Angela Smith owned a rental property in North Carolina. 12 years ago, Angela agreed to rent the property to Scott and Irene Troy. Angela knew that she was not equipped to perform necessary property management services and hired Belle Hall Realty, Inc. (Belle Hall) to manage the property. Belle Hall did not have a formal contract with Angela. Instead, a handshake deal was struck for Belle Hall to manage the property on behalf of Angela for 5% of the monthly rent.
Angela recently decided to sell the property and visited it for the first time in many years. Upon seeing its condition, Angela filed a complaint against Belle Hall and its employees. The complaint alleged that Belle Hall violated the standard of care of a property manager by failing to collect rent on time, allowing the tenants to keep unauthorized pets on the property, and failing to inspect, maintain, or preserve the property, which had rendered it, "completely uninhabitable." Angela sought $500,000 in damages, including attorneys' fees, under a Consumer Protection Act Claim.
The defense had a strong argument that any damages to the house resulted from Angela's refusal to spend money to properly repair and update the property. In addition, it was contended that the alleged damages were caused by the age of the house, which was almost 60 years old and used exclusively as a rental property for 33 years.
Had Belle Hall used a standard property management agreement and better documented the property's initial condition, their inspections and communications with the owner, they would have been in a better position to defend the claim. Ultimately, the claim settled for $63,800.
Risk Factor #1
Ensure that you use a standard property management agreement. A standard property management agreement, often available from state and local real estate associations, delineates the rights and duties of the property owner and the property manager.
Risk Factor #2
Although Belle Hall claimed in their defense that they had pointed out defects in the property to Angela and that Angela failed to address needed maintenance, the file documentation was incomplete. Always document evidence of a property's initial condition and any communications with the property owner.