As the property owner leasing out residential space to the public, you have legal obligations under California statutes, common law (law developed through court decisions), and local ordinances. They won’t disappear if you contract with a property management company.
You are responsible and potentially liable for your actions or failure to act as they pertain to your property. This is true whether or not a management company is involved. They will never agree to pay or take responsibility for a property owner’s mistakes (if they do, they won’t be in business very long). Given that fact, strictly speaking, creating this relationship won’t reduce your possible liabilities.
Principal–Agent Relationship
The nature of the relationship depends on the contract between the parties (assuming the parties involved are competent to contract and the necessary formalities have been met). For a price, you can have this company do nearly everything you’d do to manage the property, or you could scale it down to whatever you want or need help with.
Execution of the contract would create an agency relationship. You would be the principal, and they would be your agent because you authorize them to act on your behalf. The contract language and other communications you give the company spell out their scope of authority.
You May Be Liable for Your Agent’s Acts or Failure to Act
If they act within the authority you grant, you could be liable for their actions, even if you didn’t authorize the specific acts in question (vicarious liability). This usually comes to play in negligence cases.
If you give the company the responsibility of maintaining and repairing the property, but they do a poor job, and a tenant’s guest is injured due to their negligence, you may be held responsible (the injury victim’s attorney would also probably sue the management company too).
There is actual authority (what’s spelled out in a contract, for example) and ostensible authority. This can happen if:
- The third party reasonably believes you gave the agent authority to act on the matter
- That belief is due to your act or mistake
- The third party’s not negligent in the situation
You could also be held liable for the company’s actions or failures to act if they had ostensible authority to do so.
You’re Not Liable for Everything the Property Management Company Does
You shouldn’t be liable for actions by the company that are outside the scope of their authority. Let’s say you give them the power to decide who should be tenants, one of those screened out is disabled and sues you for illegal discrimination.
Discrimination is an intentional tort, and their alleged decision to break the law, you could argue, is beyond the scope of their authority (what is or isn’t in the scope of authority, depending on the facts, could be hotly contested). However, if you instruct the company not to select disabled tenants, you’re potentially on the hook (and deservedly so).
Your Contract Must Protect Your Interests
From a reduction of liability standpoint, there’s no point in hiring a property management company. So far, the discussion’s based on state statutes, local ordinances, and common law. Contract law, however, can sweeten the deal
A contract with a property management company should clearly state that if you incur any costs, including legal judgments, and fines by a government agency due to the acts or negligence of the company, their agents, or employees, they will indemnify you (pay for any losses). Though a court may rule that you need to pay a given amount due to vicarious liability for your agent, that agent would reimburse you for any costs.
Without this language, hiring a property management company would increase, not decrease, your potential liabilities because you might be held responsible for yourself and them too. Just as the management company won’t agree to take responsibility for your mistakes, you shouldn’t be accountable for theirs.
We’re Here to Help
If you’re a residential landlord considering hiring a property management company or having problems with one, AWB Law can help. We can discuss your goals, concerns, and what you should do next. Call AWB Law, PC at (949) 244-4207 or complete our online contact form today.
