Limiting Real Estate Liability With an LLC or Corporation

In Business Law, Real Estate by Coolidge Wall

As a real estate and corporate attorney, I often work with clients who own investment or rental property. A common question often arises: Should a client hold title to real estate in the client’s individual name, or would the client be better served by holding the property in a limited liability company (i.e., an LLC) or a corporation. Of course, the answer depends on the specific circumstances of the client’s situation, but there are often advantages to holding property in an entity owned by the client.

The primary advantage of holding property in an LLC or corporation is limitation of liability. For example, if a tenant or other individual is injured, the property owner is often the person who is sued. Without going into the nuances of premises liability, there are circumstances where an individual may face liability by virtue of owning real estate on which someone is injured. In that event, if the real estate was held by an individual, that individual may be personally liable to the person injured. On the other hand, if the property is held by an LLC or corporation, then the liability would typically be cut off at the entity level. In such case, the property owner would be shielded from liability arising from the real estate and the property owner’s personal assets would be protected.

In addition to premises liability, an LLC or corporation that owns real estate may serve as the landlord for rental property. Thus, any lease would be between the entity and the tenant, not an individual and the tenant. Then, in the event of a lease dispute, the entity would typically bear the liability risk, not the individual (unless the individual has taken an active role in misconduct or there are other grounds for a court to “pierce the corporate veil”).

Whether a property owner should consider conveying real estate to an LLC or corporation (and whether an LLC or a corporation would be the better vehicle to take title) depends on the property owner’s circumstances. Issues such as financing, property tax exemptions, and income tax consequences should be considered when making these decisions, and an attorney can offer that guidance.

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