landlord lawyer in Auburn

Suing for Unpaid Rent After Evicting a Tenant

Alabama has laws in place that protect both landlords and tenants. If you are a landlord and your tenant failed to uphold the terms of a lease or doesn’t pay rent, you can start the eviction process. Depending on the circumstances, the process could vary, but in most cases, you have the right to sue for unpaid rent if you are unable to collect it from the tenant.  

The Eviction Process in Alabama

Generally, landlords must have legal cause to evict a tenant. Not liking them or deciding that you want to use the property for something else won’t suffice. Some acceptable reasons include lying on a rental application, violation of lease terms, and failure to pay rent.

To terminate a lease, the landlord generally needs to give a seven-day written notice to the tenant. Tenants then have that period to pay any past due rent, take care of other violations, or vacate the property. But when a tenant still owes the landlord money, what’s the next step?

Tenants with Leases and Unpaid Rent

A tenant “breaks a lease” when they move out before the lease term is up, whether or not they’ve notified the landlord of their intent to vacate. It makes sense to sue a tenant in this situation, particularly when there is a lot of time left on the lease.

By leaving before a fixed-term lease has expired, that tenant is liable for rent for the remainder of the lease term. While the landlord has a duty to attempt to find a new tenant, they may still be able to collect the difference between the rent due, less the security deposit held, the cost to re-rent the unit, and the new rent collected.

When the landlord has evicted a tenant that has a lease, this changes the equation. That same landlord can no longer sue for the remaining amount of the lease because they’ve chosen to terminate the agreement. Instead, they can sue for unpaid rent and any damage the tenant may have caused in small claims court. It might make sense to go down this road if the security deposit won’t cover what is due (factoring in cleaning fees and other expenses).

Month-to-Month Tenants and Unpaid Rent

The situation is similar with a month-to-month tenant. Ideally, these tenants provide the required notice (usually 30 days) of intent to vacate the property and pay rent for that period. If they don’t pay rent or if a month-to-month tenant is evicted, there are several options.

The first is to use the security deposit to cover unpaid rent. Security deposits can be used to cover damage to the property as well as any unpaid rent. But, if a significant amount of damage was done or the rent due is more than the balance held, you can sue for the difference.

Landlords Suing Co-Tenants for Unpaid Rent

When you have two or more people renting a property together with both being listed on the lease, these are co-tenants. Each co-tenant has the same responsibilities and rights under the lease agreement.

If you must evict co-tenants that have back rent due, you can sue either one or both of them for what you are owed. This is because all tenants are financially responsible for money due regardless of any agreements amongst themselves. How they hold each other responsible later is between them.

Potential Tenant Defenses for Unpaid Rent

Often, a tenant that has been evicted and then sued for unpaid rent won’t bother to show up in court. If this happens, you’ll be able to state your case and potentially win by default as long as the scenario is credible.

Sometimes, the tenant will make an appearance but has no valid defense for not paying the past due rent. Maybe they are hoping for leniency by the other parties or would like an installment plan. The courts will generally rule in favor of the landlord in these cases as well.

There are some cases in which the tenant comes to a court hearing with defenses prepared. The most common among these is that the unit was uninhabitable according to state standards. Alabama law requires that a landlord make the premises “fit and habitable,” and failure to do this is potential grounds to break a lease.

For success in defending against unpaid rent, tenants must present proof of their claims, such as an environment that threatened their health and safety. Likewise, landlords should come prepared to these hearings with documentation that includes signed rental agreements and the period of unpaid rent that is due.

Speak with a Qualified Alabama Real Estate Attorney

Landlord-tenant disputes can be emotional and complex. If your evicted tenant still owes you money, you have legal remedies, but getting them to pay can be challenging.

The experienced real estate attorneys at Davis, Bingham, Hudson & Buckner, P.C. have successfully resolved these types of issues for clients throughout the Auburn and surrounding area. We are an established real estate and transactional law firm that has been delivering results for clients since 1978.

Contact our office today at (334) 821-1908 for a consultation to discuss your case.

