Pitfalls in Property Management

This article will outline several of the common pitfalls that brokers may face when offering property management services.

Material Fact Disclosures

One of the biggest misunderstandings in property management is the idea that leasing is not the same as buying or selling real estate and, therefore, the same rules about material facts do not apply. This is false. Property managers have the same duty to discover and disclose material facts to potential tenants as do brokers involved in a sales transaction. Material facts are defined as:  information that could affect a reasonable person’s decision to buy, sell or LEASE.

Some common examples of issues that arise as material facts in a sales and/or lease transaction are:

1. Septic systems. Are you advertising a home with a 3 bedroom septic permit with more bedrooms than the permit allows? What does the local municipality set as the occupancy limit?
2. Disclosing HOA rules and covenants. Can a tenant park his work truck/van that has the business advertised on that vehicle? Can a tenant park on the street? Can a tenant install a satellite dish or have an above ground pool? Are there restrictions on the number and/or type of pets? Are there rental restrictions on the property affecting short term rentals like AirBnB & VRBO, or long term rentals?
3. Are there flooding issues in the yard when it rains? Have there been structural issues in the home (e.g. moisture in the crawlspace, termites, truss repairs, fire)?
4. Are you advertising the availability of high speed or fiber internet without having confirmed this with a provider?

Misrepresentation of a material fact can lead to a finding that a property manager has violated multiple sections of the License Law (NCGS § 93A-6) and can lead to disciplinary action.

Security Deposits

Tenant security deposits continue to be an issue for property managers who must be knowledgeable on the proper use of the deposit in order to make proper and timely decisions regarding disbursement of the deposit. The Tenant Security Deposit Act in NCGS § 42-51 outlines the permitted uses of the deposit, including, among other items, damage to the property, costs of re-renting a property if the tenant breaks the lease, and costs of storing a tenants belongings after eviction. NCGS 42-52 specifically states that normal wear and tear is not damage.

The question often arises about whether a lease provision will supersede GS 42-51. If the lease states, for example, upon move out the tenant must mow the lawn, replace all air filters and burned out bulbs, and clean the unit or the landlord will charge this against the deposit, can the deposit be used to cover these costs? As noted above, these items would generally be considered normal wear and tear rather than “damage” and therefore cannot be deducted from the security deposit. Whether these costs constitute a breach of the lease is a civil matter and the landlord or property manager should go to court to recover costs for items covered in the lease which are not specifically allowed in NCGS 42-51.   

So what should a property manager do if the landlord is insistent on charging for items against the deposit that the manager knows are not permitted? The manager should document their conversations with the landlord-client and may send the landlord the deposit. They must also inform the tenant that the landlord is in possession of the deposit and the disposition of the deposit is between the tenant and the landlord at this point. 

Keep in mind, however, that NCGS § 42-55 provides that the willful failure by a landlord to comply with the deposit notice requirements of the Tenant Security Deposit Act VOIDS the landlord’s right to retain any portion of the tenant security deposit. A property manager whose landlord-client insists on retaining tenant security deposits for “damages” about which the manager disagrees may want to consider whether they should retain that landlord-client in future.   

Communication

Problems of communications between property managers and tenants or landlords remain the leading cause of complaints filed against property managers. One of the most common issues is the work order request. Most Property Management Agreements (PMAs) have some language that allows a property manager to complete work that costs less than a certain dollar amount and requires landlord approval for all work over that amount. However, a property manager still has a duty to disclose to the landlord all repairs or other work that is done to their property. The property manager must save all receipts for such work and must disclose to the landlord and get consent for any fees charged by the property manager that are in addition to the vendor cost.

The biggest frustration tenants face is not knowing what is going on. The manager may be waiting for a required approval for work from a landlord or they may be getting multiple bids from vendors. Maybe the vendor is waiting for parts to come in. Whatever the delay, giving updates to the tenant and explaining the process would help them understand that their issue is not being ignored. For tenants who are waiting for something to be fixed so they can fully enjoy the home, it is a big deal. Communication on both ends is key!