Property Managers, Commercial Tenants and Evictions

Your commercial tenant failed to pay rent. You have heard that things are not going very well for them, but now it is apparent. As a property manager your duty and obligation is to resolve the issue as quickly as possible. When the tenant failed to pay by the due date they have effectively breached the lease and you are entitled to evict the tenant from the property. An eviction lawsuit commonly called an Unlawful Detainer action is a fairly straightforward legal process. The important thing for property managers to know is that the steps involved in this process are critical and must be followed to the letter of the law. A real estate attorney representing both parties in the action is common. If your property manager has followed the law, given proper notice, and has a detailed file of all of the correspondence between the tenant and their company the unlawful detainer action should go fairly smoothly and the landlord or owner should prevail.

The First Step Is To Resolve Rent Payment Issue If Possible

If at all possible the property manager should make every effort to get the tenant to make the rent payments and bring their lease current. If this involves waiting a few extra days for payment maybe this would be the best course of action instead of filing a lawsuit. Your individual company policies and best practices will dictate this action, but it would be better for all parties to resolve before litigation.

Three-Day Notice Drafted

If a payment is not forthcoming then a ‘three-day notice to pay or quit’ must be prepared and properly served on the tenant. This notice must be in a specific legal format. A commercial owner, landlord or property manager can choose between different types of 3-day notices; 1) specifies the precise amount of rent owed; or 2) estimates the amount of rent owed – usually when a tenant is paying a percentage rent.

If the lease requires the tenant to pay rent and other separate amounts for triple net or CAM charges, the property manager should get the proper advice on whether or not two separate and distinct notices are required to be served. For example, if the property manager or landlord accepts an overpayment of the rent because they have miscalculated and the tenant overpaid estimated rents and CAM charges this may lead to a tenant victory in the unlawful detainer action. This would also possibly give the tenant the right to attorneys’ fees. It is critical to be correct in this step.

The Three-Day Notice Must Be Properly and Legally Served

The tenant is deemed served when they are personally served with the three-day notice, or a responsible person at the place of business is personally served on the premises. In the event no one is available the landlord or property manager can attach the notice to the front entry door of the business premises while simultaneously sending a copy of the three-day notice by certified mail return receipt requested. The landlord or property manager must then prepare a ‘proof of service’ in the proper format which states in pertinent part that the ‘three-day notice’ was served on the tenant, or describe the method of service.

The Property Manager or Landlord Has a Three Day Waiting Period Required for Service to be Effective

After properly serving the three-day notice a three day waiting period begins on the next business day. If the third day falls on a weekend or holiday the three day waiting period is extended to the next business day.

If the tenant decides to pay all rent due at this point or corrects any outstanding violation of the lease terms then the eviction process ceases. If the tenant makes partial payment the landlord or property manager can accept partial payment but must notify the tenant that they are not waiving their rights to proceed with an eviction.

In the event that the tenant has violated the lease by way of some criminal act or conduct then the eviction process continues.

At the end of the three day waiting period the landlord or property manager may go forward with filing and serving a complaint and summons.

Summons and Complaint are Prepared and Served

In the event that the tenant has failed to cure their outstanding rent violation, or failed to cure any other violation that they have been property notified of, then the landlord or property manager may proceed with filing and serving the summons and complaint to the tenant. A third party not involved with the action, typically a registered process server can be hired for a fee to serve the papers on the tenant. The summons, complaint and proof of service must then be filed with the court clerk’s office together with a copy of the lease, and then property served three-day notice and its proof of service.

Technical Mistakes Can Cause Delays

If the landlord or property manager has taken this process on by themselves there is a possibility that they have made a technical error in the processing, preparing, serving, and filing these documents. There are several technical areas of the law which must be followed or will result is substantial delays if they are not. A tenant who hires an attorney will likely find these technical errors, if the court doesn’t find the errors. This will likely result in delays which means money to the property owner. The best course of action in these situations is to hire an eviction attorney to help prevent delays and additional costs for the owner.

Court Proceedings Require that All Parties Appear in Front of a Judge

If the tenant does not contest the eviction

A properly served tenant has five days to oppose the eviction. If substituted service was used then the tenant would have fifteen days to file a responsive pleading to the action. If the tenant fails to oppose the eviction the landlord or property manager will seek a default judgment of possession of the premises. This will most likely be granted and the case will be referred to the Sheriff’s office for tenant lockout (see below).

