Articles in This Edition:

• Criminal reentry issue resurfaces.

• To incorporate, or not to incorporate – that is the question.

• We Missed you at the NAA.  Next stop – Mohegan Sun!

• Property manager transition requires planning.

Criminal reentry issue resurfaces.

We wrote in our January 2010 edition about the possibility of expanding protections for criminals who are leaving prison and reentering society.  Well, the topic has once again resurfaced in a recent letter from HUD Secretary Shaun Donovan to the directors of Public Housing Authorities, outlining how the issue may effect their public housing and Section 8 portfolios. 

To summarize, the Secretary encourages flexibility in allowing ex-offenders to rejoin their families in public housing developments (or in Section 8 programs) upon their release from prison. 

Secretary Donovan identifies that there are only two statutory restrictions that ban occupancy based on criminal activity in these communities.  They are:

1.       Persons convicted of producing methamphetamine or

2.       Sex offenses subject to a lifetime registration requirement. 

After highlighting some other PHA policy requirements, Secretary Donovan highlights that PHAs have discretion to consider the circumstances surrounding these cases and are allowed to make exceptions based on mitigating factors.  He concludes with reference to the current presidential administrations desire to help ex-offenders gain access to housing.

So, why are we talking about this subject again?  Because, it appears the perhaps inevitable may now be a step closer to reality for you and your communities. 

While few of you may actually manage public housing, many of you have Section 8 properties or tenants which are just a small step beyond the audience of Secretary Donovan’s letter.  This means that if public housing authorities are expected to comply with the Secretary’s letter, it will not be long before that policy starts showing up in other places and eventually at your doorstep.  In addition, we continue to write about this subject as we feel you must be aware of events or changes that may ultimately impact you and your communities.

As noted in the letter, the restrictions and policies referenced are specific to PHAs and their portfolios, but national housing policy often finds its roots in the public sector and eventually takes hold in the private housing market.  You are already aware of the Connecticut legislation that was proposed within the last two years that would provide protection to convicted felons (see “Felons and Fair Housing” in our November 2010 edition to read more on the subject).  Lawmakers in CT and at the federal level that sacrifice your personal property rights through their endless barrage of administrative regulations and policies seem to continuously be looking for new opportunities to pass laws that may have failed in the past.  With the HUD Secretary advocating this new policy so brazenly, don’t be surprised if the CT legislations rises from the dead once again to seize a little more of your Constitutional protection.

In “We Missed you at the NAA. Next Stop - Mohegan Sun!”, we discuss the need to get together with your industry peers to network and educate yourself on what’s in your future.  We’ve also repeatedly written Landlord Advocate tips and articles stressing why it’s so important to stay abreast of the industry changes around you.  Your opinions should not be overlooked in the battle for your rights.  Being informed can help you prepare and perhaps encourage you to include your voice in the discussion on this very important issue in the multi-family industry.

Click here to view Secretary Donovan’s complete letter.     [TOP]

To incorporate, or not to incorporate –
that is the question..

Typically, landlords own their properties in one of two ways – either in their individual name or in a limited liability entity created by state law - such as a corporation, limited liability partnership (“LLP”), or limited liability company (“LLC”).  The decision whether to own the property individually or within such an entity is a critical decision that landlords should consider at length.

There are advantages and pitfalls to each choice… 

Individual ownership allows for excellent clarity for everyone involved - in the lease, legal, and regulatory compliance fields.  Everyone knows exactly who the landlord is, or can easily learn the owner’s name by looking at a lease or the public property ownership records in the town or city offices.  The owner has the legal right to act unilaterally to handle any property matters, including any legal action without having to involve an attorney.  However, the owner’s entire set of personal assets, including all commercial or residential property owned, are exposed to anyone making a claim against the landlord.  For example, a tenant (or third party) who wins a lawsuit against the landlord for a personal injury incurred on the leased premises can go after all the landlord’s assets to pay the awarded damages - including the landlord’s personal home.

The unlimited liability exposure of individual ownership often causes landlords to consider a limited liability entity.  A primary component of a corporation, whether a LLP or LLC, is that it allows landlords to shield their personal assets (or other owned assets in other corporations, limited partnerships, or LLCs) from liability associated with the property in question.  However, in exchange for this protection and other benefits, state law requires landlords to behave differently than individual owners when dealing with the property.

Here are some key requirements that come bundled with limited liability ownership that do not come into play with individual ownership:  

• Paperwork filing requirements to establish the entity under state law

• Filing fee and annual fee requirements to keep the entity valid

• Identification of key players (officers and directors in a corporation, managing partner in a LLP, and member(s) in a LLC) and an agent for service of process (someone who can be served with legal papers by someone suing the entity)

• Separate records and accounts from any key player’s individual records and accounts; and

• Use of an attorney to initiate and prosecute legal action on the theory that the individuals involved with the entity (as officers, managing partners, members, or employees) control and work for the entity – not as individuals

Landlords who fail to strictly comply with these requirements (for example persistently acting in their individual name when handling property matters) face the possible loss of their limited liability protection.

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We Missed you at the NAA. 
Next stop – Mohegan Sun!.

We are pleased to report another successful year at the National Apartment Association (NAA) Education Conference and Exposition in Las Vegas.  Your industry leaders and peers descended upon Mandalay Bay on the Vegas strip to, once again, share their ideas and perspectives about the future of the multi-family housing industry. 

