E&O has successfully defended many property management claims over the years, but the defense can sometimes be difficult. The types of claims we see are varied, but they’re typically brought by the owner of a rental property, often after the rental property has been under management for several years. We’re highlighting some of the reasons why property management claims can be challenging to defend, as well as providing some suggestions for how you can reduce the likelihood of a successful claim being made against you.
More often than not, if a rental property has been managed for many years, many different licensees have been responsible for managing the property. Even the property management company may have changed ownership. This lack of continuity of oversight can present problems in successfully defending a property management claim.
To fully investigate or defend against the claim being advanced, we often need the evidence of not only the current licensee, but also the evidence of the former licensees who dealt with the rental property. In some situations, it can be difficult or impossible to obtain this evidence. A former licensee may no longer be licensed and their current whereabouts are unknown. Former licensees may also be uncooperative or hostile witnesses because of the circumstances of their termination from the property management company.
Failure to call a former licensee as a witness at trial can have serious consequences. In one recent case, the Court made an adverse inference against the property management company when it failed to put into evidence the testimony of its former licensee, who was no longer licensed and was living abroad.[i]
Proper documentation can make the difference between winning and losing at trial. If proper document retention policies are in place and followed, this information can be invaluable to us in properly assessing and successfully defending a property management claim, even where the former licensees are not available to provide evidence or testify. The Residential Tenancy Act and the Real Estate Rules mandate retention of specific rental property documents and records.[ii]
Property management agreements often also include terms specifying that the property management company will keep full and detailed records covering the management of the property. Ideally all interactions with the property, tenants and owners are documented in writing, and all the other paperwork is organized and up to date.
When documents are lost or missing, it can be very difficult for us to defend property management claims. In the decision referred to above, the current licensees testified at trial that documentation relating to the rental property, such as inspection reports, had gone missing. The licensees had no satisfactory explanation for why this had occurred. The Court held that in such circumstances, where the maintenance of such records is required by the property management agreement and Residential Tenancy Act, it would draw an adverse inference that had such documents been available, they would not have helped the property management company in advancing its defenses.[iii]
Property management agreement
The Property Management Agreement (the Agreement) is a key document governing the relationship between the property management company and the property owner. It’s critically important that property managers both understand what is contained in the Agreement and fully understand their obligations to the owner under it. For example, a claim we frequently see is an allegation by an owner that the Agreement was breached because the rental property was not regularly inspected, and this resulted in avoidable damage to the property. To defend again this type of claim, ensure your inspections of the rental property are done in accordance with the terms in your Agreement, and keep detailed written records of all inspections including date, time and what was observed.
Periodically, property management companies should have their Agreements reviewed or revised by corporate counsel. For example, a property management company might consider including clauses in the Agreement that limit its liability, provide an indemnity or require your client to add you as an insured under their insurance policy. Note that clauses that limit liability must be drafted carefully to be effective.
Almost every claim arises as a result of communication breaking down between the owner and the property management company, or because an owner has unrealistic expectations about what a property management company and its employees can, cannot or should do.
Try to create reasonable expectations from the beginning and ensure that the owner understands that a property management company, no matter how meticulous, cannot guarantee the condition of a rental property with tenants in it. Stay in regular communication with the owner; if problems or concerns arise, report them promptly.
In one case, a property manager waited three months to tell the owners about damage to the rental property, as she erroneously believed she could convince the tenant to repair the damage. The Court found the property manager had a duty to report the damage to the owners at the earliest possible date so they could mitigate their losses; it ordered damages against the property management company equivalent to three months’ rent.[iv]
While this isn’t an exhaustive list, keeping these points in mind should help reduce claims being made against you, and help us assist you better in defending claims.
[i] Said v. Meadow Ridge Classic Realty (1974) Ltd 2014 BCPC 0129
[ii] Residential Tenancy Act section 23; Real Estate Rules 8-6(1) and 8-10
[iii] Said supra
[iv] Meehan v. Dixon  B.C.J. No. 119