By: Cole Young
For most property management companies, picking up the phone to contact a lawyer is usually done with a sigh. If you are reaching out to an attorney, that often means that something has gone wrong and you need help in a difficult situation. So when should property management companies contact an attorney? The below topics are those most typically encountered by our property management clients. When these issues are addressed early with an attorney, a property management company will save substantial time, money and unnecessary aggravation.
Every property management company has some form of company structure (e.g. sole proprietorship, limited liability company or corporation). At the inception of a company, 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 a falling out between the owners or someone passes away; (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 your operating agreement, should contain the answers to these questions. If not, you should contact your attorney to make sure these items are addressed before they become an actual issue.
Running a successful property management company requires careful compliance with a lot of different local, state and federal law. Although there are many “standard” lease and property management agreements available on the Internet, 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 upfront fees such as application fees and pet deposits. A standard lease from another state like New Hampshire may be unenforceable in Massachusetts. As such, it is important that you have a professional review your tenant lease documents. The same caution is applicable to property management agreements (i.e. agreements between you and your owner-client). Given the nature of their business, property managers are exposed to liability from several parties. Therefore, make sure you review your property management agreement with your lawyer and periodically update it as circumstances change.
Whether your company is a small operation or a Fortune 500 company, you will likely have employment issues at some point. Property management companies deal with unemployment claims, wrongful termination lawsuits and employee-misclassification. As mentioned in one of our recent articles, simply improperly classifying an employee as an “independent contractor” 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 (e.g. employee handbooks, social media policies, etc.) and other preventative measures can minimize the exposure for employment claims.
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, you 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). Without these critical items, collecting from a delinquent tenant is next to impossible. You should contact your attorney 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.
Property management companies of all sizes have multiple trades and vendors 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 (1) their own contract; or (2) 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 likely is one-sided. 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 your property management lawyer to draft one for you.