“Fiduciary” is basically defined by Black’s Law Dictionary as a term derived from Roman law meaning, as a noun, a person or legal entity, having the character of trustee, with respect to the trust and the trust involved as scrupulous good faith. and frankness towards the affairs of others. A fiduciary also has duties that are described as relating to good faith, trust, special trust, and openness to the interests of others. Typical fiduciary duties are imposed and include relationships such as executor, administrator, trustee, real estate agents, attorneys, and of course, property managers. A person or company that manages money or property, i.e. the administrator, for other persons must exercise a standard of care in which the interests of the owners of the money or property are above and beyond those of the administrator of the property. property. In some states, like California, for example, a property manager is defined by law as an individual or entity that has the same duties as a trustee, that is, a fiduciary.

The way I always explain it to clients, using my hands to demonstrate, is that my interests end up on top of my head (one hand on the crown of my head), but the client’s interest rises above and beyond my head and takes precedent. over mine (holding both hands above my head in a closed position). Most people understand the gesture and understand that as a property manager and attorney my interests are far less than those of the clients in our relationship.

Common fiduciary duties owed by property managers

Since a property manager is a fiduciary, he or she must act in the highest good faith and fair dealing with respect to the owner’s asset, disclose all material information that may affect the owner’s decision-making with respect to that asset, and not may in no way, shape or form act adversely to the interests of the owner. This may sound easy, but situations arise that tempt even the best property managers sometimes not to act in the best interest of their clients for their own convenience. As unfortunate as it sounds, it happens regularly.

The following is a brief list of some common sense dos and don’ts and mistakes when there is a fiduciary relationship between a manager and an owner.

A manager must have a written agreement with his clients and may even be legally entitled to benefit from the services he provides to the owner; however, a manager cannot secretly benefit from this relationship. For example, a manager may charge an eight percent surcharge on materials and services provided by vendors to the owner’s property. This is legal and acceptable as long as the agreement between the parties agrees with the marking. If this surcharge was not in the agreement, then the property manager is required by law to return or forfeit all secret benefits derived from the relationship. There are so many possible examples of this, but a common one is a manager who makes a profit percentage on the work and services he provides to his clients but does not disclose; such as a new roof, bathroom remodel, interior wall repairs, etc.

A property manager is required to disclose any and all rental offers received along with documentation of those offers so that the owner is well informed about all potential tenants. It’s easy for a manager not to provide the names of prospective tenants who don’t necessarily qualify or are low credit risks, as this would add more work for the manager.

A property manager is legally obligated to act for the exclusive benefit of the owner of the assets in matters arising from the relationship, whether those matters appear insignificant or are significantly important.

Information about a tenant who is behind on rent should be reported immediately to the owner of the asset. If your management company is using a software system that enables an “Owner Portal”, then this information is readily available to view and anytime you have Internet access.

If a manager receives information that a tenant has caused damage to a property, the owner must be notified as soon as possible. It is easy for the manager not to disclose this information for fear of confronting the disgruntled owner or simply not wanting to deal with the conflict associated with the situation.

Trust Account Duties

A trust account that holds deposits and income for the benefit of the asset owner is a common cause of breach of fiduciary duty. The law prohibits a servicer from commingling customer trust funds with funds owned by the broker or the servicer.

Additionally, it is a breach of fiduciary duty to make mortgage payments on property owned by a broker from an escrow account, even if the broker promptly repays the payments to the account. The legal prohibition on conducting personal business from trust accounts is strictly enforced.

Surprisingly, another common example of commingling occurs when the property management fee is not withdrawn from the trust account on time. Sometimes a twenty-five (25) day delay may be considered to begin.

Trust funds must also be deposited with due diligence. Some states require deposits to be deposited no later than the next business day.

Mixing trust funds is a serious crime

Combining trust funds and brokers is such a serious offense that it can be grounds for revocation or suspension of a broker’s license in most states. Therefore, this single issue should be of utmost importance to a property manager and property management company.

conclusion

Managers owe fiduciary duties to their clients – this is the minimum standard owed. There are many ways to breach these duties that form the basis of the manager-client relationship. It is important to hire a property manager who understands and adheres to the legal framework, fully understands what a fiduciary duty entails, and can clearly communicate those duties while fulfilling them. It is important for landlords to ensure that they hire property managers that meet these minimum standards.