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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