Expert: liznarr - 6/27/2011

Question
My siblings and I inherited my mom's home and now we have a prospective tenant who wants to rent the home beginning 8/1/11.  What do we need to do to make this happen?  Do we need to form a corp. or an LLC?  Do we need to change ownership of the home to the corpt. or LLC?  There are five of us and we have all agreed to rent the home out.  Your advice is much appreciated.  gh

Answer
Hi Grace,

I apologize for the delay in responding.  My Mother has had two strokes in the last month and is hospitalized, and my time does not seem to belong to me right now.

Unless you want to, or on the advice of an attorney, it is not a legal requirement to change the deed to a corporation or an LLC in order to simply rent the home.

With five owners involved, however, it could be problematic at a point in the future for all five to agree on something if a problem were to come up with the rental property.

The first thing I would suggest is to address who will make any final decision if there is any disagreement among the five of you:  Will the majority rule?  If there is a split “vote,” or one of you were to not vote on an issue, how will the split be decided?

I realize that you say there are five of you NOW, but what if something happens to one of the five?  Would you then dealing with one or more heirs, which could upset a majority vote?  And would any heirs be bound to continue to rent the house out as long as the other owners wanted to continue renting the property?

Also, depending on how title is held, you also should consider what happens later if one or more of the owners wanted to sell the property, and one or more would NOT want to sell.  If possible, you should try to reach agreements NOW and avoid a future situation where one of the owners tried to force a sale via a Partition action (when one owner wants to force a sale and another does not).

At a bare minimum, you might consider having an attorney draw up a legally-binding Agreement for all five owners to sign which would address the situations above, and any others that you can think of.  The Agreement could also state that one of the five could serve in the capacity as Landlord and make decisions related to the property when issues arise—and they will.  I’ve been there and am still doing that.  

Good luck to you, and feel free to write again if you have additional questions.

Regards,
Elizabeth