Here is the situation, you have a single-family home in central Phoenix that is up for rent for $1,800.00. A person comes to you and says that he wants to rent it and will pay $2,200.00 per month. However, he wants to put the lease under his corporate entity. Does that matter to you? What issues should you consider?

The first thing you should realize is that if you are signing a lease with a company (corporation or LLC), in the event of a breach, you are likely only able to collect against that company – not the owner of the company. Therefore, the background check you are doing will be different from your standard lease and will be critically important. If the company was just set up and has no assets, the chances of you collecting something in the event of a breach are very minimal. Generally, in Arizona, you are not able to “pierce the corporate veil” and pursue the owner of the company for debts that the company incurred. Thus, if you sign a lease with a company that was just created solely for the purpose of signing this lease, you likely won’t have a chance to collect if something goes wrong. You want to ensure that your background screening company does a thorough check on the corporation itself, not just its members. Also, when the company has no assets
or was just recently created, that should be a clue that not everything is on the up-and-up.

Second, if a corporation is signing the lease, you need to determine what their intent is with the rental home. Usually, when we see corporate leases, it is because a company wants to rent the space so their employees can live in it OR the company wants to sublease the property. In the case of employees, it is common for a national company to put employees in a property while they work in town. This happens with executives or medical professionals who are in town for a short time. In such instances, the companies are usually willing to pay a premium to allow different employees to live in the home. This is normal, and the lease should specify that only employees of the company can live in the unit.

On the other hand, many such companies want to rent the property, simply to turn around and sub-lease it to someone else. These companies will often attempt to include an addendum that they created that specifies they are allowed to move-in anyone they want and that you as the owner cannot object to who is in the home. This poses two potential problems. One possibility is that they are planning on using the home as a short-term rental, which may be prohibited by an HOA or may result in significant damage to the home. Alternatively, they may be renting the property to long-term residents that may not otherwise qualify under your criteria. For example, imagine if you entered into a lease with a company and allowed them to sublease the home. They immediately rent the home to a registered sex offender and all of your neighbors get notices that a sex offender moved into the neighborhood. You would have some unhappy neighbors, but under the terms of your lease, you have no means to object because you have no say as to who lives in the home. People that would not otherwise qualify to rent your home, would look to enter such subleases just to avoid your background screening.

You should be careful of such transactions. The only way to be sure is to get written confirmation from your resident as to their intent with the home and verify that any violation of a local ordinance or HOA rule, will still constitute a violation of your lease.

by Mark Zinman, Attorney, Zona Law Group