If the tenant contests the eviction

In the event the tenant hires an attorney and contests the eviction then things will take a while longer. The tenant will be granted more time to prepare and there will be approximately thirty-day period in which a trial will be set. If the landlord wins then the tenant will have to pay the rent and other losses most likely including attorneys’ fees. If the tenant wins the landlord may have to pay attorneys’ fees. In this situation a property manager really needs to be represented by counsel.

The Landlord or Property Manager has the Right to Lockout the Tenant

Assuming a landlord victory the county sheriff will post a ‘Five-Day Notice to Vacate’ the premises on the tenant’s door or entry into the business. On the sixth day the sheriff meets the landlord or property manager at the property. The landlord or property manager then receives a receipt of possession of the property. If the tenant is still there when the sheriff arrives, the sheriff will then physically remove the tenant. The landlord or property manager will now have a locksmith come and change the locks to keep the tenant out.

Notice to Claim Property

If the tenant leaves behind personal property there are state statutes that deal with this specific issue. The landlord or property manager must give the tenant fifteen days after the lockout period to claim any possessions from the property, or if the tenant left before the lockout, eighteen (18) days after the mailing of the “notice of belief of abandonment” to the tenant’s last known address. The notice must describe the property with specificity so the tenant can identify it, and the notice must also describe the storage costs. A prudent practice for a landlord or property manager would be to photograph and log all of the tenants’ belongings so that there was not a later dispute.

It is not legal for a landlord or property manager to hold a tenant’s personal property as security for payment of money awarded by a court judgment.

Unclaimed Property Disposed of or Sold

When the fifteen day waiting period is over the landlord or property manager can dispose of the tenant’s personal property if it is worth less than $750 or $1.00 per square foot, whichever is greater. If the property is worth more the landlord or property manager must auction it through a public sale held after properly published notice with the proceeds turned over to the county, minus expenses.

Conclusion

Although this article has briefly touched upon this process one should see that this is not a simple process, but is a process which should be taken seriously and professionally. It is always a best practice to have an eviction attorney help a landlord and/or a property manager through this process.

Property Managers Owe Fiduciary Duties to Their Clients at Minimum

“Fiduciary” is basically defined by Black’s Law Dictionary as a term derived from Roman law which means, as a noun, a person or legal entity, holding the character of a trustee, with respect to the trust and confidence involved as scrupulous good-faith and candor towards another’s affairs. A fiduciary also has duties which are described as involving good-faith, trust, special confidence, and candor toward another’s interests. Typical fiduciary duties are imposed on and include such relationships as executor, administrator, trustee, real estate agents, attorneys, and, of course, property managers. A person or company who manages money or property, i.e., the manager, for other people must exercise a standard of care in that the interests of the money or property owners are placed above and beyond those of the property manager. In some states, like California for example, a property manager is statutorily defined as an individual or entity which has the same duties as a trustee, i.e., a fiduciary.

The way I always explain it to clients, using my hands to demonstrate, is that my interests end at the top of my head (one hand at the crown of my head), but the client’s interest rise above and beyond my head and take precedent over my own (holding both of my hands above my head in a clasped position). Most people understand the gesture and comprehend that as a property manager and a lawyer my interests are much lower than those of the clients in our relationship.

Common Fiduciary Duties Owed by Property Managers

Since a property manager is a fiduciary they must act with the highest good-faith and fair dealing with respect to the owner’s asset, disclose all material information that may affect the owners decision-making with respect to that asset, and can’t in any way, shape or form act adversely to the owner’s interests. This may sound easy, but there are situations that arise that tempt even the best property managers to sometimes not act in their client’s best interests to suit their own self-interested convenience. Unfortunate as that may sound it happens regularly.

The following is a short list of some common sense duties, rights, and wrongs when a fiduciary relationship exists between a manager and an owner.

A manager should have a written agreement with their clients and may even be legally entitled to profit from services for which they provide to the owner, however, a manager may not secretly profit from this relationship. For example, a manager may charge an eight percent markup on materials and services provided by vendors to the owner’s property. This is legal and acceptable provided that the agreement between the parties is in concert with the markup. If this markup was not in the agreement then the law requires a property manager to disgorge or relinquish any and all secret profits derived from the relationship. There are so many possible examples of this, but a common one is a manager making a percentage profit on work and services provided to their clients but not disclosed; like a new roof, bathroom remodel, repairs to interior walls, etc.

A property manager is required to disclose any and all rental offers received along with documentation of those offers such that the property owner is well informed about all potential tenants. It is easy for a manager to fail to provide names of potential tenants that don’t necessarily qualify or are poor credit risks as this would involve more work for the manager.