Speakers from around the country shared their insights and projections on what lies ahead and how to manage your companies and communities in this challenging economic environment and high-tech information age.  And, more importantly, your peers and communities across the country were recognized for their excellence over the last year as NAA issued the annual Paragon Awards. 

Notably, our congratulations go out to Andrew Lund, NALP, Winn Residential – Mill Pond Village, Broad Brook, CT, who received the 2011 Apartment Leasing Professional of the Year Award at the conference.  Well done, Andy!

For those of you who could not make it to Vegas for NAA, there’s good news on the horizon as next year’s NAA Education Conference and Exposition will be in our own backyard - in Boston!  I suspect we won’t have any trouble finding Connecticut’s multi-family housing professionals swarming to next year’s conference.  And, I suggest you do.  It is a great opportunity to network with your industry nationwide.

In the meantime, it’s time to get ready for the 9th Annual CTAA Tradeshow & Nutmeg Awards.  I just recently saw that invitations to register have gone out and it is time to start planning for November.  CTAA has been working hard to prepare for yet another record breaking year and we hope to see all of you at the conference. 

Just as with NAA, CTAA’s Tradeshow & Nutmeg Awards is a great opportunity to learn the latest about what’s going on in your industry, network with your peers from around the state, and meet and learn about what your vendors can offer to improve your communities, and your management of them.  If you have not already done so, find that invitation and get registered early (you can also access all of the registration information on the CTAA website). 

As we always recommend, being involved is a great way to advance your company’s objectives and the CTAA’s Tradeshow & Nutmeg Awards is an ideal way to get involved.

So, mark your calendars for November 18, 2011.  We’ll see you there!

[TOP]

Property manager transition requires planning.

A property manager transition can be a great opportunity to experience a fresh start with the community in terms of reinforcing or reestablishing (if necessary) both key company policies and procedures, as well as renewing relationships with tenants and staff.  However, the transition process requires proper planning PRIOR to a property manager’s departure to avoid loss of dedicated and focused time by senior management.  Without a proper plan, the transition can prove to be a time of chaos that drains company resources, strains relationships with tenants and staff, and ultimately causes property operating performance to decline.

Few of us are in the dark as to the importance of the property manager.  Many are tasked with running multi-million businesses - with assets realized not only through the value of the structure and the underlying real estate, but also from the cash flow generated by the property.  They are responsible for protecting those highly valuable real estate assets and driving operational results through the creation and maintenance of customer (tenant) relationships, effective use of their staff, and the establishment of valuable vendor relationships.  In addition, property managers are in charge of the community’s marketing efforts and leasing decisions, as well as the maintenance and repair of the community and specific units. 

These tasks require a detailed understanding of the company’s policies and procedures, the skill to apply that understanding throughout the community, and the wisdom to learn from experience how to match this work to build a strong community at which people want to live (for residential communities) or have their businesses (for commercial properties).

Property manager transition can happen for any number of reasons – company growth and new property acquisition, promotion, retirement, relocation to another out-of-state location, or total departure from the company.  Clients often describe these moments as “unexpected,” while they are actually quite common and should be prepared for to ensure a seamless and effective transition. 

Below is a list to help you prepare a transition plan:

First, ask yourself if you are building bench strength within the company.  An excellent opportunity often presents itself when an existing property manager is not actually leaving the company, but is instead planning a long vacation, taking family leave (or other leave of absence), or going on sabbatical.  The property manager candidate will have the opportunity to shadow the existing property manager and observe how he/she handles matters such as marketing, tenant complaints, staff management, budgets, and vendor performance.  This process not only creates learning opportunities for the candidate, but also reinforces the methods of success with the existing property manager.  Many of our clients use a “roving” property manager position to help provide opportunities to develop such bench strength.

Second, evaluate whether you have a contingency plan in the event there is no bench strength in place, and how existing property managers and/or senior management can step-in as the company builds its capacity by hiring a new property manager.  Note that this should be looked upon as a worst-case situation, as the other property managers and senior management need to be focused on their own responsibilities, and not diverted to crisis mode.

Third, develop an internal and external training program that introduces and builds the new property manager’s expertise on company policies and procedures, legal matters such as fair housing, landlord-tenant matters, and labor and employment subjects such as discrimination and sexual harassment matters.

Fourth, give the new property manager a peer who is responsible for mentoring the new property manager for at least six (6) months to one (1) year after the promotion or new hire.

Fifth, be on the lookout for many of the common problems that arise with property manager transition:

• In the case of individuals promoted from within, watch for instances where the new property manager is having difficulty separating from his/her prior job requirements.  People naturally turn to and handle subjects that are familiar with, understand, have been previously mastered - while tending to avoid new, unknown, and daunting responsibilities;

• New property managers can also get buried in paperwork, whether they be budgets, forms, manuals, or leases – and need to be lead, encouraged, and directed to focus equally (if not more) on the people aspect of their new position - ensuring that the necessary customer, staff, and vendor relationships are being developed, fostered, and maintained; and

• New property managers can often feel overwhelmed facing the daunting task of becoming a multi-million dollar business manager, and may exude negative emotional output - if not verbally expressed – a situation that can have serious negative consequences for the property.

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DISCLAIMER:
The reading of this newsletter does not form an attorney-client relationship. The contents of this newsletter are for informational purposes only and do not constitute legal advice. Nothing in this newsletter is intended to imply or predict the outcome of any legal matter that you may be considering or be involved in. The Landlord Law Firm makes no warranties of any kind regarding the information contained in this newsletter.