Why Your Property Management Business Needs a Lawyer

A wise move when performing regular commercial transactions with members of the public is to organize or incorporate that business to limit one’s personal liability in the event problems occur. This is especially true in the area of rental property, where transactions and adverse actions can be emotionally charged. What landlords and property managers may not know is that they cannot, by law, represent their own business interests in court in Kentucky if the business is organized or incorporated as a separate entity.

This rule may seem harsh or unfair, but it is the law. When a landlord organizes an LLC or incorporates the business as a corporation, that company then becomes a separate legal entity. While one may represent oneself before a Hispanic couple outside home for rentcourt, one cannot represent another without a license to practice law. That, in effect, is what happens when a business owner tries to represent the business in court. According to the Supreme Court, the incorporated or organized business entity is unable to represent itself (and a business entity cannot obtain a law license), so a separate counsel is necessary.[1] A Kentucky Bar Association Opinion reiterates this rule, stating that a “manager of rental real estate, who is not [a] lawyer and does not own the real estate, [cannot] prepare and file a writ of forcible detainer without engaging in the unauthorized practice of law.”[2]

The prohibition on corporate self-representation is simple to forget, especially when dealing with tenants in a legal setting. For instance, a tenant in breach of the lease creates an aggravating experience that may call for a legal proceeding such as a forcible detainer action or small claims. It may seem a simple act to head down to the district court and fill out a complaint, but this can cause unnecessary delay in what is generally a rather quick statutory proceeding. If the entity is not represented by legal counsel, a judge will dismiss the case, forcing the entity to refile the action with counsel, adding yet more delay to an already frustrating situation. If the landlord is lucky, the judge may continue the matter for the entity to get an attorney for the landlord, but this can backfire as well, such as in the case of Bobbett v. Russellville Mobile Park, LLC.[3] In that case, the manager of a mobile home park and co-owner of the LLC that owned and managed the park filed a forcible detainer action against a park resident. The district court judge dismissed a motion by the residents that the complaint was prepared illegally (as the manager was not an attorney), continuing the case so that the LLC could acquire counsel. Even though the LLC did acquire counsel, the Kentucky Court of Appeals still held that the manager had practiced law without a license and that the original complaint was void, dismissing the entire case.

The importance of an attorney to a landlord or property manager operating a business entity cannot be understated. Even the smallest judicial actions require the assistance of an attorney, and unnecessary hassle and delay can come without remembering this simple, but strictly enforced rule. If your property management business requires legal representation, contact the attorneys of McBrayer, McGinnis, Leslie and Kirkland, PLLC.

Preston WorleyPreston Clark Worley is an associate with McBrayer, McGinnis, Leslie & Kirkland, PLLC. Mr. Worley concentrates his practice in employment law, land development, telecommunications, real estate and affordable housing. He is located in the firm’s Lexington office and can be reached at pworley@mmlk.com or at (859) 231-8780.

This article is intended as a summary of  state and federal law and does not constitute legal advice.

 

[1] See Frazee v. Citizens Fidelity Bank & Trust Co., 393 S.W.2d 778 (Ky. 1965)

[2] KBA U-38 (May 1983), available at http://www.kybar.org/resource/resmgr/Unauthorized_Practice_of_Law/kba_u-38.pdf

[3] Bobbett v. Russellville Mobile Park, LLC, No. 2007-CA-000684-DG, (Ky. App. 2008) (Unpublished)

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The Basics of Filing a Private Mechanic’s Lien in Kentucky

A mechanic’s lien is an invaluable tool for contractors and others who supply labor or materials for improvements to real property. In its most basic sense, a mechanic’s lien provides security for these groups so that they are not left at the mercy of a defaulting contractor or property owner. The discussion set forth herein only addresses the requirements for filing and perfecting a mechanic’s lien against a privately owned parcel of real property. The requirements for filing and perfecting a public improvement lien differ from those discussed below.

Generally, a mechanic’s lien is available to any person who provides labor or furnishes materials for the improvement of real property by contract with, or by written consent of the property owner.[1] The lien is superior to any mortgage or encumbrance created subsequent to the beginning of the labor or the furnishing of materials and the lien relates back and takes effect from the time of commencement of the labor or furnishing of materials.[2] For a lien to take precedence over a subsequent mortgage, contract lien or bona fide sale, however, a person who will claim a mechanic’s lien must file, before the recording of the later mortgage, contract lien or bona fide sale, in the office of the county clerk of the county wherein he or she has furnished or expects to furnish labor or materials, a statement showing that he or she has furnished or expects to furnish labor or materials, and the full amount thereof.[3] Thus, except as described herein, any mortgages or other contract encumbrances filed prior to the filing of the mechanic’s lien will take precedence over the mechanic’s lien.