A property manager is statutorily required to act for the sole benefit of the asset owner in matters that evolve from the relationship, whether or not those matters are seemingly insignificant or they are significantly material.

Information about a tenant whom falls behind on their rent must be immediately communicated to the asset owner. If your management company is using a software system that allows an “Owner Portal” then this information is readily available to see and anytime one has access to the internet.

If a manager receives information that a tenant has caused damage to a property the owner should be notified as soon as feasibly possible. It is easy for the manager to not disclose this information for fear of confronting the disgruntled owner or just not wanting to deal with the conflict associated with that situation.

Trust Account Duties

A trust account which holds deposits and rent monies for the benefit of the asset owner is a common ground for fiduciary duty breaches. The law precludes a manager from commingling of the client trust funds with broker or manager owned funds.

Additionally, it is a breach of fiduciary duty to make mortgage payments on broker owned properties from a trust account even if the broker quickly reimburses the account for the payments. The statutory prohibition against conducting personal business from trust accounts is strictly enforced.

Surprisingly another common example of commingling of funds occurs when the property management fee is not timely withdrawn from the trust account. Sometimes a delay of twenty-five (25) days could be considered commingling.

Trust funds must also be deposited with expediency. Some states require that deposits must be deposited by no later than the next business day.

Commingling of Trust Funds is a Serious Offense

Commingling of trust and broker funds is such a serious offense it can be grounds for revocation or suspension of a broker’s license in most states. Thus, this sole issue must be of paramount importance to a manager and property management company.

Conclusion

Managers owe fiduciary duties to their clients – this is the minimum standard owed. There are many ways to breach these duties which form the basis for the relationship between the manager and the client. It is important to hire a property manager who understands and abides by the statutory framework, understands fully what a fiduciary duty entails, and can both clearly communicate those duties and at the same time live up to them. It is important for owners to make sure they hire property managers who abide by these minimum standards.

4 Essential Qualities of a Property Manager

Nowadays, owning a rental property, anywhere on this earth, requires hiring of a professional and efficient property manager. Working with these property managers is highly beneficial in many respect but all managers do not have the same competency to understand the needs and interest of the owners. For this reason, it is necessary that property owners consider certain things before hiring a manager. There are some attributes which are a must for any property manager.

What features a property manager should essentially have?

Here is a list of elements that every property dealer will expect from the management company.

Detailed and Organized

This is one of the prime characteristics that a property manager must have. The managers can conduct every task with in-depth information and knowledge. They should have information that the tenants are making on-time payment of their rent, must support financial records, process evictions, should send communications and letters, must have a track about the leases and should pay attention to minute details like maintenance. The managers have to look after the daily operations of a property. This is a significant responsibility when it is about a large complex.

Adequate Legal Knowledge

Having proper legal knowledge is a crucial aspect of any manager. Several property laws are there in the state and locally about which the manager must have adequate knowledge. These laws can guide on how to manage rental properties. When a property owner knows that he has eminent legal experts around for his help, he certainly remains legally sound. There are many hidden clauses in property laws, which one cannot know if one does not have comprehensive knowledge about the legal matters. Therefore, managers should acquire in-depth knowledge about property law.

Commitment to Work

One achieves greater satisfaction to work when one knows that he has employed a dedicated property manager to handle his property. Not only should the managers have enough experience in the industry they are working, they should also have competent knowledge about the industry. All these will enable the owner to endow a responsible manager to look after his business. A dedicated manager can only handle things with care and efficiently.

Excellent Communication Efficiency

A property manager must have a high degree of communicating ability. One of the prime tasks of the managers is to keep the tenants happy and content, and this is only possible when the manager is able to do effective communication. Tenants can contact the manager all round the clock. Thus, the property manager is easily approachable, and the tenants must feel comfortable in discussing property matters with him. It is his communication skill that will help in increasing the number of tenants.

These are some of the qualities of a property manager from which a property owner can benefit. While contacting any management company, make sure that it has all these attributes. This will make the owner feel that his property is under expert supervision.

Property Management Services – A Real Estate Investor’s Best Friend

Do you own an investment property that you’re renting out, and you’re currently handling all of the chores of being a landlord yourself?

Are you thinking about investing in rental properties, but you’re not sure if you’re up for the task of being a landlord?

If you answered yes to either of those questions, whether you are holding onto or considering investing in a single-family rental (SFR), duplex, or triplex, you should think about engaging a professional property management firm to take the work off your shoulders.

Let’s take a look at what property management is, what a professional management company handles, and how to decide not only if it’s time to hire one but also how to hire the right property management firm.

