CREJ - Property Management Quarterly - May 2015
What’s in a name? A rose is a rose, or so they say. That may not prove true in the case of garnishing a tenant’s bank account or making a claim on a tenant’s insurance policy. In instances such as these, the true legal name of a tenant can be essential. Generally speaking, a commercial tenant is a limited liability company, some form of corporation or partnership, or an individual doing business under a trade name. More often than you think, the true name of the tenant is misstated in the body of the lease, leading to a host of issues that easily could be avoided. The identity of the tenant comes into play in a number of circumstances, including bankruptcy, a tenant default or even a casualty. In some cases, the true identity of the tenant is given little thought. In fact, it is not uncommon for an attorney to receive a request to draft a lease based on a letter of intent that sets out all of the major deal points but fails to identify the tenant or the guarantor(s) with particularity. This information is often inserted in the lease agreement at the 11th hour, just prior to lease execution and, sometimes, without good legal counsel, haphazardly. In other instances, the tenants referenced in the body of letters of intent are either entities that have not yet been formed or are out-of-state entities, which have not yet registered with the Colorado secretary of state. Registering with the state can be accomplished with a few clicks of a mouse and the payment of a nominal fee. Before executing a lease, it is always a good idea to confirm that an entity or trade name is registered with the Colorado secretary of state and that you are using the correct legal name of that entity in the body of your lease. These records can be found online at www.sos.state.co.us. This information is provided free of charge. It is also a good idea to review copies of the business entity’s governing documents. These documents should disclose who the owners and principals of the tenant are and their respective percentage ownership interests. This information could be helpful if there is a change in ownership constituting an “assignment” for purposes of the lease. It could also be helpful in determining from whom the landlord should consider obtaining a personal guaranty. Perhaps most importantly, these documents identify the party authorized to execute the lease on behalf of the tenant, which is information that could help a landlord avoid any potential argument by a tenant – no matter how weak – that the lease is unenforceable because the appropriate party did not sign it. In an ideal world, the tenant identified in your lease should be consistent with the legal name of the tenant registered with the secretary of state, the tenant identified in the certificate of insurance provided by the tenant, and the name on any checks tendered for rent. What does this all mean for a landlord? For starters, a misidentified tenant could make asserting an insurance claim or filing an action against a defaulting tenant more cumbersome. Specifically in the case of a tenant default, it could mean that additional claims under alternate legal theories must be asserted in order to obtain a judgment against the true entity. At the end of the day, this means more money and more time before a judgment can be obtained. It might also make obtaining personal service on the tenant more challenging. (Remember that one of the primary functions of the Colorado secretary of state’s website is to provide information for the registered agent for an entity. The registered agent is the party authorized to be served on behalf of the entity.) If you don’t have the correct tenant name, it may be difficult to determine how to obtain service. And perhaps most importantly, if you obtain a money judgment against the wrong entity, it can make collection next to impossible. By way of example, if the name you obtain judgment against does not match the name on the actual tenant’s bank account, you can’t attach to those funds. At the end of the day, an ounce of prevention is worth a pound of cure. Taking a few minutes to review an entity’s governing documents and the information available on the Colorado secretary of state’s website before signing a lease could save you time and money at a later date. This, coupled with periodic reviews of the certificates of insurance and the source from which rental payments are received, could make life a little easier if the tenant should default or in the event there is a need to file an insurance claim.