Hidden landlords: renters’ woes soar as property owners hide their identities

Years before Emily Gallagher was elected to the New York state assembly in 2020, she attended a protest in Brooklyn. Los Sures, a neighborhood organization, had organized the protest for a tenant who was being harassed by their landlord.

However, the tenant and their supporters had one big problem: they didn’t know where the landlord was. All of the rent checks had been made out to a limited liability company (LLC) and sent to a retail-store mailbox.

“We went to Mail Boxes Etc, because we didn’t actually know where the landlord’s office was, or where they worked, or who he was,” Gallagher said. “That really struck me. There’s this group that owes a lot of accountability, and we have no idea who they are and no way of holding them accountable.”

The LLC is a business structure that can offer tax breaks, the protection of the owner’s personal assets from creditors and lawsuits, and importantly, anonymity from tenants or others. Creating one is a relatively easy process. In New York state, the application requires a unique business name, relatively minimal paperwork and a $200 fee sent to Albany.

LLCs have been around since 1977, when Wyoming invented the concept as a state law. By 1996, every state had some version of LLC incorporation. But landlords’ use of LLCs surged with the Great Recession of 2008-09, as corporations snatched up hundreds of thousands of homes.

By 2015, the number of LLC landlords had risen to nearly 15% of rental owners, up from 8% in 1991. And the more units a landlord had, the likelier their use of LLC-like entities; when a landlord owned between five and 24 units, the likelihood of them being individually named owners was 35% in 2015, down from 65% in 2000. Meanwhile, a 2015 investigation of US real estate purchases found that “nearly half the residential purchases of over $5m were made by shell companies rather than named people”.

While the tax breaks and anonymity that come with LLCs can be attractive to landlords, they may have negative consequences for renters and the housing market.

On a broader level, there’s the problem of “zombie properties”, abandoned parcels of land. One 2019 study found that “signs of housing disinvestment increase when properties transition from individual to LLC ownership”. In US metro regions, where land is at a premium, unused properties could be developed into housing. Earlier this year, the office of the Manhattan borough president, Mark Levine, identified 171 vacant or underused lots or buildings in the borough that could become 73,000 housing units.

But another effect of LLC landlords may be the inability for tenants to lodge complaints. Multiple renters told the Guardian they couldn’t reach their landlords to fix problems due to their checks being made out to an LLC. That obfuscation can be by design.

Madison Tayt, an actor now living in New York City, once rented a Salt Lake City apartment owned by Stanley and Janet Wade, who used LLCs to conceal ownership of more than 400 rental units in an attempt to avoid paying taxes. “Our garbage disposal was broken for months, and there was nothing we could do about it,” Tayt said. “Things were often in disrepair to the point that the city was constantly leaving notices on the door to either fix up the buildings, or there would be legal consequences.”

“LLCs are like three-card monte – the point is to trick everyone,” said Imani Henry, lead organizer for Equality for Flatbush, a Brooklyn tenants rights organization. Among their many tales of sordid landlord actions, Henry’s group has occasionally discovered those who transferred ownership to an LLC but told tenants they sold the building.

“The first thing they did was go after elders and say this is no longer rent-stabilized, and you have so many days to leave or take the buyout,” Henry said. And if tenants don’t know their rights, they may fall for it.

While there’s little in the way of hard data to quantify landlord subterfuge and neglect, there is one element of tenant-landlord relationships that can be linked, however speculatively, to the rise of LLCs: evictions.

Nick Graetz, a researcher at Princeton University’s Eviction Lab, has been combing through years of court filings and analyzing plaintiff names to find links between who’s getting evicted, who’s doing the evicting and where it’s taking place. While Graetz’s research is preliminary and as yet unpublished, he has found a substantial rise in the percentage of eviction filings by LLC landlords.

In 2000, evictions from LLCs contributed to less than 5% of the national total. By 2018, that number jumped to nearly 34%.

However, certain states saw an even more dramatic increase. Wisconsin’s rate of eviction by LLC landlords increased from 8.2% in 2000 to 54.8% in 2018. It was one of five states where over 50% of evictions now come from LLCs.

Still, it’s difficult to prove that the rise of landlord LLCs has incentivized evictions. “Are there these big bad actors in certain cities who are behind a huge disproportionate amount of evictions?” Graetz asked. Or “is it just one person or company who’s doing a lot of evicting and we just can’t see that happening?” But Graetz says it makes sense that landlords who move toward a more business-minded structure might file for more evictions.

“I think it’s a slippery slope for landlords who might otherwise not be very likely to evict tenants who they know personally on a day-to-day basis,” Graetz said. “These structures can make landlords more removed from their tenants.”

And that distance or anonymity can make it more difficult for their tenants to connect with each another. While it’s easy enough to knock on doors in a single apartment building, if tenants across a number of properties wanted to coordinate a larger action like a rent strike to force their landlord into fulfilling certain legal obligations, it may be hard if ownership is obscured through multiple LLCs.

In 2021, years after the Los Sures protest at the Mail Boxes Etc, Gallagher introduced the LLC Transparency Act during her first term in office. The bill proposed disclosure of all LLC owners, including landlords, as well as the maintenance of a public database. In June, the measure was overwhelmingly passed by the state legislature, hot on the heels of news surfacing that Russian oligarchs were hiding money in Manhattan real estate. If signed, the law may help expose more than these foreign entities.

“I was trying to help a tenant recently, and their landlord is an LLC that’s registered to a different LLC, and that is registered to a different LLC, which traces back to a company in Kansas City, whose whole purpose is to sign the building documents so you’re an untraceable owner,” said Gallagher. “And then those folks will claim they’re a small landlord to get certain kinds of government assistance.”

The bill now waits for the signature of Kathy Hochul, the New York governor.