Depending on the relationship of the contractor to the property owner, the requirements for filing and perfecting a mechanic’s lien statement are different. Contractors who have contracted directly with the property owner are not required to send the owner a notice of the party’s intent to file a mechanic’s lien. However, where the contractor has not contracted directly with the owner, such prelien notice must be given to the property owner within a specified time period.[4] Where prelien notice is required, if the property is a commercial property or is not owner-occupied, then the party seeking to file the mechanic’s lien must notify in writing the owner of the property or his/her authorized agent, within seventy-five (75) days on claims amounting to less than $1,000 and one hundred twenty (120) days on claims in excess of $1,000 after the last item of material or labor is furnished, of the party’s intention to hold the property liable and the amount for which the party will claim a lien.[5] With regard to a owner-occupied single or double family dwelling, the party seeking to file the mechanic’s lien must notify in writing the owner of the property to be held liable or his/her authorized agent not more than seventy-five (75) days after the last item of material or labor is furnished, of the delivery of the material or performance of labor and of his intention to hold the property liable and the amount for which the party will claim a lien.[6] In either scenario, the prelien notice must be mailed to the last known address of the owner of the property upon which the lien is claimed, or to his/her duly authorized agent.[7] Importantly, with regard to owner-occupied single or double family dwellings, the contractor or subcontractor cannot be the authorized agent.[8]

Pursuant to KRS 376.080, whether a prelien notice is required or not, the mechanic’s lien itself must be filed within six (6) months after the last date the contractor provided labor or furnished materials for improvement of the property. Otherwise, the lien is dissolvNew home constructioned. The lien statement must be filed in the office of the county clerk of the county where the building or improvement is located and must provide the amount due, with all just credits and set-offs known, together with a description of the property intended to be covered by the lien sufficiently accurate to identify it, the name of the owner, if known, and whether the materials were furnished or labor provided pursuant to a contract with the owner or with a contractor or subcontractor.[9] The name and address of the party claiming the lien must also be included in the lien statement.[10] The lien must also be subscribed and sworn to by the party claiming the lien or by someone on the party’s behalf.[11] Importantly, the amount of the mechanic’s lien cannot be greater in aggregate than the contract price of the original contractor.[12]

After the lien has been filed, the party filing the mechanic’s lien must send by regular mail a copy of the lien statement to the property owner at his/her last known address within seven (7) days of filing the lien statement with the county clerk.[13] If this seven (7) day notice and a copy of the lien statement are not provided to the owner, then the lien is dissolved.[14]

Additionally, any mechanic’s lien filed pursuant to KRS 376.010 is deemed dissolved unless an action to enforce the lien is brought in the appropriate court within twelve (12) months from the day of the filing of the line statement in county clerk’s office.[15]

It is important to note that Kentucky law requires strict compliance with the statutory requirements applicable to mechanic’s liens.[16] If the statutory requirements are not strictly followed, then the mechanic’s lien is dissolved.[17]

Finally, after the lien claim is satisfied, the lienholder must release the lien within thirty days. Otherwise, the lienholder may be liable under KRS 382.365 to the property owner at a rate of $100 per day the lien is not released, starting fifteen (15) days after the owner gives the lienholder notice of the failure to release the lien. This figure increases to $500 a day after thirty days, so releasing the lien is an especially important step in the lien process.

For more information on mechanic’s and materialmen’s liens and how these liens affect construction or other improvements to real property, contact the attorneys at McBrayer, McGinnis, Leslie & Kirkland, PLLC.

BYatesBrendan Yates joined the Lexington office of the firm as an associate in 2002. Brendan is a member of the firm’s Litigation Department, where he focuses his practice on construction and real estate litigation, workers’ compensation defense litigation, insurance defense and commercial litigation. He has successfully defended his clients in state and federal courts, the Kentucky Court of Appeals, the Kentucky Supreme Court, and in administrative agency proceedings in Kentucky. He can be reached at byates@mmlk.com or (859) 231-8780, ext. 208.

This article is intended as a summary of state and federal law and does not constitute legal advice.

[1] KRS 376.010(1)

[2] Id.

[3] KRS 376.010(2)

[4] KRS 376.010(3) and (4).

[5] KRS 376.010(3).

[6] KRS 376.010(4).

[7] Id.

[8] Id.

[9] KRS 376.080(1).

[10] Id.

[11] Id.

[12] KRS 376.010(1).

[13] KRS 376.080(1).

[14] Id.

[15] KRS 376.090(1).

[16] Laferty v. Wickes Lumber, Ky.App., 708 S.W.2d 107 (1986).

[17] Id.

