By Rick Snyder
The property management industry has become even more challenging in recent years due to an increase in lawsuits. Ranging from commercial or retail properties to single-family homes and multi-family apartment and condo communities, today’s property managers are facing additional legal liability unlike ever before. As a result, managing and minimizing risk is even more crucial to surviving in today’s litigious environment.
Some real estate industry analysts are predicting homeownership will continue to decline through 2025, yet some 12.5 million net new households will be created, with half of these households renting. By some estimates, about one-third of the U.S. population rents today and by 2023 that number will grow another 45 percent. If true, then the property management field will also experience tremendous growth and, at the same time, tremendous liability.
As part of evaluating increasing risk exposures, try to image everything that might happen to cause financial loss. Then, make your best estimate of the maximum financial loss and determine the options of either absorbing the loss or whether the loss could have the potential of leading to financial ruin. The key is to be proactive. Identify and eliminate risks to stay ahead of conditions that could impede your profitability. Identify potential risks, evaluate and assess and then develop mitigation strategies.
Property management is a very intensive business because you’re transacting with owners, tenants, repair companies, contractors and others. Every one of these transactions involves some kind of risk to your business.
Many professionals in today’s property management industry are experiencing an increase in the number of lawsuits relating to habitability claims as well as health and safety issues. We’re also seeing legal liability involving environment concerns such as mold and pollution.
So, how can property managers do a better job of managing risk and liability? Here are a couple of action steps to stay safe:
— Include an addendum to the lease that requires tenant cooperation, such as notification and interior access. A property manager will have a tough time fixing something breaks, leaks, bursts or wears out if they don’t know about the condition or if they’re not allowed to enter a residence to solve the problem. For example, in the case of an infestation of pests such as roaches or bed bugs, a tenant’s resistance to cooperate can affect the ability to mitigate the condition.
— Detailed rental agreements need to include specifics spelled out for both landlord and tenant responsibilities and grounds for eviction if necessary.
— Increase your oversight and supervision of the property by conducting onsite exterior inspections, perhaps as many as once or twice per month. Disasters can still occur, so property managers and owners should ensure their property insurance has the appropriate coverage limits.
We will discuss more strategies at my next class, “Property Management: Legal Responsibilities, Minimizing Risk and Creating Rewards,” from 10 a.m. to 12 noon, Monday, March 26 at the NSDCAR Service Center, 906 Sycamore Ave., Vista. I personally invite you to attend. We’ll discuss what’s working, and what’s not, in property management for the year ahead. You’ll learn what growth-oriented property managers are doing differently to achieve success and lessons you can apply to protect yourself from risks. Topics will include relationship management with owners and tenants, mold insurance and financials and record keeping that will minimize risk for tax and legal purposes. I look forward to meeting you in person.
NSDCAR member Rick Snyder is president of R.A. Snyder Properties, Inc., a full-service property management company with over 30 years of experience managing residential rental property and commercial income-producing rental properties. He is a California Association of Realtors (CAR) director, honorary life CAR member and chair of NSDCAR’s Professional Standards Committee.