By Jeffrey S. Lapin, CPM®
Most of us who have been in this great profession for a while have learned the hard way – by making mistakes and learning from them what NOT to do. In over 36 years as a property manager, I’ve never been sued, fired or had a disciplinary action by the board of realtors. And I’ve also never lost an account due to any circumstances within my control. But that’s not to say that I have not made a ton of mistakes. Trust me, I have.
This job is hard to do well. There is a tremendous body of knowledge that a good property manager must have to be considered competent. We wear a lot of hats and must be knowledgeable in marketing and leasing, tenant relations, contract administration, maintenance and repair, financial management, disaster planning and management and so much more.
Because a significant part of the property manager’s job deals with managing other people’s money, there is a need to recognize that awesome responsibility and act diligently. This is the area of the job that above all others, can get the property manager in trouble quickly.
Here are the top five things that if not handled correctly, can be career ending mistakes.
- Our tenants are not our friends.
Tenants are our customers, not our friends. It’s natural and normal when you work with the same people day in and day out, to develop a close relationship. We often spend more time at our properties and with our tenants than we do with our families (sad but true).
It may seem like our tenants (some of them anyway) are our friends. Many a property manager has discovered painfully that this is not the case. Friends share intimate private information and trust each other to keep such information confidential, have each other’s back, and give each other the benefit of the doubt.
As the owner’s representative, we cannot share a lot of what we know or are told by the owner. We are entrusted by the property owner to keep the owner’s private information private, especially financial information. We can be successfully sued by our client (the owner) for disclosing things that we should not have.
And even if you trust your tenant contacts as you would a friend, it is rarely mutual. If the tenant wants or needs something that violates the terms of their lease, they may attempt to take advantage of your relationship with them to get what they or their supervisor wants. We do not expect the tenant representatives to share intimate information about their employer, including perhaps that the tenant’s business is in bad shape and may soon default on the lease. Doing so would violate the tenant’s duty to their employer. So the tenants should not expect you to violate your duties to your client.
Moreover, as the party charged with enforcing the terms of the leases, the property manager is the one that often has to be the bearer of bad news. For instance, the tenant wants to perform alterations to their space and wants the business owner’s brother in law (an unlicensed amateur handyman) to do the work. We have to tell the tenant that the work will require a permit and is of a nature that must be completed by a qualified, licensed contractor. Bad news.
The tenant and the property manager are now at odds with each other. If the tenant contact thought you were his friend and is now offended, there goes the future working relationship. Or consider the case wherein the property manager has to collect past due rent or CAM charges. It is a lot harder to be the tough collector if the tenant is your friend. The tenant knows that and may try to take advantage of it.
Tenants who know that their property manager is fair, honest and treats all tenants as valued customers will usually be happy to stop short of a “friendship” with him or her.
So the lesson here is that we already have friends. We want to be cordial, professional and yes, friendly. But the relationship with the tenant is ultimately a business relationship. We have to stop short of getting ourselves into a position wherein our professional relationship and our objectivity is threatened. It’s a delicate balance but it is ultimately in everyone’s best interest to strike and maintain that balance.
- Accepting Gifts or Items of Value from a Contractor or Vendor May be an Ethical Breach
It’s important to have great relationships with our property vendors and suppliers. They can make us look like heroes or make us look incompetent. And we want to be heroes in the eyes of our clients and tenants whenever possible don’t we? But like our tenant relationships, friendly does not mean “friends”. And we need to be especially careful about observing good ethics.
The ethical challenge comes when the property manager crosses the line by accepting valuable gifts or lavish outings from his or her suppliers. It is the vendor’s job to try and get close to the property manager. Their boss gives them an expense account and expects them to wine and dine property managers and sometimes give gifts to us. After all, many contracts are awarded as a result of a close relationship between a vendor and a supplier and that’s OK if it does not cross an ethical line. But it often does.
In order to ensure that there is not even the appearance of impropriety, the property manager needs to tread very carefully when it comes to relationships with vendors and suppliers. Most property managers are ethical people who would never knowingly violate good ethical standards. But sometimes the lines can be blurred by the actions or inaction of the property manager.
Here are some basic rules to follow so that you are never even suspected of doing anything improper. First, do not, under any circumstances, accept anything of “value” from a company or an individual who is or wants to do business with you. What is “value”? The answer is that this is 100% in the eye of the beholder (meaning someone judging your ethics).
A lavish lunch at a fancy restaurant once in a blue moon will not likely cause you a problem, especially if other managers are present. But do you really have two hours to spend being “schmoozed” by a salesperson? Most of us do not. And if that lunch becomes known to your employer or your client, would it cause him/her to question your objectivity with regard to that vendor? Is it worth it?
