Archive for the ‘Business’ Category

A private out of state company recently mailed official looking documents to Louisiana companies. Media reports reveal that some recipients mailed the form and $125 back to the company erroneously believing they were required to do so.  The Louisiana Secretary of State, however, has specifically disclaimed any affiliation with the mailout.

The form mailed out by the private company appears to only facilitate preparation of company meeting minutes. It does not assist with the filing of the Annual Report with the Louisiana Secretary of State. Sending the form back to the private company is not required; filing the Annual Report with the Louisiana Secretary of State is. The out of state company requires a fee of $125. The Louisiana Secretary of State charges $25 to file the Annual Report.

New procedures for filing the Annual Report with the Secretary of State

Each corporation and limited liability company must file an annual report with the Louisiana Secretary of State; failure to do so for three years can result in revocation of the company charter.

To assist with timely filing of the annual report, the Louisiana Secretary of State mails each company Annual Report Renewal postcard. The actual report is not mailed as a matter of course, but can be obtained by calling the Secretary of State at 225.925.47094 or printing it online from the Secretary of State website.
To fill out the annual report form online, you will need your charter number and renewal id, both of which are printed on the address side of the postcard.  If you do not have your postcard, you can call the Secretary of State at 225.925.4704  to obtain both numbers.

Here is the process to print your annual report, if it is due. Once you have retrieved your charter number and renewal id:  go to www.sos.louisiana.gov/renewal and enter the two numbers. If your report is not due, the website will so indicate. If the annual report is due, a form will display. You can then follow the directions to file it online or print it and mail in a hard copy. Either way the filing must be accompanied by a $25 payment.

Here are some practical pointers on filing out the annual report for companies in good standing:

• The domicile address must be a physical address, but the mailing address can be post office box.  So, if you’d prefer to receive mail from the Secretary of State at a post office box and that information does not appear on the report, then change your mailing address.
• If you want to change your registered agent, his/her signature must be notarized. If you are not changing the registered agent, a notary signature is not necessary on the form.

Best practices: review company info on Secretary of State website

This would also be a good time to review your company profile on the Louisiana Secretary of State website. Here is how you access that information: www.sos.louisiana.gov, then click on Commercial in the left column, then scroll about halfway down the page and click on “Corporations Database” highlighted within the text, then type in the name of your company. At this point, either your company profile will appear or a list of all companies with the words you typed in will appear. If the list appears, find your company and click on “Details”. A copy of your detail report can be printed by clicking on “Print Detailed Record” at the top of the profile.

Here are a few practical pointers for the profile:

• Review the status section to determine if your company is active, which is good, or if the charter has been revoked, which is not good. If the charter has been revoked, there should be a link to click for instructions and forms to reinstate the company.
• Review the Annual Report Status. If it is showing that your company is not in good standing, then click on the link given for instructions to remedy this status.

Before signing a lease, follow the R-A-N rule:  Read, Ask and Negotiate.

1.  Read the lease, no matter the length or the small print.

2.  Ask. If you do not understand certain terms, ask for clarification.

3.  Negotiate.  Depending on supply and demand, some terms may be negotiable.

The following are some common provisions in commercial leases and the signifance to the tenant.  It is not an exhaustive list or explanation. Look for a followup post for an analysis of terms for the landlord’s benefit, plus two practical reasons why landlords should carry their own insurance even if the tenant also carries casulty and liability insurance.

Who is the tenant? 

It is commn for the named tenant to be a corporation or limited liability company. However, in this instance it is also common for the landlord to also require that an individual personally guarantee the lease. For small businesses, that usually means that the owner of the company. So, whether the business owner is the named tenant or the personal guarantor, it is important to know that his or her personal assets are at risk if there is a default on the lease. Wishful thinking that the landlord will walk away from unpaid rent is not a realistic business plan and jepoardizes the guarantor’s home, bank account and other assets.

Premises

The rent may be constant throughout the lease or it may increase each year. The increase may be a stated amount or may be calculated based on a standard of measurement such as the Consumer Price Index. 

Monthly rent may be a flat rate, or may also include a percentage of the tenant’s sales. 

