It’s every property manager’s and property owner’s worst nightmare — when a tenant does malicious damage. This is why it’s important to know what the liabilities are, and what you can do to reduce your risk of a lawsuit. Not only does it allow you to protect your clients by offering sound advice, but it also helps you protect yourself and your business.
So what should you do?
Advise Your Client To Protect Themselves
One of the greatest risks in this scenario is your client deciding to sue you for damages, if their tenants wreck their property. So, it’s important to start by providing your client with some tips to keep themselves protected. This also helps to encourage a good relationship from the outset.
First of all, make sure your client has insurance for the home. Landlord insurance is the best type of insurance for rental properties, because it covers not only the usual scenarios such as fire, storm and theft, but it also covers vandalism and tenant damage. Security deposits are commonplace when dealing with rental properties, but they can’t replace a whole house. Insurance is an essential investment for owners looking to rent out their property.
Find the Right Kind of Tenants
As a property manager, you hold some responsibility on your end to ensure the client has good tenants in the property. So, focus your time and effort in finding the right tenants. In the long run, having good tenants in the home means life will be a whole lot easier both for you and your client,.
Be Strict with Inspection Schedules
Record the condition of the property at the beginning of the tenancy and obtain the tenant’s agreement on this condition report. This checklist can then form the basis for regular inspections, which means it will be easier to spot any “new damage” and identify any parts of the home where “wear and tear” is worsening. Being able to distinguish between the two is important. Wear and tear happens in all lived-in homes — carpets may fray, paint may peel or fade. This is not malicious damage.
Regular inspections are necessary to keep on top of the property’s condition (and most importantly, the tenant’s treatment of the property). Unattended tenants can take advantage, which means you may find out too late about an important issue. Whether it’s malicious damage or just a leak or other maintenance issue that was never reported, damage is best dealt with as it occurs.
You do need to respect the privacy of the current tenants, and you also need to abide by the laws in your state. In California, the law is quite restrictive in this regard:
Excerpt from the California Civil Code
(a) A landlord may enter the dwelling unit only in the following cases:
(1) In case of emergency.
(2) To make necessary or agreed repairs, decorations, alterations or improvements, supply necessary or agreed services, or exhibit the dwelling unit to prospective or actual purchasers, mortgagees, tenants, workers, or contractors or to make an inspection pursuant to subdivision (f) of Section 1950.5.
(3) When the tenant has abandoned or surrendered the premises.
(4) Pursuant to court order.
If you are in California, it is recommended that, at minimum, annual inspections for maintenance purposes be included in the lease agreement. This will help to not only cover maintenance issues, but also to assess whether the tenant is sufficiently looking after the property.
You must, by law, do an end-of-lease inspection with the tenant as well. This also offers a valuable opportunity to revisit the property and assess the condition against the initial condition report, and identify any anomalies.
In any case, the landlord (or property manager acting on behalf of the landlord) may not abuse the right of access or harass the tenant. This means giving sufficient notice of the inspection and not doing inspections too frequently.
To read up about tenant rights in your state, check out the U.S. Department of Housing and Development website. They provide a comprehensive list of resources, so you can be sure you’re not infringing on state laws when it comes to managing inspections and other elements of the leasing process.
When You Identify Malicious Damage
When you identify malicious damage, notify the property owner immediately. You and your client can only act within the terms of the lease agreement (which will differ according to the laws in your state). Depending on the nature of the malicious damage, the property owner may not need to evict the tenant. The laws in California, in particular, offer significant tenant protection. If your client does go through the process of evicting the tenants, do it by the book to avoid a lawsuit.
Understanding Risks to You and Your Business, and How to Mitigate Them
Your greatest risk to you, as the property manager, is in the lease agreement process. Do not sign any paperwork on behalf of your clients. Make sure they read and sign all agreements. If you are a party to the contract, you can be held liable. The lease agreement must be between your client and the tenant only.
If you inspect the property for maintenance, take note of the property’s condition while you’re there and report back to the property owner. Malicious damage is easy to spot, so you won’t need to look far to find it, if it’s there.
If you’re in a state like California, where inspections are restrictive, take a quarterly drive past the properties in your portfolio, so you can see any visible damage to the outside of the home.
Most lawsuits involving property managers are about negligence. To protect yourself, you can include a liability waiver in your client agreement which releases you from all liability in regards to property damage. But whether this will be enough to protect you depends on the circumstances of the lawsuit.
Facing a lawsuit can be stressful business. For peace of mind and everyday protection, consider a comprehensive real estate E&O insurance package, like CRES Property Manager Real Estate E&O + ClaimPrevent®. This extensive insurance coverage protects your business against claims from both property owners and tenants. It also includes Legal Advisory Services available 7 days a week.
CRES has two decades of experience protecting property managers just like you. We take the protection of your business very seriously. To find out more about property manager insurance, contact us today on 800.880.2747 (toll-free).
