Property Mgmt Company Held Liable or Owner??

Question

Hi there,

I'm wondering: if I have a property management company managing my rental property (say SFR), are they liable for lawsuits from the tenant regarding contract language, security deposits, mismanaging (not responding to a fix issue), etc., or is it the owner that ends up with the lawsuit due to the PM's negligence?

Thanks! Multiple responses preferred :D

Patricia Steiner · Answer

You own the property and you hired the property manager.  The PM acts as your agent - and as such - you're responsible for their actions with your tenants.  You do have legal recourse should the PM violate any contractual covenants or laws - but it's important to remember that the people you hire actually "stand-in" for you.

And, a lot of investors think that "passive income" means "massive management."  For those investors who want no responsibility, no risk, no oversight - buy a Certificate of Deposit.  For the rest of us, vet the heck out of all you hire and ask for weekly/monthly updates on your properties and tenants.

Nathan Gesner · Answer

The owner is responsible for the actions of the agent. Do not ever think that hiring a PM makes you immune.

I have a former client that owned a couple apartment complexes in California for 30+ years. He always used a property manager. Someone filed a Fair Housing complaint against the PM and the owner was hit with it, as well. He spent hundreds of thousands of dollars fighting off something that he had no knowledge of or involvement with. Doesn't matter.

He "won" the case but it cost him a ton. He sold the properties and left the state.

Jerel Ehlert · Answer

@Patricia Steiner has the essence of it.  Owners have a duty to monitor their agents (property management).  However, if the PM is directed to perform a duty and fails to carry out that duty, causing liability to the owner, then the PM might be held liable to the owner.

In the end, everyone gets dragged into the mud.  No way to avoid that.

Steve Rozenberg · Answer

@Aaron Moayed

Good question, as owner of a PM company I can say that there a certain things that we as a lisc company that is regulated by the state of texas we have things that we are required to do and be liable for. We also have to carry certain amount of insurance both GL and errors and omissions insurance.. basically if we mess up its our fault.

If the owner messes up its his fault, the paper trail will show who is liable... in the end of the day if there is a lawsuit everyone will be names in the suit if the lawyers can go after them. I would make sure to have quite a bit of meetings and set of expectations prior to hiring them.

I would look up NARPM and start with them..Below are some questions I would think would be a good starting point for you to see who really treats their company like a business or a hobby.My business partner is a regional VP for NARPM and I am happy to help if you need anything please reach outQuestions to Ask prospective management companies What are your average days on market for vacant homes?What is your average rent amount for all properties managed?What is your average work order cost for the owner?What is your average make ready cost for the owner?Are all my invoices uploaded to my owner portal?How do you advertise your vacant units?Do I receive video of my pre and post make ready?Do you have a setup fee?Do you upcharge on maintenance?When do you make owner payments? How often?Are you a Certified Property Manager?Are you a member of NARPM?What is your Guarantee?Do you provide move in and move out reports How many pictures do you take of the property prior to tenant moves in and after the tenant moves outDo you get weekly reports when the property is vacant what prospective tenants are saying about your homeDo you provide monthly newsletters to your tenantsDo you hold investor education classes to help me become a better investorDo you have single point portfolio based management services?How many properties do the owners actually own themselves?What do you do to ensure that the tenant is responsible for security deposit disputes since that is the largest reason for owner lawsuitsHow familiar are you with the newly changed laws that can affect you the owner if they are not used correctly?.

I would look up NARPM and start with them..Below are some questions I would think would be a good starting point for you to see who really treats their company like a business or a hobby.

My business partner is a regional VP for NARPM and I am happy to help if you need anything please reach out

Questions to Ask prospective management companies

• What are your average days on market for vacant homes?
• What is your average rent amount for all properties managed?
• What is your average work order cost for the owner?
• What is your average make ready cost for the owner?
• Are all my invoices uploaded to my owner portal?
• How do you advertise your vacant units?
• Do I receive video of my pre and post make ready?
• Do you have a setup fee?
• Do you upcharge on maintenance?
• When do you make owner payments? How often?
• Are you a Certified Property Manager?
• Are you a member of NARPM?
• What is your Guarantee?
• Do you provide move in and move out reports
• How many pictures do you take of the property prior to tenant moves in and after the tenant moves out
• Do you get weekly reports when the property is vacant what prospective tenants are saying about your home
• Do you provide monthly newsletters to your tenants
• Do you hold investor education classes to help me become a better investor
• Do you have single point portfolio based management services?
• How many properties do the owners actually own themselves?
• What do you do to ensure that the tenant is responsible for security deposit disputes since that is the largest reason for owner lawsuits
• How familiar are you with the newly changed laws that can affect you the owner if they are not used correctly?

.

Taylor L. · Answer

This is definitely something worth talking to a lawyer about who knows the laws in your state as states have different laws on this topic. You can reasonably expect any lawsuit regarding your property to name you and drag you into court, even if they do not have grounds and it should all fall on the property manager. One of the many reasons you shouldn't hold investment property in your own name. Your contract should lay out the items they agree to indemnify you for.

Obligatory I am not a lawyer.

Property Mgmt Company Held Liable or Owner??

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