by Brian Wolk, Attorney at Law
In most cases, property managers receive little or no training on how to deal with a prospective resident or guarantor that is a corporation. The property manager then will either just carry on business as usual, not recognizing the significance of this type of lease transaction, or the property manager will essentially make up rules on how to deal with the prospective corporate resident based on the manager’s common sense. If that happens, the property manager will complicate and jeopardize any future collection or eviction actions. It is crucial that a property manager step back, take a breath, and act in a careful and deliberate manner before executing any guarantee of lease agreement or lease with a corporate entity. Very often, a property manager with the best of intentions, and attempting to increase occupancy at the apartment community, may be blinded by excitement with the possibility of filling numerous apartment homes with a corporate resident. The property manager is an easy target in this situation. The property manager should always keep in mind that the purpose of most corporations is to turn a profit. Accordingly, there are often in-house attorneys or attorneys on retainer who are paid to fully insulate or limit the corporation from liability for any lease obligations. Thus, the property manager better be certain that the lease and guarantee agreements are properly executed, so there is clarity as to who is legally obligated to pay the rent and meet the other lease obligations. To make matters worse, there are applicants who are scam artists, who have no intention of paying rent and who may even submit fake corporate names that do not exist.
Rent Responsibility
In instances when the corporate entity is signing the lease as the resident, an individual person is not responsible for the rent or any other obligation under the lease. To make this easier to understand, the corporation is treated like a person during the term of the lease and any future collection or eviction proceeding. For example, if the rent is not paid, the property manager would name the corporation as the resident being evicted, and only the corporation’s name would be listed on the eviction paperwork filed with the court.
Is there really a Corporation?
Initially, the property manager must verify that the corporation truly exists, as the full corporate name should accurately be referenced on the lease. Corporate officer information should also be verified, as the property manager also needs to confirm that the person claiming to be a corporate representative has actual authority to do so. The corporate representative with whom you deal may not be an officer, but you can require correspondence written on corporate letterhead signed by an officer that the person with whom you are dealing has the power to bind the corporation. The Florida Secretary of State maintains records concerning corporations, including corporate officer information, and it is usually fairly simple to verify this information online. The corporation may be incorporated in a different state, and the corporate information may need to be verified under that state’s secretary of state website. However, if the corporation is doing business in Florida, it should still register with the Florida Secretary of State. In some cases, we recommend that the property manager obtain the articles of incorporation. Never blindly accept the information provided to you by the corporate contact you are dealing with. It is imperative that the property manager use diligence and verify that the information provided is completely accurate.
Investigating the Corporation
If the corporate entity is bogus, then the apartment community owner’s ability to collect past due rent will be seriously jeopardized, and any eviction process can also be severely compromised, since the eviction action would be filed against an entity that does not exist. At that point, you are at the mercy of the presiding judge. Take your time, and do not let the applicant rush you.
The Inactive Corporation
Sometimes a property manager will discover that the exact name of the corporation exists in the records maintained by the Florida Secretary of State. However, it may turn out that the corporation was voluntarily dissolved or was administratively dissolved for failing to pay annual fees to the Secretary of State. The property manager must recognize that a corporate entity that is dissolved has absolutely no power to enter into lease guarantee agreements, residential leases or any other contracts.
Corporate Tenant Lease Execution Procedures
First, the corporate resident’s name that is listed on the lease must be an exact match with the name on file with the Secretary of State. This requirement has no exceptions. For example if the names do not match up by only one letter, the lease will be drafted incorrectly.
Lease Must Disclose the Actual Names of the Occupants
All properly managed apartment communities obtain criminal background checks on their residents. In truth, many corporate residences are essentially halfway houses or residential drug treatment programs that could indeed place convicted, violent criminals on the grounds of your apartment community if given the chance. When executing a lease with a corporate resident, the actual names of the occupants must be listed, or else the apartment manager will be powerless to verify if those occupants have any criminal history. Also, if the actual names of the occupants are not placed on the lease, the corporation could have a never ending parade of unsavory characters moving in and out of the apartment home, who constantly request that you provide them with keys to the unit or who cause unreasonable disturbances throughout the apartment community.
Corporate Lease Signature Block
It is imperative that the signature block on the corporate lease identify clearly the name of the corporate entity that will be listed as the resident under the lease. Also, the signature block must disclose the name of the corporate representative authorized to sign the lease on behalf of the corporation.
Properly Listing the Corporate Representative on the Lease
It is vital that the corporate representative’s name and complete title be placed on the lease when that representative signs the lease: for example: Brian Williams, as Vice-President of OYIL Corporation. In this example the corporate representative would be the vice-president. The property manager can verify this information by utilizing the Secretary of State website. The property manager must never blindly believe that the person signing the lease has legal authority to sign the lease on behalf of the corporation. Keep in mind, the corporate representative will have no individual liability and would not be listed on any eviction complaint, as that person signed the lease in a representative capacity on behalf of the corporation.
Negative Fallout from Failing to Properly List the Corporate Representative on the Lease
Under Florida Law, there is a strong presumption that if a lease is signed without the designation of the person signing in a representative capacity, then the person is signing in an individual capacity. For instance, the signature block has Beth Smith and the name of the corporate entity listed, but not Beth Smith’s corporate representative capacity or title. Negative consequence may result. Since the intent of the parties was that the individual would not be liable, a judge would probably prohibit the property manager from holding the individual, Beth Smith, liable for the lease obligations. In addition, because the apartment community drafted the lease incorrectly, the corporation could very well avoid liability for any obligations under the lease. That is truly a horrible result for your company, and your regional manager will be very upset.
Guarantee Agreements Involving Corporate Residents Must Be Properly Executed
Unless the property manager has researched the state of the finances of the corporation and determined that the corporation has a long standing history of promptly paying its bills, and the property manager believes with complete certainty that the person signing the lease has the authority to sign on behalf of the corporation, it will be safer for the property manager to have an individual sign a guarantee of lease. The person signing the guarantee would be responsible for all past due rent any other amounts owed under the lease if the corporation defaults on its obligations to the landlord. The guarantee agreement must have clear and exact written language to that effect. However, if the individual signs the guarantee of lease agreement and includes any reference to the company or corporate title, then the guarantee may be essentially worthless, because it will not be enforced against the individual. This result may occur when there is no clear language demonstrating that the person signing the guarantee of lease agreement intended to be personally liable. Also, if the property manager wishes to include the individual on the lease itself, then the signature block should state the following, for example: “Beth Smith, signing in her individual capacity”.
The Corporation as the Lease Guarantor
In many instances, the property manager due to resident selection criteria will not be able to approve an applicant unless the applicant obtains a guarantor. Very rarely, the guarantor will be a corporation. Therefore, in order to enforce the guarantee agreement against the corporation, all of the rules for proper execution which apply to the lease signing process will also apply when the corporation is guaranteeing the lease. The properly trained property manager must verify that the corporation is in existence, and the guarantee of lease agreement must list the name of the corporation exactly as it is listed with the Secretary of State, and the person signing the guarantee of lease must have the authority to do so. Likewise, the signature block must clearly list the name of the corporate representative and the corporate representative’s exact title. Call your attorney if you have questions about this process.
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