Q: What recourse do landlords have for property manager conflicts of interest?

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Q: What recourse do landlords have for property manager conflicts of interest?

My property manager sold my tenant a new home. They wanted to break the lease three months early. The property manager re-rented the house for another 12 months without contacting me. He contacted me after he sold them a home and re-rented my home. The new tenant has pets. I informed him that I had no intention of re-renting the home and I did not approve a pet. He cancelled the lease with the new tenant. I am out three months rent. What is my recourse?

– Denise from Rio Rancho, NM

What recourse do landlords have for property manager conflicts of interest?Too bad your property manager, through carelessness, incompetence, or just plain poor ethics messed things up for you.

Fortunately, determining damages in this case should be pretty easy, and limited to the three months’ rent plus court/collection expenses.

Now let’s dive into the details.

It seems fair to assume that you were dealing with a property management firm that was itself headed by a licensed broker – or at least had a licensed broker supervising the operations. That is, someone who was legally operating as a property manager in the state of New Mexico.

Assuming that’s true, and you were paying a fee to the manager, that manager owes you, the principal, a fiduciary duty to look after your best interests. The role of a fiduciary demands the highest level of loyalty, care and fair dealing recognized under the law. As long as you have them under retainer as your property manager, and you’re paying your fees and upholding your end of the bargain, that manager must look after your interests first, and may not make side deals or do any business that must come at your expense.

It’s right there in the law:

16.61.19.8  BROKER DUTIES; DISCLOSURE:  Before the time a broker generates or presents any written document that has the potential to become an express written agreement, the broker shall disclose in writing to their prospective customer or client, and obtain a written acknowledgement from their prospective customer or client, showing the delivery of the disclosure of the following broker duties: (…)

G. written disclosure to their client or customer and to other brokers involved in the transaction of any potential conflict of interest that the broker has in the transaction including but not limited to:

  1. any written brokerage relationship the broker has with any other parties to the transaction or;
  2. any material interest or relationship of a business, personal, or family nature that the broker has in the transaction;
  3. other brokerage relationship options available in New Mexico.

(emphasis added)

If the property manager is a member of the National Association of Residential Property Managers (NARPM), the firm and its principals are also subject to a code of conduct.

Paragraph 1-8 states: Property Managers shall avoid exaggeration, misrepresentation, misinformation, or concealment of pertinent facts relating to the advertising, leasing, and management of the property.

If your account is correct, they clearly violated this rule when they concealed the fact that they sold a home to your tenant and then brought in a different tenant, not approved by you. That is absolutely pertinent information for a landlord.

If you look in your contract, you may find that you delegated the authority to approve or disapprove a renter to the property manager. In that case, they may not have broken the rules in re-renting the property. But it still involves concealing pertinent information if they didn’t at least tell you.

Moving on, paragraph 3-4 states: The Property Manager shall accept no commissions, rebates, profits, discounts, or any other benefit which has not been fully disclosed to and approved by the Client.

Again, if your account is accurate, this property manager presumably accepted a sales commission on the house they sold to your tenant – at your expense. The conflict of interest is obvious – and in direct violation of this industry group’s code of conduct, and almost certainly a violation of their fiduciary duty to you.

And there’s this one: Paragraph 11-12: No property shall be offered as “For Rent” without the permission of the client. If an unlisted property is offered, permission must be obtained from the owner.

Paragraph 3-6 states: Property Managers shall disclose to their Client all pertinent facts relating to the transaction.

Looks like they blew this one, too.

It’s possible that a licensed agent employee of the property manager sold the new house to your former tenant and blindsided your broker. That would be a violation of the code of ethics, as well. However, this is not your problem. As a landlord, you have a contract with the property management firm, and it’s on the supervising licensed broker to ensure that the firm’s fiduciary duty to you is carried out.

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