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How Can a Property Manager Minimize Exposure in Landlord Tenant Relations?

With the resurgence of the California real estate market after the “Great Recession,” I find that many of my real estate clients have diversified their business and have become involved in real property management.

In California, a property manager is a person who takes care of the many aspects of commercial, industrial or residential properties for their owner who is deemed the “landlord” when the property is rented out. The landlord’s property manager, assuming there is one, makes sure that the rented property is maintained for the tenant by having a nice appearance, makes sure that needed repairs and condition issues are taken care of in a timely manner, and collects the monthly rent. Most property managers act as the liaison between the tenant and the landlord with respect to the rented property over the course of the parcel’s lease.

The foundation for a property manager to minimize his or her exposure in landlord-tenant relations begins with the property management agreement itself, to be dated and signed by the property manager and the landlord. In this document, I recommend the following be placed so that there is no misunderstanding between the landlord and the property manager.

  • Set forth with specificity the scope and duties of the property manager under the property management agreement.
  • State that the property manager will not create any legal document (such as a three-day notice to pay or quit, or a 30- or 60-day notice of termination of the lease), or serve any legal documents on any of the landlord’s tenants and the like. For the creation of any legal documents, the property management agreement should clearly state that the landlord needs to consult with a licensed attorney in that a realtor does not have the knowledge, training, experience or required license to create legal documents.
  • Set forth concisely that the property manager will not hold any of a tenant’s security deposit. Rather the landlord will hold the tenant’s security deposit. Sentiment is that most landlord- tenant issues pertain to the return of a tenant’s security deposit under California Civil Code section 1950.5. When a property manager never has in his or her possession a tenant’s security deposit, the chances of the property manager being dragged into a security deposit dispute between the landlord and the tenant is greatly minimized.
  • State in the property management agreement that the landlord will name the property management company and the specific property manager as an additional insured under the landlord’s liability policy for the parcel to be managed.  The landlord is to provide the property manager a written declarations page of the insurance policy naming him or her and the property management company as an additional insured under the landlord’s insurance policy for the parcel to be managed.
  • The property management agreement should state that the property manager can authorize repairs with respect to the parcel being managed in an amount up to five-hundred dollars ($500.00) without the landlord’s written consent, but any amount exceeding the five-hundred dollar threshold requires express written authorization from the landlord.
  • The property manager is authorized to have a yearly inspection of the managed property by a third-party professional such as a licensed home inspector or contractor. By having an annual inspection with a resulting written report of the rental, there is a consistent baseline as to the rental’s physical condition, it allows the landlord to make necessary repairs before a condition becomes a significant issue with the tenant, and most importantly, it helps prevent a claim.

About the Author

Edward McCutchan
B. Edward McCutchan, Jr.
Sunderland | McCutchan, LLP

Mr. McCutchan’s practice is primarily civil litigation with an emphasis in defending professionals and businesses in real estate, mortgage brokering, construction, banking and agricultural industries and all phases of dispute resolution through trial and appeal. His area of practice is also agricultural law (viticulture and wineries), trusts and estates, probate, real estate transactions, business law and elder abuse. B. Edward McCutchan, Jr. was admitted to the Bar in 1985 and is admitted and qualified to practice in all California courts and the U.S. District Court, Eastern and Northern Districts of California as well as the United States Tax Court.

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