Property Management Companies: Why They Need An Attorney
For most companies, particularly property management companies, reaching out to a lawyer is usually done with trepidation. Contacting an attorney usually means that something has gone wrong and you need help in a tough situation. It also, unfortunately, means that unexpected costs and expenses are on the horizon. The below is a summary, and certainly not an exhaustive list, of what we typically encounter with our property management clients. When these topics are addressed early with counsel, a property management company will save, or at least minimize, wasted time, money and aggravation.
Property Management Documents
Running a successful (and profitable!) property management company requires careful compliance with local, state and federal law. Although there are many “standard” lease and property management contracts available online, the drafters of those agreements are usually not aware of the local nuances that may govern those documents. For example, unlike most states, it is illegal in Massachusetts to charge tenants certain fees, like application fees and pet deposits. A standard lease from another state like Vermont or New York may be problematic in Massachusetts. Additionally, those leases and contracts are often drafted from one point of view (e.g. tenant-friendly), harming the unsuspecting landlord. As such, it is important that you have a professional review your tenant lease documents, as well as your management agreements (i.e. agreements between you and your owner-client). Given the nature of the business, property managers are exposed to liability on several fronts, and we see a lot of lawsuits involving multiple parties. Therefore, make sure you review your property management agreement with your attorney and periodically update it as circumstances, and laws, change.
Every property management company has some form of company structure (e.g. sole proprietorship/individual, limited liability company or corporation). At the early stages, many owners simply ignore their structure while focusing on their expanding business. As the business grows, however, company owners need to look at their company structure and make sure it still makes sense. After all, internal disputes do not arise until there is real money at stake. When a dispute does occur, if the company structure is lacking, the ensuing litigation is going to become expensive very quickly. As such, company owners should ask themselves these three questions: (1) what happens if there is dispute between the owners, someone passes away, or someone wants “out” of the business; (2) what happens if the company wants to expand; and (3) what happens when another company wants to purchase the existing company? Your company documents, such as an operating agreement, should contain the answers to these questions. If not, you should contact an attorney to make sure these items are addressed before they become an actual issue.
It is well known that the eviction process, particularly in Massachusetts, is very tenant-friendly. Nevertheless, acting early can greatly increase a property manager’s potential for recovery and reduce the amount of rent loss. The key to an expeditious eviction is ensuring that the eviction notice is sent as soon as possible. In Massachusetts, landlords generally need to send either a 14-day notice or a 30-day notice, depending on the situation. It is important to remember that the eviction process does not begin until the correct notice is sent. If you fail to send the right notice, your case may be dismissed and you will be forced to start the process from the beginning. The other important aspect of evictions is making sure you have good information about your tenant. Setting up a proper screening process is critical. Too often, we have clients who do not have key information about their tenants (e.g. social security number, employment information and references/co-signers). Without these essential items, collecting money from a delinquent tenant is next to impossible. If you are unsure whether your screening process is adequate, or want to confirm that you are following the proper procedures for starting an eviction, our experts are here to help.
Property management companies of all sizes have multiple trades, vendors and suppliers at their disposal. In fact, many have multiple vendors for the same services so that they can remain competitive and ensure they are receiving the best service for the best price. Often, these vendors have either their own, heavily one-sided contract, or no contract at all. Under either circumstance, if a dispute arises, the property management company is at an immediate disadvantage. If the contract was drafted by the vendor, it most certainly will favor the vendor. If no contract exists, the parties will be stuck piecing together what they believe to be their agreement. Therefore, make sure you review each and every contract with your vendors to make sure your interests are protected. If you do not have a contract with a certain vendor, contact a property management lawyer to draft one for you.
Whether your company is a small operation or a publicly-traded company, you will likely have employment issues at some point. Property management companies deal with unemployment claims, wrongful termination lawsuits and employee-misclassification. Simply improperly classifying an employee as an “independent contractor,” which is very easy to do in the Bay State, can be a costly mistake. If a suit is brought under the Massachusetts Wage Act, a company may be liable for triple damages, attorney fees and, in some cases, owners of the company may be personally liable. Unfortunately, many clients contact their attorney after one of these issues arise. To avoid unnecessary litigation, it is best to contact your attorney early to establish best practices for employment-related issues. When set up correctly, proper policies, employee handbooks and other preventative measures can minimize the exposure for employment claims.