Pop quiz: who should be listed as “the owner” in the TAA Lease? Specifically, the TAA lease language is as follows:
“This Lease Contract (“Lease”) is between you, the resident(s) as listed below, and us. The terms “you” and “your” refer to residents. The terms “we,” “us,” and “our” refer to the owner listed below.”
So, who/what is “we,” “us,” and “our”? It is easier to state who/what it is not or should not be, we, us, or our. The TAA Lease form strongly discourages using the management company name as the “owner.”
Paragraph 24 of the TAA Lease states that employees, agents, and/or management companies are not personally liable for any obligations listed in the TAA Lease. However, suppose the management company’s name (rather than the owner’s actual or DBA) is used as “the owner” in the TAA Lease. In that case, it is TAA general counsel’s view that the management company can be held responsible for all the owner’s liabilities under all federal, state, and local laws, ordinances, rules, and regulations, as well as all obligations under common law. In addition, if the management company is used instead of the owner under the TAA Lease, the management company is potentially violating the Texas Deceptive Trade Practices Act.
So, if you should not use the management company name as “the owner” under the TAA Lease, what name do you use? Either the real or assumed name of the ownership entity. One approach is to use an assumed business name called a DBA (doing business as). Another method is to use a limited liability company (LLC). An LLC is an excellent way to protect your assets. LLCs generally shields you from personally being sued, though your company could still face litigation. For example, if your property were under an LLC and it got sued, only the LLC’s assets would be under attack. Using an assumed name or DBA is another example of an incremental obstacle to a potential plaintiff.
Whether you list a DBA or an LLC as the “owner” of a property in a lease is a complicated decision, and each member’s situation differs.
Therefore, you should consult your attorney, CPA, or financial advisor to make the best decision.
Following are some operational best practices if you use a DBA or LLC. Just a reminder, these REDBOOK Blues articles do not provide legal advice. If you need legal advice, contact one of AATC’s member attorneys (https://www.aatcnet.org/legal-services-program).
How to use an assumed name or DBA:
- What is an “assumed name”? An assumed name is simply the name under which the property owners do business. For example. If Perry owns a rental house at 1117 Usher Street, you can call it 1117 Usher Properties. If Perry owns several rental homes, it’s “Fluffy Properties.” If Perry owns an apartment, then it’s “Fluffy Apartments.”
- Prepare an assumed name certificate. Assumed Name forms for various business entities are included in TAA’s REDBOOK Online. In filling out the form, if the owner is a corporation, limited partnership, or limited liability company, you must check with the Texas Secretary of State to see if the assumed name is available. For state-level filings, click here and complete Form 503. This form requires an applicant to state the counties where an assumed name will be used. If the entity potentially uses its assumed name in all counties in Texas, check the box for “ALL.”
- Record the assumed name certificate. The assumed name certificate must be recorded with the proper governmental agency. The proper agency is (1) the county clerk (in the county in which the property is located) for an owner who is an individual or partnership AND (2) the Secretary of State’s office (in Austin). For an owner who is a corporation, limited partnership, limited liability company, or foreign filing entity, you only need to file with the Secretary of State. Texas Business and Commerce Code chapter 71—the “Assumed Business and Professional Name Act”—requires a notarized DBA filing for individuals, companies, and others under certain circumstances. The filer must include the physical address of its place of business. If the property is located in a different county from where the entity is headquartered, then a DBA must be filed in both counties. The statute expressly includes both domestic and foreign entities within its scope.
- Insert the assumed name of the owner in the space for “owner’s name” in the TAA Lease if you don’t want to use the owner’s real name. As noted above, it is a dangerous practice to list the management company’s name on the lease as the “owner.
- Disclose the assumed name rather than the owner’s real name whenever the resident asks you for the owner’s name. Section 92.201 of the Texas Property Code requires the owner to disclose either the real name or the assumed name of the owner and either a street address or PO Box address of the owner if the assumed name certificate is recorded with the county clerk. Remember that this section of the Texas Property Code requires the owner to furnish this information in writing to the resident within seven days of the resident’s request for information.
- Have your onsite manager or other authorized individuals (who can sign for the owner) sign their signature on the signature line for “Owner or Owner’s representative” on the last page of all your leases.
For more information on assumed name certificates, contact the Texas Secretary of State at www.sos.state.tx.us or 512-463-5555.
How to form a limited liability company (LLC) in Texas:
- Name your LLC.
Make sure the name isn’t already taken by registering for a free account with the Texas Secretary of State and doing a name search. Making an account on the Texas SOS website will also grant you access to file business forms online and make any payments to the state. Your entity name must contain Limited Liability Company or the abbreviation LLC or LLC. Consider buying the domain name to prevent others from acquiring it.
- Choose a Registered Agent.
A registered agent is a person or business that agrees to send and receive legal papers on behalf of your LLC. Such papers include service of process of legal action (if you are sued) and state filings
A Registered Agent must be a resident of Texas or a Company authorized to transact business in Texas. You may also elect an individual in the company, including yourself, but an LLC cannot be its own Registered Agent. A Registered Agent must consent to Appointment in written or electronic form. The language to be used in the consent is found in the Acceptance of Consent form 401-A. The consent does not have to be filed with the Secretary of State.
- Fill out and file the Certificate of Formation.
To create your LLC, you must file the Certificate of Formation with the State of Texas. Follow the instructions on the appropriate form for your situation. Important: If you’re expanding your existing LLC to the State of Texas, you are registering a Foreign LLC using a different form entitled “Application for Registration of a Foreign Limited Liability Company.” When filing the Certificate of Formation in Texas, you must decide whether your LLC will be member- or manager-managed. Consult an attorney of your choice.
A non-refundable fee of $300 is payable to the Secretary of State.
- Obtain an EIN.
What is an EIN? The Employer Identification Number (EIN), or Federal Tax Identification Number, is used to identify a business entity. An EIN can be best described as a Social Security number for the company.
Why do I need an EIN? An EIN is required when filing state and federal taxes. In addition, banks may require an EIN to open a business checking account.
Where do I get an EIN? The business owner obtains an EIN from the IRS (free of charge) after forming the company, which can be done online or by printing and mailing the appropriate form from the IRS website.
Nicole Zaitoon, Allied Property Management, is AATC’s 2023 Government Affairs Committee Chair and a member of AATC’s Board of Directors.
