâ€™t name both manager and owner are rare. Regardless of whether itâ€™s failure to register a name, failing to file a trade name, using a non-existent name, or not being a real party in interest, name issues can cause problems in evictions, collections, and other lawsuits. When the wrong parties or non-existent landlords are named, the tenant usually has grounds to have the case dismissed. In many instances, but not all, we can fix most name related issues even after an eviction case has been filed. But name issues may result in delays and even dismissal of an eviction case. Under a worst-case scenario, ïƒ¢ the landlord may be liable for the tenantâ€™s attorneysâ€™ fees and costs. The non-existent landlord argument is always fatal to an eviction case. If a tenant argues that company evicting the tenant doesnâ€™t exist and it doesnâ€™t, you will have to start your eviction over because only real legal entities may bring and maintain legal actions in Colorado courts. Unlike evictions, name issues in collections are usually incurable and potentially costly. For example, the tenant breaks his lease, damages the unit, and now owes a $5,000 balance. If the lease lists a non-existent landlord, unless the tenant voluntarily pays either before or after being contacted by a collection agency, the landlord will not win in court if the tenant raises the name issue. Collections occur when the lease is over and the tenant is gone. At that point, corrective action is not possible. Name problems that arise during collections also bring into play both the FDCPA (Fair Debt Collection Practices Act) and the FCRA (Fair Credit Reporting Act). The FDCPA creates liability for misstating the character or nature of a debt. Aggressive tenant attorneys would argue that trying to collect a debt in the name of a non-existent landlord (business) misstates the character of a debt. Under the FDCPA, violators are liable for actual damages or a minimum of $1,000 for each and every violation, plus attorneysâ€™ fees and costs. No competent and reputable collection law firm will bring suit to collect a tenant balance if the landlord lists a non-existent landlord because of FDCPA liability concerns. Thus, if a tenant wonâ€™t pay after being contacted by a collection agency (more and more tenants who owe balances these days wonâ€™t pay without being sued), you have no ability to collect the debt. No problem you say, the tenant will pay because the debt is reported on the tenantâ€™s credit report. If the lease lists a non-existent landlord, placing the debt on the tenantâ€™s credit report now creates potential liability under the FCRA. With both the FDCPA and FCRA, collection of debt based on leases that list non-existent landlords could result in significant exposure even on a single case. If the mistake (listing a non-existent landlord) has been replicated on many leases over time, the possibility of a class action lawsuit comes into play. Thus, the best case continued on page 5 Landlord News FEBRUARY 2015 Page 4 AVOID PROBLEMS BY PAYING ATTENTION TO NAMES continued from page 4 in collections is you wonâ€™t be able to collect if there are name issues, and the tenant raises the issue. The worst case is that you may be looking at significant legal exposure by attempting to collect tenant debt when there are name issues. Despite the potential for problems, name problems in eviction cases donâ€™t come up that often. Name problems donâ€™t arise frequently in eviction cases because the tenant must raise (argue) a name related issue. Tenants simply donâ€™t raise the issue that often. However, similar to other issues that are being raised by tenants more frequently because of information on the Internet, tenants are playing the name card more frequently then they have in the past. A name issue sometimes canâ€™t be fixed, and may result in the community paying attorneysâ€™ fees and costs. The most common mistakes we see are a non-existent legal entity is listed as landlord, or the listed landlord is clearly a trade name, and the trade name has not been registered as belonging to the owner legal entity. To avoid all problems regarding proper names in lawsuits, you should review that your lawsuits are being filed under your preferred name, and your management agreement and your lease supports the name you choose. Despite the potential for problems, name problems in eviction cases donâ€™t come up that often. Name problems donâ€™t arise frequently in eviction cases because the tenant must raise (argue) a name related issue. Tenants simply donâ€™t raise the issue that often. However, similar to other issues that are being raised by tenants more frequently because of information on the Internet, tenants are playing the name card more frequently then they have in the past. A name issue sometimes canâ€™t be fixed, and may result in the community paying attorneysâ€™ fees and costs. The most common mistakes we see are a non-existent legal entity is listed as landlord, or the listed landlord is clearly a trade name, and the trade name has not been registered as belonging to the owner legal entity. To avoid all problems regarding proper names in lawsuits, you should review that your lawsuits are being filed under your preferred name, and your management agreement and your lease supports the name you choose. …….. C U R I O S I T I E S Only in America….. â€¢ do drugstores make the sick walk all the way to the back of the store to get their prescriptions while healthy people can buy cigarettes at the front. â€¢ do people order double cheeseburgers, large fries, and a diet coke. ! â€¢ do banks leave both doors open and then chain the pens to the counters. â€¢ do we leave cars worth thousands of dollars in the driveway and put our useless junk in the garage. â€¢ do we buy hot dogs in packages of ten and buns in packages of eight. â€¢ do we use the word â€˜politicsâ€™ to describe the process so well: â€˜Poliâ€™ in Latin meaning â€˜manyâ€™ and â€˜ticsâ€™ meaning â€˜bloodsucking creatures.â€™ Landlord News FEBRUARY 2015 Page 5 IMPORTANT THS FEBRUARY DATES Febryary 11th Evictions Workshop THS Lower Conference Center 3600 S. Yosemite Street Denver, CO 8:30 a.m. – 11:30 a.m. February 16th ALL COURTS CLOSED PRESIDENTS DAY HOLIDAY February 16th-18th DOUGLAS OOUNTY COURTS CLOSED Febryary 20th South Client Lunch Dave & Busters Denver 11:15 a.m. – 1:00 p.m.