The best way to judge the propriety or lack thereof of such an invitation or offered gift is to ask yourself “Would a reasonable person see this as unethical?” In most cases, if there is any hesitation in answering this, it is likely not a good idea. Accepting lavish meals, expensive gifts or out of town trips offered by someone that wants our business (or already has it) may be in reality an innocent act, but it is easy to see that it might not be viewed that way by others.
Secondly, politely declining such an invitation or gift is perfectly acceptable and should not cast you in a negative light or make you an outcast at the BOMA® meeting. And if that vendor is a quality company, it is likely that their employees also have to adhere to strict ethical standards too. It’s just the way the world works in these litigious times.
Moreover, there is a good business reason to keep a respectable distance from vendors. When you bid out contracts for goods or services, you want it known that you are open to proposals from any pre-qualified supplier and that you do not have an exclusive relationship with XYZ Company. In this way, you will get good, competitive bids and you will be fulfilling your fiduciary responsibility to your employer and to your property owner.
More importantly, you will never have to worry about others questioning your integrity or ethics.
- It’s not your money
We property managers are entrusted by property owners with their valuable assets, including the rents from their tenants. This places a tremendous responsibility on us to act in a fiduciary capacity. The fiduciary duty is the highest standard of care possible. The duties placed on a fiduciary cannot be overemphasized and a breach of such duties is often the subject of breach of duty lawsuits.
Most property managers that I have known take this fiduciary duty very seriously (as they should). But some also mistakenly think it is OK to spend the owner’s money without proper authorization. They may not know or understand that the express approval of the owner is often needed before contracting for goods or services, entering into a lease or even refunding money to a tenant that may be perfectly legitimate in keeping with the terms of the tenant’s lease.
The authority to enter into contracts, approve expenses or refund a tenant’s security deposit are, or should be, specifically spelled out in the management agreement. Have you read the management agreement for the properties you are managing? If not, do so right away and understand what it says or get help interpreting the meaning.
We must always remember that it’s not our money. We may even think we have the owner’s permission to spend their money. And you might go along for years without being questioned about your decisions. But there may come a day when something goes wrong (it might not even be your doing) and the owner decides to audit the actions of the manager or the management company. All of a sudden you may discover that you have been violating the terms of the management agreement without even knowing it.
Do not get yourself or your company into that situation. Read and understand the terms of the management agreement and specifically your authority to sign contracts and leases and spend the owner’s money. Know with certainty how rents are to be handled once collected, whether security deposits are to be kept in separate accounts and if the owner’s money is going into a trust account (if required).
The best rule to follow is “If in doubt, ask.” If you are not sure whether you have the authority to sign that contract or approve an expense, it’s best to stop and verify before you proceed. It may save your job and save your employer a lot of headache and expense.
- We are Not Attorneys
Over my many years in this business, many of which have been spent as a supervisor of property managers, I have been asked whether such and such tenant is allowed to do this or that. Or whose responsibility it is to fix the air conditioning, etc. My answer has always been the same – “What does the lease say?”
The property owner pays high priced lawyers to draft long and complex leases for a reason (other than to drive you nuts). The entire sum of the landlord/tenant relationship is represented in the lease document. Before determining how to handle a tenant need or request, just read the lease. And if there is language in the lease that you do not understand, get someone in your company to interpret it for you or better yet, call the owner’s legal counsel for interpretation (get approval to do this – see It’s Not Your Money above).
Tenants do not always appreciate being told that they cannot do such and such a thing because the lease prohibits it. Or that they must do a certain thing because the lease requires them to do so. But in my experience, tenants are generally happy to rely on the lease language when it inures to their benefit, especially since “It’s in the lease”.
Do not be afraid to tell a tenant that, as much as you would like to allow them to do such and such, the lease specifically prohibits it. And do not rely on the lease abstract or your knowledge of the “standard” lease for the property. Every lease is unique and you need to read each one thoroughly. You will never go wrong by hanging your argument on the written document that everyone signed. It is intended to guide the actions of the respective parties – let it.
Similarly, any changes to the rent, term, square footage, etc. must be properly documented by an amendment to the lease, executed by all parties. I know a lot of property managers who regularly draft leases, amendments and other legal documents. Do not do this, even if asked by the client or your supervisor.
You are not an attorney (unless you are) and drafting legal documents or changing the language in a document drafted by an attorney is strictly prohibited under most states’ real estate license regulations. If it is not so prohibited, it should be and is likely not allowed by your company. As proficient as you think you might be at “cutting and pasting” from an attorney-drafted lease to create a new lease, amendment, etc. your lack of a legal license and errors and omissions insurance makes you and your company sitting ducks if you screw up.