It is also common for the tenant to contribute monthly a prorata share of the insurance, property taxes and/or common area maintenance expenses. Sometimes this obligation is set out separate and apart from the base rent. In that instance, the tenant must combine the base rate and all additional monthly charges to determine the total monthly expense. No matter the rent structure, each tenant should carefully review the lease before signing for a clear understanding of the total financial commitment.

Security Deposit

Just as with residential leases, commercial leases also generally require a deposit equal to one month’s rent.

Term

Commercial leases are usually 3-5 years. If you want a shorter term, ask for it. In addition there may be an option exercisable by the tenant to extend the lease.

Be careful though, some leases have an automatic renewal clause that puts the burden on the tenant to give the landlord considerable advance notice that it will NOT renew the lease. If the lease you sign has an automatic renewal clause, make sure you tickle the notice deadline so that you can timely terminate the lease, if that is  in the best interest of your business. Otherwise, inaction may lead to an automatic renewal of the lease.

Hold Harmless and Insurance

The parties usually agree to hold each other harmless for liabilities arising from the negligence of just one of them. For example, if a customer slips and falls on the premises due to negligence of the tenant, this clause says that the tenant will indemnify the landlord for any sums the landlord may be called upon to pay arising from the accident. 

The lease will likely require that you carry insurance to cover yourself and the landlord in these types of accidents.  You should consult with an insurance agent to find out what insurance is available and which best suits your needs.

The lease should also include a waiver of subrogation for the protection of the tenant and the landlord. With this provision, the insurance policies will cover the damage and the paying insurance company cannot seek reimbursement from the party at fault.

Tenant Default

The most common ground for default is non-payment of rent. However, the grounds for default are broader; violation of almost any requirement of a lease is an actionable default. Whether the landlord would seek to terminate the lease is a different issue.

Some leases require that before the landlord can take action on a default, notice of and time to cure the default must be first given to the tenant. If the proposed lease does not include a cure provision, this may be an item subject to negotiation. For example, the lease may provide that before the landlord can declare the tenant in default for not paying rent, the landlord has to give notice of the default to the tenant and give the tenant 5 days to cure the default, or in other words, the tenant gets another 5 days from the notice of default to pay the delinquent rent. This may not be an unlimited right; some leases cap the number of times the landlord has to extend the notice and cure period.

Attorney’s Fees

Generally attorney’s fees are not awarded in contract disputes unless the contract says so. Leases generally include this clause, but sometimes it is only in favor of the landlord. So, if the landlord files a lawsuit alleging a default and is successful, the tenant will also be cast to pay the landlord’s attorney’s fees and court costs.  The tenant should make sure the attorney’s fees provision goes both ways.

Recordation of Leases

Inherent in each lease is a promise by the landlord that the tenant will not be dispossessed of the premises, assuming the tenant is not in default.  However this promise of peaceful possession is not binding on new owners of the property, unless the lease is recorded in the land records. So if the landlord sells the property, the new owner is technically not obligated to honor the lease, UNLESS the lease is recorded in the public records.

Recording the lease or a memo of it puts all third parties on notice that a lease exists and any future owner must honor the recorded lease.

In practical terms, many new owners purchase the property based on the leases in hand. But if you have any concerns, you will need to record a memorandum of the lease and make sure the lease gives you the right to do so.  Recordation of the lease also protects the tenant’s trade fixtures from becoming an improvement to be owned by the landlord.

Repair and Maintenance

Perhaps the most significant difference between commercial and residential leases is that commercial tenants are responsible for a considerable portion of the repairs and maintenance. Generally, the landlord is responsible for making repairs only to the roof, foundation and other structural parts of the building, and the tenant is responsible for all other repairs. For example, that means the tenant is responsible for repairing the air conditioner when it fails.  Furthermore, if the pipes burst and damage your property or inventory in the leased space, the landlord is not responsible for replacing furniture, replenishing inventory or remedying any other damages.

In essence the tenant accepts the premises in its current condition, accepts responsibility for keeping it in good condition and is obligated for making repairs when the condition fails.

Therefore, before signing the lease, it is important that the tenant make inquiries as to the age of such things as the air conditioning and heating systems, plumbing and roof.

