Property Management Litigation & Arbitration Law Firm
Being a property manager is no easy task. As a matter of compliance, property managers have quite a few legal compliance issues to keep in mind, from trust fund accounting to affiliate disclosures, record keeping, and everything in between. But another important consideration for California and Arizona property managers is reducing their legal exposure on various transactions. In the world of litigation, one of the biggest causes of action can be for negligence.
(1) Duty of care owed
(2) Breach of duty of due care
(3) The breach is the proximate and legal cause of Plaintiff’s damages
(4) Damages (more than pure speculation)
This blog discusses some of the duties that a property manager has and if breach of any of these legal duties cause a Plaintiff damages, a cause of action for negligence may exist, and this could lead to time consuming, expensive, and distracting real estate arbitration or litigation.
Litigation issues for California and AZ Property Managers
According to the California Bureau of Real Estate (formerly Department of Real Estate), a property manager has a legal DUTY in the following circumstances:
1. Duties to establish rent schedules that will bring the highest yield. A property manager should know the market values in their marketplace, and should make sure that rents being charged are the best they can get for a property manager. The rental market is HOT right now so surveying the “comps” in the area and what’s available should be party of the duty of care (fiduciary duty). A property manager should be kept abreast of the times and current market conditions. This should be part of a broker’s duty of care and competence, a fiduciary duty.
2. Duty to merchandise the space and collect the rent. A property management company needs to make sure it collects the rent. The tenant has the duty to pay rent according to the terms of the lease and the property manager needs to collect the rent on time, or seek payment of late fees if the lease calls for it.
3. Duty to handle maintenance issues. In most cases, the property management company will have the legal duty to take care of all repairs and maintenance on the property. Failure to do so, and to let the property fall into disrepair could expose the property management company to legal liability. Where independent contractors are hired, the property manager should ensure that the contractor is properly licensed, bonded and/or insured (and get the full name, address, and tax ID (EIN), and 1099 when appropriate. Negligent hiring can create legal exposure for the management company.
4. Duty to have a tenant / resident relations policy. Tenants should know and understand how they will be treated by the property management company, and what rights and obligations the tenant has. Once adopted, the property management company needs to FOLLOW THE POLICY. Failure to follow the policies and procedures established could result in legal liability.
5. Broker duty to supervise employees and develop policies for employees including discrimination (Commissioners Regulation 2725) and “injury prevention plan.”
The duty to educate brokers about discrimination in Section 2725 specifically states the broker has the legal obligation of:
(f) Familiarizing salespersons with the requirements of federal and state laws relating to the prohibition of discrimination.
In my many years of dealing with real estate compliance issues I have rarely met a broker that does any sort of training in this regard, although it is a legal requirement. Without this, if you face a discrimination lawsuit the California real estate broker is literally a sitting duck.
6. Duty to maintain proper property management and trust fund accounting records (ex. general control records, separate beneficiary records, monthly reconciliation records). If these records are not properly kept aside from potentially being sued for negligence, the broker is open up to a real estate accusation or “cite and fine” problem.
7. Duty to make regular reports to the owner (both monthly and an annual report). The property manager needs to communicate with the owner and keep the owner informed of activities and incidents affecting the real property. Failure to do so can result in the property owner wondering what’s going on, and potentially holding the property manager liable for allowing waste to be committed on the property.
8. Qualify and investigate a prospective tenants creditworthiness (without charging excessive fees or violating tenant discrimination or credit laws).
9. Duty to prepare and execute tenant leases and enforce the terms of the lease.
10. Hire, instruct, and maintain satisfactory personnel to staff buildings/property
11. Duty to pay bills that come due.
12. Duty to advertise and publicize vacancies that arise on the owner’s property (using social media, offline outlets, etc. and to fulfill duty of due care, a fiduciary duty.
13. Duty to recommend alterations, decorations, and modernization as the market dictates.
14. Inspect and maintain the common areas and inspect vacant space frequently.
15. Duty to pay and maintain property tax and insurance (so that the property does not go into default under the terms of the owner’s promissory note and deed of trust)
16. Duty to be knowledgeable about, and to stay updated (and comply with) applicable Federal, State and Local Laws. This is the catchall provision, and so much falls under this umbrella it is not even funny. This is where you need a great property management lawyer to help you stay in compliance with various legal issues that can arise in the day-to-day running of the property management business.
17. Special duties may arise in managing properties that cultivate marijuana. Contact us to discuss.
18. Taking discounts or commissions from purchases, contracts or other expenditure of property owner funds without full disclosure (ex. using affiliated maintenance companies to earn a secret profit) and consent of property owner.
These are just a sample of legal duties that may be imputed to a property manager. Legal issues involving a property managers website (including Fair Housing Laws) is another potential area of liability where knowledge of real estate and internet law come into play. It is important to understand the legal liability issues that create financial exposure to property management companies in California. For more information, contact us below.
California Property Manager Legal Resources
1. California Landlord & Tenants Rights and Responsibilities (California Department of Consumer Affairs)
2. Cal DRE property management page (Sets for the “Specific Duties of Property Managers”)
If you are in the property management field there are some good associations (IREM and NARPM are the two biggest – CAR also has the PRM certification) and property management designations you should look into (ex. CPM, ARM, AMO, CRMC, and CSS . These will give you credibility and a competitive business advantage.
Contact a California / Arizona Property Management Lawyer
For more information about our real estate property management compliance and litigation services for California and Arizona property managers (we are licensed in these two states and have offices to serve you) call us at (877) 276-5084 or fill out the contact form below. We offer flexible fee arrangements to meet your budget, including potential flat rate legal fees.
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