How can a property owner be held liable when using a property management company?

Question

If a property owner is using a reputable property management company how can he be held liable? What could he be held liable for?

Obviously if he denied repairs or funds for them?

What else if he isn't actively managing the property at all?

Joe Villeneuve · Answer

@Rayan Faris Simple answer...everything. The PM is responsible for carrying out the mechanics of the actual management...and not liable for the results. You can fire them if they don't deliver up to your standards, but by having someone else to the work, doesn't mean you are absolved of the liability.

Hate to use such a vulgar example, but it fits best. If you hired a a thief, and the thief got caught, you're still going to jail.

Hate to use such a vulgar example, but it fits best.  If you hired a a thief, and the thief got caught, you're still going to jail.

John Thedford · Answer

Your PM is your agent. If they mess up, they are messing up working for you. You can be held liable...or at the minimum be sued for their actions. We do live in a litigous society, and the old saying is "if you haven't been sued you, you will be" or something to that effect. It only took me two years to get sued. Lots of fun:) I ended up in court before my first open heart surgery...and right before the second open heart surgery (as if I didn't already have enough stress). The tenant lost but that wasn't any consolation for the worry, stress, and emotions they put them through. Some things can be covered with liability insurance and others cannot.

Steve Rozenberg · Answer

I agree with @Joe Villeneuve , I am an investor and also own a property management company. You want to make sure the document you signed with them clearly spells out their job duties and responsibilities. If you think that they are doing something illegal or unscrupulous I would recommend going to the state real estate commission and filing a complaint.

But ultimately it is your property and your rental business, they are hired to do a job and your job as CEO of your rental property business is verify it is being done.... I always tell owners that hire me, you need to trust but verify... Sticking your head in the sand and hoping we are doing the right thing is a surefire way to get sued or go bankrupt.

Jeff Rabinowitz · Answer

@Eva Salas, I don't understand why you would put your property manager on your insurance policy as an additional insured. Do they give you a discount for helping to protect them? Don't they carry their own insurance? If they don't you should be looking for another property manager.

Dooreuhn Cee · Answer

Everyone will get sued!

Really.  I had a slip and fall case in which they sued the owner, the manager, and even the realty company that sold the property to the owner prior to the slip and fall.

But your question addresses liability, meaning who a court would actually rule against.  Specifically, in some cases it seems the manager could be solely liable, such as when the company on its own practices racial discrimination in tenant selection practices and the owner reasonably had no knowledge.  On the other hand, a slip and fall is going against the owner.  In between those extermes is the slip and fall due to negligent upkeep by the management and that may be highly dependent on a specific case. (not legal advice)

Bill S. · Answer

@Rayan Faris actual liability is only part of the question and most cases is never settled in court.

My understanding is it works this way. PM is only a paper corporation and has little to no assets. Landlord owns real estate, so who are you going to sue? Even if you are completely innocent and can prove it, just defending yourself is costly and you have already lost. Then you have the brain damage of dealing with the insurance company. Lots of cases are settled out of court for X dollars because it is a known cost. Having a judge or jury decide the case is considered something like going to the casino from what I've been told by attorneys.

That is the risk to the landlord in having a bad PM that does people wrong.

Eva Salas · Answer

@Jeff Rabinowitz it's very common practice, doesn't cost a cent, and they absolutely do have insurance. Can never cover your bases enough!

Eva Salas · Answer

@Bill S. I have a good PM Co that does me right, and they asked me to put them on my policy as additional insured. Easy breezy and if someone gets hurt or has a gripe and sues, as y'all probably know, they sue everybody!

Rayan Faris · Answer

@Bill S.

Some great points bill.

But even if PM doesn't have tangible assets, doesn't it have an insurance policy (assuming its a decent PM) which counts as an asset?

Joe Villeneuve · Answer

In the case of liability, I believe the correct answer is

..."none".

How can a property owner be held liable when using a property management company?

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