Not paying market rent is a problem
If my practice pays less than market rent to the landlord-which is me-are my personal assets at risk if I get sued?
Q. If my practice pays less than market rent to the landlord—which is me—are my personal assets at risk if I get sued?
"Yes, they are at risk," says Veterinary Economics Editorial Advisory Board member Dr. Karl Salzsieder, JD, a consultant with Salzsieder Consulting and Legal Services in Kelso, Wash. Veterinarians set up business entities to limit their personal liability, but you're "piercing the veil" between your practice and yourself when you pay less than market rent.
Dr. Karl Salzsieder
Personal liability protection is based on the fact that the business entity is separate from you in all respects. "A civil trial lawyer will be glad to prove to a court that the landlord and the practice have commingled assets and are in business together," he says.
There are other reasons to pay market rent too. "Many veterinarians find that when they go to sell their practice, its value may be tens of thousands of dollars less if the valuator has to calculate market rent into expenses," Dr. Salzsieder says.
There's also a tax liability risk, according to Bob Chace, CPA, with Chace & Spurgeon Inc. in Longview, Wash. Veterinarians short on cash may shortchange rent, but in an audit the IRS may impute a fair market rent, even if it causes the business to lose money.