Simply make it an iron clad rule for yourself and those who report to you that any drafting or changing of legal documents will be done by licensed attorneys only. Period.
- Learn How your Property’s Mechanical Systems Operate
I purposely saved this one for last because I’ve seen so many property managers who fail to gain a working knowledge of mechanical systems (primarily heating and air conditioning), even after being in this business for years and years. This knowledge is vitally important.
If you look at the budget of any office building, commercial building or multifamily property, chances are that the largest utility expenses and repair expenses are driven by the HVAC (heating, ventilation and air conditioning). Similarly, for most properties, the largest recurring capital expenditures are likely to be for replacement of HVAC equipment. The exception might be in triple net leased industrial buildings wherein the tenants are often responsible for their own mechanical system maintenance and replacement.
The fact is that this is where a lot of the property owner’s money is going. And if we are to do our fiduciary duty properly (see It’s Not Your Money above), we must be able to do a competent and professional job of bidding out such work and controlling these expenses. To do that, we have to have a working knowledge of these systems. That does not mean that we are going to don our overalls, grab our tools and fix that chiller that has quit working.
Competent property managers should however, be able to understand what equipment is located at their properties, what it does and how it works. Again, we are not expected to be able to diagnose what caused the AC unit to quit cooling. But when the contractor or your in-house engineer tells you that the unit has failed and must be replaced, you want to be able to say “Show me the problem”. Insist upon accompanying that technician to the roof or the mechanical room and understand the issue. Ask questions, poke around and most technicians will be more than happy to explain these systems to you.
Many property managers will read this and think “I’m not going to do that! That’s not my job.” But it is our job. Again, we are the ones upon whom the responsibility is placed to spend the owner’s money wisely. And as stated above, this is where a great deal of those dollars are being spent. We simply cannot rely on our contractors or even our in-house technicians to advise us without having a good working knowledge ourselves. As the old adage goes, “Trust but verify”.
I highly recommend that every property manager take professional education classes on mechanical systems, especially HVAC. IREM® and BOMA® offer such classes as part of the required curriculum for the professional designations that they offer. IREM® and BOMA® also offer shorter half day or lunchtime seminars on these topics in local markets. Check their respective websites.
Professional training companies such as TPC Trainco (www.tpctrainco.com) offer live classes in most major metro areas as well as webinars. I’m not a big fan of webinars for technical subjects because they just don’t offer the same ability to work directly with seasoned instructors and ask a lot of questions as live classes do. Professional engineers with lots of experience generally teach these classes and they are a valuable resource for any property manager.
Most importantly, ask a ton of questions. Do not worry about appearing to be “dumb”. No one knows everything and everyone can learn something. You need to be educated enough to ask the right questions of the contractor and make him justify his assertion that the piece of equipment or system is not working properly (ask “Why?”), cannot be repaired (ask “Why not?”) and must be replaced by an expensive new system (ask “Really?”).
By observing, asking questions, getting professional training and insisting on ample justification for the proposed expense, you will grow in both your knowledge and the respect of your client, your supervisor and your peers.
The five items presented here are by no means an exhaustive or complete list of all things that we property managers must or should know. That tremendous body of knowledge is still growing. That is why I love this business. I learn something new every day.
These five items are, in my experience, some of the most important things to know because each of them can, and has, caused many a property manager to fail when done wrong. Trying to be our tenant’s friends can be very problematic indeed when the tenant tries to take advantage of the relationship or the property manager’s objectivity is compromised.
Accepting gifts or things of value from vendors and suppliers may seem on face innocent but can often create the appearance of improper influence. Asking yourself if a reasonable person would perceive your acceptance of such things as a conflict of interest is the best way to let that little voice inside of you speak loudly and clearly that you are entering dangerous ethical waters.
Understanding that property managers are money managers and that the money belongs to someone else, reminds us that we have a fiduciary duty to our clients. This is a sacred trust and must not be violated no matter how seemingly innocent our actions may be.
Remembering that we are not attorneys is vital to keeping ourselves and our employers out of hot water. And while it seems innocuous enough to draft up a simple lease amendment based on one that an attorney drafted, it takes us out of our area of expertise, violates real estate license rules and is just not smart. Just as we would not want our attorney to manage our properties, we should not do their job either.
And finally, gaining a good working knowledge of mechanical systems that provide heating and cooling at our properties is especially important given how much of the property owner’s money is going into these systems. It is not acceptable to rely solely on the opinions and advice of contractors and technicians when recommending to our clients that they spend thousands of dollars on replacing equipment or performing major repairs. The competent property manager needs to get some professional training, ask a lot of questions and be prepared to get a little dirty on the rooftop in order to fulfill our fiduciary duty for our owners.
I hope you will continue to learn and grow in this great and noble profession.