Ownership of Improvements

If you make improvements to the premises, the improvements will become those of the landlord.  Sometimes, tenants invest substantial funds preparing the premises for occupancy, all to the ultimate benefit of the landlord.

Conclusion

While the lease may look like a daunting document, many pages in length and containing a lot of small print, it is essential that tenants read and understand it before signing.  That’s a true axiom for any contract.

Practical tips before signing a lease

1. Read it
2. Ask questions about provisions you do not understand
3. Negotiate terms
4. Ask for the personal guaranty to be waived
5. Ask for an accounting of the prior year’s property taxes, insurance and common area expenses
6. Be mindful that investments in the buildout will be to the landlord’s benefit
7. Find out the age of the roof, air conditioning and heating systems, plumbing, etc.
8. Consider requesting a non-compete clause
9. If the lease has an automatic renewal clause, tickle a reminder date to let the landlord know you will not be renewing the lease.
10. Consider recording a memorandum of the lease
11. Ask for a default cure period
12. Make sure there is a waiver of subrogation clause

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Here’s how a creditor can collect on a Louisiana judgment:

Record the judgment in the land records and keep it up to date

The first thing a creditor should do after obtaining a Louisiana money judgment is to record it in the land records in all parishes where the debtor owns real property. The recorded judgment then acts as a lien against all currently owned and later acquired real property in that parish.

The recordation of the judgment, however, is good for only 10 years.  To continue as a lien against the property, the judgment must be renewed before the end of the ten years.  Therefore, the creditor should calendar a renewal reminder date at least 9 1/2 years after recording the judgment.

Court compels the debtor to divulge wages and all assets to the creditor

Creditors may also be interested in seizing the debtor’s personal or movable property.  However, information on the debtor’s personal property will likely be private and not accessible by the public. So, the law allows the creditor to question the debtor about assets, income and debts.

This process is called a Judgment Debtor Examination. It is a legal proceeding, initiated by the creditor, in which the debtor is summoned to appear in Court to answer inquiries by the petitioning creditor. The debtor can also be compelled to produce copies of  documents such as payroll checks, cancelled checks and income tax returns.

Generally, the judge swears the debtor in and the parties then go outside the courtroom where the creditor then asks the debtor about such things as:

• the debtor’s social security number and driver’s license number
• identification and value of all assets owned
• information on all bank accounts and balances in the accounts
• the name of the debtor’s employer and contact information for the employer
• the amount of the debtor’s net and gross wages and how often the wages are paid
• list of stocks, bonds and investment accounts owned and the value of each
• identification of automobiles owned and the value of each
• past or future inheritances
• current monthly expenses
• list of all debts

Seizure of assets and/or garnishment of wages

Following the debtor examination, the creditor usually has a better picture of the debtor’s financial situation and better able to determine if it is worthwhile to execute on the judgment. The creditor may garnish wages or seize bank accounts and/or real property, depending on circumstances such as the balance in the account(s), prior ranking liens or garnishments and the amount of legal fees and court costs to pursue collection.  It is these legal expenses and court costs that businesses covered by the open accounts law can now recover by statute.

Restrictions on seizures

Not all assets are subject to seizure. For example, retirement accounts, certain amounts of life insurance and tools of the debtor’s trade are exempt from seizure.

Furthermore, the debtor may file bankruptcy after a judgment is obtained. If this occurs, the creditor must cease and desist all collection efforts and seek permission from the bankruptcy court to proceed with collection.

Open Accounts law

Businesses covered by the Louisiana open accounts law have long been able to collect pre-judgment attorney’s fees and court costs. In 2010 the Louisiana open accounts law was amended to grant post-judgment attorney’s fees and court costs as well. This is a right not granted to all creditors; so if the open accounts law applies to you, make sure to take advantage of it.

Summary of practical steps to collect on Louisiana judgment:

1. Record the judgment in parish land records
2. Tickle date to renew judgment
3. Determine the assets, income and debts of the debtor through a Judgment Debtor Examination
4. Request that the debtor bring documents to the Judgment Debtor Examination
5. Determine if the cost to pursue seizure of assets is a practical worthwhile endeavor
6. Initiate seizure actions

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