A threat of litigation forces Danville to review P&Z findings


Photo by Pam Wright/pwright@amnews.com

One of McBrayer’s newest associates, Jacob Walbourn, featured prominently in a recent article on http://www.centralkynews.com, the online version of the Danville Advocate-Messenger. The article can be found here:

http://www.centralkynews.com/amnews/news/local/boyle/a-threat-of-litigation-forces-danville-to-review-p-z/article_fda40422-3b9a-5383-ad46-59b4b421242a.html

Subdividing Land

When we think of subdivisions, we generally think of large housing estates with a house on each lot, but technically the subdivision of land means the creation of saleable lots by splitting a tract into smaller parcels. In communities that have adopted land use regulations, the subdivision of property is typically handled by submitting a subdivision plat to the planning commission in the jurisdiction where the property is located. The subdivision of land is considered a ministerial matter. This means that if the proposal meets the minimum requirements of the zone in which it is located, the planning commission must approve it. Unlike rezoning of property, which requires notice to surrounding property owners and a full due process hearing, a subdivision plat does not trigger notice and hearing procedures. Typically all that is required is submission of a subdivision plat that meets the minimum requirements set out in the zoning ordinance and land subdivision regulations as well as the payment of a processing fee. Under Kentucky law, the planning jurisdiction has the power to assign the review and approval of subdivision plats to a staff person. After a plat is approved, it is recorded in the county clerks’ office. A recorded subdivision plat creates the new lots. No new lot can be sold until after the subdivision plat is recorded.

Shrinking FarmlandThe fact that approving subdivision plats is ministerial and that neighbors do not receive actual notice that the plat is under review does not prevent neighborhood opposition in some cases. For example, in many older neighborhoods, the lots are much larger than the minimum lot size for underlying zoning classification. The owners of such properties sometimes submit a plat to subdivide their property to create a new lot of record in what has been their side yard. Often, neighboring owners are opposed to such a subdivision because it adds more density and changes the streetscape and overall look or character of their neighborhood. However, in Kentucky, the case law makes clear that the planning commission cannot disapprove the plat based on any of those arguments, nor can it use comprehensive plan recommendations as a basis to deny the plat. The sole criterion is whether the plat meets the minimum dimensional requirements of the underlying zone.

The division of land for agricultural purposes is not included within the definition of a subdivision under Kentucky law. The owner of land that is intended to be used as for agricultural purposes, as defined in state statute, does not typically go through the subdivision plat approval process and can be accomplished merely by dividing the property by deed. Occasionally this can create problems for subsequent owners or zoning enforcement officials if the new owner or his successor applies for a building permit to construct a house on the property, because under state law such a structure must be used for persons engaged in agriculture. Making the determination that a person is engaged in agriculture on the property can be difficult.

If you need help in subdividing your property, or if you are facing problems with your property due to a past subdivision of agricultural land, consult the attorneys of McBrayer, McGinnis, Leslie & Kirkland, PLLC.

CWestoverChristine Neal Westover is an attorney in the Lexington office of McBrayer. Ms. Westover has extensive experience practicing law in both the public and the private sector. The focus of Ms. Westover’s experience and area of practice is land use law since her assignment in 1991 as legal advisor to the boards, commissions and divisions of government within Lexington Fayette County on all matters related to planning, zoning and land use law. Ms. Westover has an extremely deep and broad expertise of the laws governing land use in Kentucky and the procedural and substantive complexities that underpin planning and zoning matters. She also has significant experience dealing with governmental divisions such as Building Inspection, Code Enforcement and other administrative bodies due to their regulatory authority in land use matters. Ms. Westover can be reached at cwestover@mmlk.com or (859) 231-8780, ext. 137.

Tenants are Left in the Cold after the Sunset of the Protecting Tenants in Foreclosure Act

For a time, the Protecting Tenants in Foreclosure Act of 2009 (“the Act”) provided some protection for tenants against foreclosures on a landlord’s property. The law gave tenants in foreclosed properties protections against successors in interest of the property. The law was set to expire in 2012, but Congress extended the provisions to December 31, 2014. Efforts to re-extend the law failed, and it is now expired. This is bad news for tenants of residential real estate whose landlords face foreclosure, as now state law applies in absence of federal protectionHispanic couple outside home for rents.

The protections afforded tenants under the Act were the ability to stay in a rented property until the end of the lease, unless either (a) the lease was terminable at will or there was no lease, or (B) the property was sold after the foreclosure to another purchaser who intended to use the dwelling as a primary residence. Even in this case where the property was sold, the tenant then had a full ninety days to vacate the premises. As these federal protections have expired, state law now governs.

