My client calls it “mismanagement,” but that implies simple neglect and a casual attitude toward their responsibility. What happened to this apartment complex is far beyond something that inoffensive. What his management company did was criminal and violated its fiduciary duty to its customer.
The laws of many states demand that a property manager “owes a fiduciary duty to the client and shall protect and promote the client’s interests.” A fiduciary duty says the law.com dictionary is “one of moral or personal responsibility, due to the superior knowledge and training of the fiduciary as compared to the one whose affairs the fiduciary is handling.” What this management company did was to allow an apartment complex to become infested with crack addicts and dealers. They abandoned its fiduciary duty to its client, and instead, it seems, switched it to the criminals it rented to.
Whatever screening it did was obviously not to discover if the applicants were decent renters. Maybe it was to find out if they sold enough meth to pay the rent.
Whatever rent collection it did wasn’t to ensure that the property owner was paid, maybe it was just enough to see that the company got its share.
Whatever maintenance it did was not evident, since my client is in the process of spending thousands of dollars to put the property back into rentable condition.
Whatever management it did was obviously ineffective against the holes in the walls, the blood-spattered apartment, the ruined carpeting, the broken sliding patio doors, and the filthy parking lot.
The neighbors called it the “ Crystal Palace.” Nightly they watched crackheads climb over fences and up walls like animals to buy meth and further infest the property.
And the management company—what was it doing all this time? It was tacitly or actively abetting these crimes.
That is a description of mal-management, not mismanagement. It is activity that should cost the management company its real estate license in Arizona. It should result in federal criminal charges against the on-site manager and the company owners for racketeering under the Racketeering and Corrupt Practices Act because they obviously aided in or knew about the criminal activity. If they didn’t, why did they rent to meth users and dealers and why didn’t they evict them when illegal activity occurred?
Things are much improved now. My client has a terrific new manager whose first action was to evict every one of the crack dealers and heads. But there is still a long way to go.
This management company and the few others like it are a gaping gash on the reputation of the industry. It cuts to ribbons the jobs the many conscientious property managers do, the ones who know that the interests of their clients come first and who are keenly aware of their fiduciary responsibility.
The lesson for rental property owners whose properties are managed by management companies is that you still have to pay attention. Inspect the property regularly, even if it means traveling several hundred miles to do so. Demand that you approve all rental applications. No one should move in whose qualifications you have not seen.
If the management company balks at these reasonable requirements, fire them. Remember, you are in charge, not them. They work for you. Even when you hire a property management company, the rental housing business is still hands-on.
2 Comment on “Mal-management”
Thaddeus Marckesano
August 3, 2014 at 8:05 pm
Interesting – so you say the manager “works for the owner” so what about the community and the tenants? What if the owner, who likely hired a manager because they don’t have the skills and experience, wants to do things the “wrong way?” For instance, what of the owner condones illegal drug activity because they themselves are drug dealers? What then?
Great attempt at “over-simplifying” a complex subject, you should be fired – don’t you think?
Bob Cain
August 7, 2014 at 6:13 pm
Thanks for your comments.
You have two issues here.
1. The manager works for the owner, end of story. Good management, though, depends on good customer service. So working for the owner includes doing the right thing by tenants.
2. Leaving aside your pronoun-antecedent error, even if the owner doesn’t have the skills and experience to manage correctly or legally, the manager has a fiduciary responsibility to act in the best interest of the owner, the customers (tenants), and the property. If the owner insists on renting to drug dealers, the manager should quit and report the issue to the police.
I probably should be fired. I do that to myself several times a day.