Risk Management Guide for Investment Property Owners
INTRODUCTION
I have compiled this useful checklist of many of the common legal and economic risk factors that exist when you own your own real estate investment company, and or manage rental properties. This is not a complete list, there are always new and novel types claims and liabilities coming up every year. Factual circumstances are specific, and each scenario is different.
I have written this article for the sake of raising important issues and concerns, so property owners and managers can be proactive in protecting themselves and can take active steps to manage and deal with common risks. The best solution for some of these problems is to use common sense, and to have appropriate insurance coverage in place, and professionals accessible in your rolodex for consultation and retention. This is an important checklist to use to make sure you are protecting yourself and your company from unforeseen liabilities and scenarios that effect your bottom line.
Premises Liability Claims:
Personal injury attorneys specifically target apartment building investors, management companies, and general partners for lawsuits. This is an important area of concern. Typical scenarios that lead to litigation are slip and fall accidents in common areas, young children falling off balconies, and women get assaulted in parking lots without adequate lighting. Dog bites may occur. Swimming pools present certain risks of injury. There are serious risks with apartment buildings that have children- children are always playing and running around in areas where they should not be present, may be skateboarding, and may be unsupervised by irresponsible parents.
My recommendations:
- Have a great maintenance crew on board to fix items in your complex
- Have a proactive on-site property manager that is taking care of the property and telling kids to stop running around
- Have warning signs posted at pools and other common areas
- Have liability and property/ casualty insurance in place with proper limits.
Interior Apartment Liability Claims:
The biggest issues are water leaks, complaints of growth of “mold,” risk of fire, and problems with pests such as cockroaches or bed bug infestation.
My recommendations:
- Hire a professional plumber and an appliance repair person: For some water leaks it may be hard to detect the source of the leak. If a leak occurs, act promptly to fix it and remove the water, avoid mold growth, and document any losses.
- Replace old appliances
- Stop tenants that are causing a fire risk with barbecues
- Have a no smoking building if possible
- Have rules in place that are posted and distributed as it relates to barbecues and smoking
- Repair leaks promptly to prevent mold problems
- It really helps to have a competent licensed plumber on your team that understands the systems as it relates to appliances. For example, a refrigerator/ ice maker can back up and cause a plumbing leak behind the walls and cause a flood in your kitchen and bathroom.
- You should have a pest control professional with expertise in eradication of bed bugs: As of late, there has been a rise in bed bug complaints, and small claims court actions are filed if you try to evict the tenant with a bed bug problem for nonpayment of rent.
- Consult with your insurance agent about getting broad coverage, and have liability and property/ casualty insurance in place with proper limits.
Difficult/ Nuisance Type / Unreasonable Tenants:
We have all had these annoying situations – loud domestic arguments, police and complaining neighbor calls at 1 a.m., fights in the common areas, loud, drunken pool parties, tenants who bring dangerous pets into the property without authorization after the rental agreement is signed, tenants who fail to update their rental agreements, and tenants who don’t let your repair contractors into the property. Tenants have more than 2 cars parked at the premises, and are running an oil dripping car part chop shop at the premises. Tenants who abandon salvage and non-operating vehicles at the premises for months.
My recommendations:
- Set all clear and strict apartment behavior covenants and rules in the rental agreement from the outset of the tenancy.
- Put these stipulations in the rental agreement: Y
- You can only have 2 vehicles parked inside the complex
- No broken down salvage vehicles may be stored at the complex
- No loud parties after 11 p.m., respect the rights to quiet enjoyment of your neighbors
- You must allow repair contractors into the property
- No pets are allowed without prior approval of management
- Enforce the rules and regulations by timely notifying your tenants of the complaints by email, and serve notices to perform and comply with rental covenants
Jury Trial Demands for Eviction Cases:
One of the increased risk factors over the past 3 years has been the increase in demand for jury trials by tenants for unlawful detainer cases involving a breach of a rental covenant such as nuisance like behavior. The tenant’s constitutional right to a jury trial in an unlawful detainer case is a nasty glitch in the law in California. The tenant files a demand for a jury trial and timely posts jury fees, and you are facing a more complex and expensive legal situation than you anticipated when you started the eviction process. You need to be ready for this situation if it comes across your desk. You and your attorney are now preparing for a jury trial which means you need jury instructions, special verdict forms, exhibits, etc.
The decision to proceed with an eviction case before a jury or settle the case is largely one of economics, the strength of your case, and common sense. Do you have other third party witnesses under subpoena that will corroborate the facts presented by a property manager? Usually what is driving the jury demand is the tenant’s law firm that is demanding a monetary settlement and other financial concessions. It is important to realize that jurors who rent tend to favor tenants in the majority of contested factual situations, as they feel sympathy to a tenant that is being evicted.
My recommendations:
- You should try to avoid eviction court if you can
- It pays to have good communications and managerial relations with your tenants
- For cases where the facts are disputed by your manager and the tenant, you should have other corroborating witnesses and residents who can testify that the tenant is a problem and nuisance in the complex, and in violation of the rental agreement
- Perhaps forms of dispute resolution may work with certain tenants such as mediation with a private mediator or the office of the Los Angeles City Attorney Dispute Resolution Program.
Copyright 2017 Nate Bernstein, Attorney at Law. LA Real Estate Law Group. All Rights Reserved.
The author of this article, Nate Bernstein, Esq., is the Managing Counsel of LA Real Estate Law Group, and a member of the State Bar of California and his practice concentrates in the areas of complex real est
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