What Type of Business Structure is the Best for my Business?

When you are forming a new business, there are numerous tasks that need to be completed.  Raising capital, hiring staff, developing a marketing strategy, and putting in countless long days in the beginning to bring the business from zero to profitability, just to name a few. But before you begin operations, one of the most important things you need to figure out is your entity structure.

The legal entity you choose for your business will have a major impact on your liability exposure, how you conduct operations, taxes, and many other areas. Each business structure has its own advantages and disadvantages, and the best type of entity for your business will depend heavily on unique factors such as the industry you are in, the size of your company, how many owners you have, and your long-term objectives. The key is to determine which entity structure contains the attributes necessary to best help your business accomplish its goals.

There are five main business entity structures that are recognized by the IRS. Here is a look at each one of them:

Sole Proprietorships

A sole proprietorship is the simplest and most basic type of business entity. This is a common choice for solo entrepreneurs who are just starting out, have very few or no employees, and have limited interaction with vendors, suppliers, and subcontractors. In many cases, sole proprietorships are operated from a home office, and there is no business that they are renting or leasing. A sole proprietorship is easy to start because there is no separate legal entity to form. Essentially, all you need is a business bank account and the required licensing and you are in business. The major downside is that the profits and losses for the business are included on your personal tax return, and the owner is personally liable for any debts and lawsuits against the business.

Partnerships

A general partnership can also be started without forming a separate legal entity. This type of business structure may be suited for a small business with two or more owners that is just starting out and, like a sole proprietorship, the business has few or no employees and other complex arrangements. With the general partnership, owners are also exposed to personal liability that may result from the business. This can be more problematic than with sole proprietors, because you may be on the hook for the potential negligence or misconduct of one of the other partners. 

Limited Liability Companies (LLCs)

One way to address the concern about liability exposure within a business is to form a limited liability company (LLC). An LLC is a hybrid structure that allows owners, partners, and shareholders to limit their personal liability while enjoying the flexibility and potential tax benefits an LLC has to offer. LLCs have fewer formal requirements than corporations, but members can choose to be taxed as a sole proprietorship or a corporation. This makes them a popular choice for all types of small businesses.

S Corporations

A Subchapter S corporation, commonly known as an “S Corp”, is a corporation that must have been created in, and be based in the United States. Ownership is limited to a maximum of 100 shareholders, and shareholders must be private U.S. citizens, very specific types of trusts and estates, or certain types of exempt organizations, such as a qualified pension plan. The main advantage with an S Corp is that business income and losses “pass through” directly to shareholders without first having to pay corporate tax on the money. This allows an S corporation to enjoy the same limited liability for its shareholders has a C corporation, but without the double taxation. The main drawback to an S Corp, aside from the ownership restrictions, is that it can only issue common stock. The inability to issue preferred stock can make it more difficult to attract investors if the business needs to raise capital.

C Corporations

A C corporation is the most complex type of business structure, with limited liability and very few restrictions on ownership. A C Corp can have an unlimited number of shareholders, and the shareholders may be other individuals, corporations, trusts, foreign citizens or entities, and virtually any other type of individual or legal entity. You are also allowed to issue any type of stock, such as cumulative, convertible, callable, and other forms of preferred stock in order to lure investors and for other purposes. As we touched on in the discussion about S corporations, the main drawback with a C Corp is the fact that corporate profits are taxed twice; once at the corporate tax rate, and again at the dividend tax rate when they are received by shareholders as dividends.

What Type of Business Structure is Best for You?

As you can see, there is a lot to consider when deciding which legal entity to structure your business under. While it is possible to change business structures later on, this can be costly and complicated, depending on your circumstances at the time you decide to change. This is why it is much better to choose the business entity that best fits your needs from the outset.

At the offices of Davis, Bingham, Hudson & Buckner, P.C., we have over four decades of experience assisting clients with business entity formation and all other types of business legal matters in Alabama. We can thoroughly examine the specifics of your business, and your needs and future goals to help you choose the right entity structure from the start. Call our office at 334-821-1908 to schedule a consultation. You may also send us a message through our online contact form.

