Withholding of a tenant’s security deposit is probably the number one reason a property manager can end up on the other end of a lawsuit or even in court.
There are many precautions and procedures which a prudent property management company or property manager can implement which will help prevent this situation from occurring. Moreover, a property management course or continuing education in the nuances of proper statutory procedures can go a long way in preventing a lawsuit and subsequent lost time, energy and even money. Finally, an owner is responsible for the acts of a property manager and could find themselves in court as well if the property manager has violated the law, has not properly counseled the owner or properly handled the tenant’s security deposit.
Implement Minimal Procedures to be Prepared
A prudent property manager has been educated to take the necessary precautions and follow the statutory guidelines for tenant’s issues like the return of security deposits. The necessary property inspections, the data collection of the condition of the property, the amount of money a property manager is allowed to deduct, the statutory procedure for deductions, and the proper method of communicating all of these steps to the vacating tenant is tantamount to a successful defense against tenant lawsuits. If a property manager has done all of these things with diligence there is a very good chance that they will have the ultimate preparation in the unfortunate occasion when they get sued.
Pre-Tenancy Property Inspections Help Prevent Post-Tenancy Problems
Prudent property managers walk-through the property with the new tenant while there is no furniture or obstacles in the unit. The property manager takes photos, logs inspection data about each and every room in the unit, details the exterior of the property including any issues that exist and gets the new tenant to sign off or agree to the condition report. This same report is used at the end of the tenancy to compare and contrast the pre and post condition status. With photos and a signed inspection report it is difficult for a tenant to claim that conditions that exist now weren’t there when the tenancy began. Moreover, in some states notice of a pre-inspection at the end of the tenancy is given to tenants such that they are allowed to take advantage of the pre-inspection to repair or clean the unit which would otherwise be a deduction against their security deposit. This procedure, if properly conducted, actually prevents a lot of post tenancy issues as the tenant is fully aware of any conditions which might result in a deposit deduction, and they are given ample time and opportunity to correct the issues.
Pre-Tenancy Property Inspections Help Prepare Property Managers for Court
In the unfortunate event that a tenant disputes a property manager’s security deposit deduction and actually files a lawsuit the property manager who has taken the time to takes photos and log inspection data will be amply prepared for the litigation. The property manager should prepare their file in chronological order, should print out each and every photograph and date and label each condition. Importantly, each person who witnessed any conditions at the property like the gardener, the painter, the cleaner should all be contacted and asked for a witness statement. It is easy to get a statement via a sworn affidavit and at the same time ask these people to make themselves available to be witnesses in court. To be clear each property manager should have the following in preparation of any hearing:
- A complete property file in chronological order including photos, invoices, and paid receipts;
- A complete history of the written communications with the tenants included in the property file;
- A list of witnesses with contact information;
- Sworn affidavits from each witness; and
- A thorough review of the facts and circumstances surrounding the issues, facts and circumstances by the staff members who dealt with the tenant.
Preparation is Powerful and Usually Successful
Professional property managers who take the time, energy and effort to adequately keep records of their properties and tenants will find that this preparation is worth its weight in gold come litigation time. Once a tenant becomes familiar with an adequately prepared opponent they may think twice about their attempts to sue. The best defense for property managers or property management companies is educating themselves in the proper procedures and record-keeping that will help them prepare for this process. If the property manager has followed the law, has followed a detailed record-keeping system, prepares and presents an immaculate file to the hearing judge or court then the likelihood of success of defending one of these lawsuits is much higher than if they had not.
An Owner May be Liable for the Acts of its Agent
Both statutory and common law principals state that a hirer or principal of an agent may be liable for the acts of the agent. Property management companies who fail to follow the statutory guidelines regarding landlord tenants laws may find themselves in court on occasion. If a property manager has attempted to take advantage of a tenant (not uncommon) or has committed statutory violations that could lead to liabilities for the unsuspecting owner. Even though the owner would ultimately have a remedy against the property manager this would be a very unfortunate situation for the owner. The owner can file a cross-complaint against the property manager, but in either case the owner gets dragged into a suit because the property manager was negligent or careless. Needless to say an owner or property manager doesn’t want to be in this situation in the first place, thus, it is important that the property manager follow statutory guidelines and proper inspection procedures.
A Real Estate Attorney on Staff is Ideal
Professional property management companies who have a real estate attorney on staff have an advantage in these circumstances. A real estate attorney has the training, expertise, and procedural knowledge to help prevent these situations before they get out of hand. Moreover, in the event that these cases escalate an attorney will be able to prepare and handle the situation much better than someone without those type skills.
David currently is the broker/owner of Silicon Valley Property Management Group (SVPMG) which manages 150+ client properties on the San Francisco Peninsula.Trust, transparency, and performance guarantees are the foundation of SVPMG. David challenges anyone to find a PM company that offers services similar to the extensive education, customer service, and performance guarantees provided by SVPMG.
David also provides consulting for his clients on property development feasibility, construction, and complex real estate transactions.
David has authored a published law review article, two real estate books, and over 120 real estate blog articles.
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