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J. Warren
J. Warren, Lawyer
Category: Real Estate Law
Satisfied Customers: 1341
Experience:  Experience in residential real estate and commercial leases.
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I entered a business (an LLC in Virginia) with a married couple

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I entered a business (an LLC in Virginia) with a married couple in January. At the time, I co-signed on the lease with the wife, and I made the first month's rent payment from my personal account because they didn't have the money to pay. The signers on the lease were myself and the wife "trading as XXXX Retail and Resale LLC". Our signatures on the lease were as owners of the company (it says tenant/co-owner). Since that time I've been waiting for my partners to add my name to the member agreement, articles of organization, bank accounts, and more -- but they haven't lifted a finger to do so. I then found out the LLC was delinquent in its filing with the state, and I don't think they have been paying sales taxes. Besides the lease, I have never been added to, or signed, a single other document. The business has been earning enough revenue to pay the bills (to include the lease). I want to bow out of the company because it's become obvious they have no intention of making me a partner, and I'm concerned about how it's ran. My concern is the lease? Since I signed as a tenant/owner, am I obligated to pay the lease if the business doesn't (even if it can afford to pay)? If I am obligated, can I use half of the space in the building for my own purposes?
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  J. Warren replied 1 year ago.
Hello! Thank you for your question today. My goal is to provide you with honest information you seek and and not necessarily to tell you might be hoping to hear.


I am sorry you find yourself in the predicament. In general, a person is not liable for a lease agreement which is executed on behalf of an LLC and no personal guarantee is agreed to. Typically, commercial landlord's will require a personal guarantee but if they do not and one is not signed a member of an LLC is not liable for the lease.

However, the set of facts you present does contain some risk of personal liability because you used a personal check and you were not a member of the LLC at the time lease was signed. In this situation, a landlord could assert that you personally signed for the lease.

There is potential liability on your behalf given the nature of the transaction and it is not helped by the fact that the LLC is not compliant with the Secretary of State. You increase that risk by using the premises for your own individual purposes. In addition, the lease would be for an undivided 1/2 interest meaning the other tenant and you would need to agree as to what space will be used. Not to mention that potential for conflict.

The other potential issue that is created by this situation is that if you are involved in the daily business but not a member of the LLC, then you could be deemed a general partner which exposes you to more personal liability by the actions of the husband and wife.

The worst case scenario is that the landlord attempts to come after you for rent if the business does not pay. There are mitigating circumstances that lean in your favor (intent to sign on behalf of the LLC, no personal guarantee signed) if that does come to fruition.


I apologize that this was probably not the answer you were hoping to receive. However, it would be unfair to you and unprofessional of me were I to provide you with anything less than truthful and honest information.

All my best & encouragement.

Please note that you are asked to rate my courtesy and professionalism, and not whether the answer supports your legal position. I only receive credit when rated 3 or higher. If for any reason you feel that a low rating is appropriate, please first give me the opportunity to address your concerns by clicking the "reply" tab.

All states have intricacies in their laws and any information given is simply information only and specifically is not intended to be, nor does it constitute, legal advice. This communication does not establish an attorney-client relationship with you.

J. Warren, Lawyer
Category: Real Estate Law
Satisfied Customers: 1341
Experience: Experience in residential real estate and commercial leases.
J. Warren and 5 other Real Estate Law Specialists are ready to help you
Customer: replied 1 year ago.

Mr. Warren,


Thank you for the answer you provided. You can be assured I'll be rating you very highly. It was never my intent to get the answer I wanted; rather, I wanted the right answer. And I think you provided that for me. I do have one quick follow-up.


 


My former partners keep threatening to sue me, or take me to small claims court, for "my half of the rent". My understanding is that my contract is with the landlord, not the partners. Can I be sued by the couple for "half of the rent"? They can't be harmed by me, can they?


 

Expert:  J. Warren replied 1 year ago.
That is unfortunate they are threatening to sue you. Yes they can sue you which could potentially walk them down a path they do not want to go.

First, they would have to prove that the intent was for you to be a co-tenant not a co-owner (member) of the LLC. If they win on that point, then you have all rights to move into the building and figure out how you all are going to work in the same building together. If they fail to pay the rent then you could sue them for rent. If you move in the space now, it is risky it would be deemed an admission of you being a co-tenant not a member of which you did have that intent when you signed on behalf of the company.

However, proving you were a co-tenant will depend entirely on the circumstance of entering into the lease as your defense would be you were a member of the LLC and the LLC is liable for the rent not anyone individually. If a judge decides you were a member then you are entitled to 1/3 of all the profit and distributions.

You could potentially sue them for fraud and for their breach of fiduciary duty to you. My suggestion is to retain local counsel and put a stop to their non-sense.

I hope this helps.

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J. Warren
J. Warren
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Experience in residential real estate and commercial leases.