Buying a Business

What Things Need to be Considered before Buying an Existing Business?

If you are an aspiring entrepreneur who has always wanted to own and operate your own business, buying an existing business can be a good option. There are many advantages to purchasing a business that has already been established. One of the most important being that they have already done all the initial startup legwork to make the business operational. Beyond that, an existing business has an established reputation in the marketplace, and a brand that people recognize.

Though purchasing an existing business offers many potential benefits, you need to make sure to pick the right one based on your passion, skills, and budget. This may very well be the largest investment you have ever made, so you don’t want to jump in to any random business that may be for sale. It is important to perform some due diligence to determine whether or not you are likely to be successful with it.

There are many things that need to be looked at before buying an existing business. Here are 7 important questions to ask the current owner/seller or their agent:

Why is the owner selling?

In many cases, a business that is for sale will already have a published reason for why they are selling. However, it is useful to ask the seller this question again. There are certainly many legitimate reasons for selling a business; e.g., retirement, health reasons, moving out of the area, and many others. Mainly, you want to confirm that they are selling for one of these types of reasons, and not because the business is in decline and they are trying to get out.

How did the seller determine the asking price?

It is important to find out how the seller arrived at their asking price. Hopefully, it was not some arbitrary figure based on how much they needed to retire on or something similar. There are three common business valuation methods:

  • Asset Based: The value of all the assets the business owns.
  • Income Based: The net revenue the business generates each year, typically using a multiplier of 2X to 3X.
  • Market Value: What similar businesses are selling for in the area.

The seller may have used one of these or a combination of these with more weight given to one or the other. The right valuation method depends largely on the type of business, and the industry it is in.

What skills are needed to successfully operate this business?

This is one of the most important considerations when buying an existing business. It requires a buyer to take an honest look at their skillset and find out if they really have what it takes to successfully run this existing business. A business may be profitable today, but if it is not run properly, it may not be profitable tomorrow. Speak with the owner about what skills are necessary to get into this business and be sure you possess those skills (or someone close to you possesses them) before you decide to move forward.

What are the greatest challenges the business is facing, and what are its greatest growth opportunities in the marketplace?

There are two parts to this question, a more negative side and a positive side. You need to find out what challenges the business currently faces against their competition, and what will be required to overcome these challenges. You should also ask about opportunities the owner believes are available to grow the business in the future.

Is the seller willing to finance all or part of the purchase?

One of the downsides of purchasing an existing business versus starting a business from scratch is that it will typically cost far more to purchase a business that is already established. This could make it challenging to obtain financing through traditional sources, such as the local bank. Sellers can help with this dilemma by offering to finance part or all of the transaction. If you are searching for financing options, be sure to ask the seller if they are willing to do this for you.

Is the seller willing to stay on as a consultant or employee to help during the transition period?

Along the same lines of the last question, you might need some help (at least in the beginning) as you transition into owning and operating your own business. You might also need some assistance with the current employees and clientele. Keeping the seller in some capacity can help address these issues. Find out if your seller is willing to stay on in some type of role.

What legal contracts does the business have? And are there any unresolved legal issues you should be aware of?

As a buyer, you need to know what legal contracts you will be obligated by. One common example is the lease for your location. There may be other contracts with vendors for certain products and services over certain periods of time. You also want to find out if there is any pending litigation against the business or any other unresolved legal issues.

The Importance of Working with Skilled Legal Counsel

Purchasing a business is a major investment that involves many complications and numerous potential pitfalls. If legal mistakes are made during the purchase process or after you take over operations, you could end up with severe consequences; even the possibility of facing civil and or criminal charges depending on the situation. To ensure that you are legally protected from start to finish, it is best to work with an experienced business attorney. At the law offices of Davis, Bingham, Hudson & Buckner, P.C., we have extensive experience helping business owners in Alabama with all types of legal issues, and we work closely with our clients to help them successfully navigate the legalities of owning and operating a business. For a consultation with one of our attorneys, call our office today at 334-821-1908. You may also send us a message through our online contact form.