Kentucky does not have a law analogous to the Act. In fact, Kentucky statutory law doesn’t speak to how foreclosure affects tenants at all. State common law, however, terminates a lease concurrently with a foreclosure if the mortgage was recorded prior to the lease. As the court stated in the 2014 case of McEwan v. EiA Properties, LLC, “Stated simply, the lessee’s right of possession is derived from and limited by the mortgagor/lessor’s right of possession.”[1] In other words, because Kentucky is a race-notice jurisdiction, a mortgage duly recorded in the public record would serve as requisite notice to any tenant that the lease and the rights created thereunder are subject to the rights of the mortgagee and may thusly be foreclosed. If a mortgage were recorded after the date a lease was executed or recorded, however, circumstances might be different – the purchaser would become the new landlord, subject to the terms of the lease.

If your tenancy is threatened by foreclosure or you’d like more information on how foreclosure affects tenants in Kentucky, contact the attorneys at McBrayer, McGinnis, Leslie & Kirkland, PLLC.

CRichardsonChristopher A. Richardson is an associate at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Louisville, KY office. Mr. Richardson concentrates primarily in real estate, where he is experienced in residential and commercial closing transactions, landlord/tenant relations, and mortgage lien enforcement/foreclosure. Mr. Richardson has closed innumerable secondary market and portfolio residential real estate transactions and his commercial practice ranges from short-term collateralized financing and construction lending to development revolving lines of credit. He can be reached at 502-327-5400 or crichardson@mmlk.com.

This article is intended as a summary of  federal and state law and does not constitute legal advice.

[1] McEwan v. EiA Properties, LLC, 428 S.W.3d 633, 636 (Ky. Ct. App. 2014)

The Role of the Comprehensive Plan in Land Use Planning

The comprehensive plan is the most important tool in land use planning. In its most basic function, it provides a roadmap for the development of a community’s most limited resource, the land itself. More than just a rigid set of directions, however, the comprehensive plan lays out a community’s vision for the future, providing guidance as to how the community will grow and thrive while striking an appropriate balance between competing uses.

Sketching Of Building Construction On Flying Book Over Urban SceA well-conceived comprehensive plan is mainly a policy instrument that creates a broad outline for how a community will achieve its goals with a view to an extended time horizon. In addition to the general role as a guide, however, a comprehensive plan will serve many purposes as an invaluable tool in a planner’s tool bag. For example, a comprehensive plan gives a community continuity and stability across administrations and agencies for addressing land use issues, preventing short-term changes and successive upheaval. This in turn provides predictability and stability for businesses, developers and others with interest in land use, encouraging growth and development free from uncertainty. The comprehensive plan further fosters economic development by providing valuable information for companies making location decisions. In addition to fostering growth, a comprehensive plan may also serve as a governor against unfocused growth or excessive sprawl, and may even encourage re-development in declining areas. The plan may also provide justification for zoning decisions.

A community can also create and express a sense of self through a comprehensive plan. Through a comprehensive plan, a community can decide how to use or protect local resources; preserve historic buildings or areas; create a certain community appearance in line with traditional community aesthetics and character; or foster certain facets of community life, such as the arts or sports teams. A comprehensive plan also speaks to parks, schools, police stations, libraries and other public resources, expressing a community’s plan for the overall wellbeing of its citizens. A well-constructed comprehensive plan includes a heavy public input element to best effectuate the desires of the community at large. Communities may also craft additional or supplementary plans to address specific goals, or to address unique areas of the community. In Lexington, for instance, a separate plan addresses the community’s goals with regard to rural land management.

In a basic sense, a comprehensive plan is also a technical blueprint for physical change. It can help a community anticipate infrastructure needs and increase the efficiency of development by coordinating improvements and directing growth. A comprehensive plan will also provide for development in an orderly manner, weighing and balancing competing private interests in land use. Top-down planning maximizes the most beneficial uses for the greatest number of individuals, as well as avoiding conflicts between land uses that can arise to the level of nuisances.

In Kentucky, a comprehensive plan is governed by KRS 100.187 and must contain at least a statement of goals and objectives, a land use plan, a transportation plan, a community facilities plan and provisions to accommodate any military installations of a certain size that may be included in or abutting the planning unit. KRS 100.197 requires a planning commission to amend or readopt the plan elements every five years.

In effect, a comprehensive plan is a community’s collective statement on what it would like to grow into and how it will accomplish that goal. It then guides the technical and regulatory process to create a system of development and resource allotment designed to fulfill a community’s sense of place.

If your community needs assistance in the creation, review or amendment of a comprehensive plan, contact the attorneys of McBrayer, McGinnis, Leslie & Kirkland, PLLC.

Jacob C. WalbournJacob C. Walbourn is an associate in McBrayer’s Lexington office. Mr. Walbourn focuses his area of practice on planning and zoning law handling a wide variety of land use matters for clients in the private sector. His responsibilities include attending Planning Commission and   Board of Adjustment hearings and working with developers, business owners, and government agencies on land use applications, zoning ordinance text amendments, comprehensive plan updates and other land use issues. He can be reached at jwalbourn@mmlk.com or (859) 231-8780, ext. 102.