What is Property Management?

Let’s start off with getting an understanding of what a property management firm does and doesn’t do. There are several critical tasks a property manager can help you with.

Setting the right rental rate: You can always ballpark this by looking through the classifieds, but a good property management company actually conducts thorough market studies to set a rental price for your property. This makes sure you have a great balance between maximizing your monthly income and keeping a low vacancy rate.

Collecting the rent: One of the most difficult aspects of being a landlord is collecting the rent. Property management firms have efficient, tried-and-true systems that will do a great job of collecting the rent and maintaining on-time payments.

Marketing and advertising your rental unit: When vacancies occur, you want the rental unit occupied as quickly as possible. A professional property management firm has experience that helps it market your property in just the rate way to make sure someone moves in quickly.

Finding and managing tenants: The property management firm will take the work out of finding and managing tenants for you. This means screening new tenants for criminal and credit checks, collecting references, and getting the lease signed. Once the home is occupied, handling routine and emergency maintenance and inspections are part of what a professional management company will do for you.

Managing relationships with contractors and other vendors: Do you have deep-seated relationships with all of the maintenance workers, tradesmen, contractors, suppliers, and vendors needed to properly manage your rental? Probably not. But a property management firm does and can get you the best work for the best price, while handling the burden of overseeing necessary maintenance projects for you.

Keeping you in compliance with the laws Housing regulations and property laws are complicated and confusing when you’re renting and maintaining your rental property. These can include local, state, and federal regulations, along with fair housing regulations like the Americans with Disabilities Act. A property manager can keep you out of hot water by keeping your property up-to-date and in compliance with all of these regulations.

Allowing you to invest from afar: If you’ve moved to a place where investing in rental units don’t make sense, you might think that investing in SFRs or other rental properties isn’t possible. With a good property management company by your side, you won’t be so limited in your investment opportunities.

I only have one property; so why do I need a property manager?

If just reading through all of the tasks that a property manager can handle for you isn’t convincing enough, consider this: do you want to be able to go on vacation without interruption? Do you really enjoy phone calls about backed up plumbing at 3:30 in the morning?

Chances are, you want the freedom to leave town for vacation or just have uninterrupted time with family for the holidays. You don’t relish the task of dealing with emergency maintenance chores in the middle of the night, and you probably dread the thought of trying to find a good tenant when your existing ones move out.

Even if you only have a single investment property that you’re renting out, you can benefit strongly from hiring a property management service. They have decades of experience that you’d be hard-pressed to match yourself, and can ensure your property is maintained impeccably while still maximizing your profit.

Okay, I’m convinced, but how do I know who to hire?

The best way to find out about quality management companies is based on the experience of others. If you are local to your rental property, attend your regional real estate investment association meetings to get recommendations from other landlords.

You want to make sure you find out how many units the company is managing, and how many employees they have doing the work. A trained employee with the right tools and proven processes can successfully manage between 30 and 40 units, as long as they’re not also playing accountant.

When you’re interviewing different qualified property management firms, here are the questions you should get answers to:

What is the cost? Generally, the monthly fee for property management is between eight and twelve percent, plus expenses. Remember you get what you pay for, so it is important to balance the cost and services.

How well do they communicate? You want someone who uses email, but is still responsive to the telephone. If you don’t get a response in a timely fashion, it’s time to walk somewhere else.

How easily can I terminate the agreement? If things work out, what will it take to terminate your agreement? Make sure you know this up front, along with any penalties.

How experienced are they with Section 8? This can be supremely important, since Section 8 housing and tenants are great income opportunities. Make sure they have adequate experience with such properties.

If you do your research, you can readily find a reputable firm to handle your rental investments for you. This will free you up to enjoy the fruits of your investment without as much of the hassle.

How a Property Manager Can Be Prepared When They Get Sued

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 management company or 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 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 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 manager who has taken the time to takes photos and log inspection data will be amply prepared for the litigation. The 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:

1) A complete property file in chronological order including photos, invoices, and paid receipts;

2) A complete history of the written communications with the tenants included in the property file;

3) A list of witnesses with contact information;

4) Sworn affidavits from each witness; and

5) A thorough review of the facts and circumstances surrounding the issues, facts and tenant complaints 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 managers or management companies is educating themselves in the proper procedures and record-keeping that will help them prepare for this process. If the 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 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 manager, but in either case the owner gets dragged into a suit because the 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 manager follow statutory guidelines and proper inspection procedures.

A Real Estate Attorney on Staff is Ideal and Can Keep Owners Out of Trouble

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.