Is PM Responsible for Bursting Pipes?

General Landlording & Rental Properties
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Is PM Responsible for Bursting Pipes?

Annie Li
Rental Property Investor · La Puente, CA · Member since 2015 · 87 posts · 20 votes

Hello,

I have a question about whether property manger is at least partially responsible for repair costs on bursting pipes due to heating being off after tenant abandoned the property.  The property manager for one of my rentals in Indy claims he is not responsible for that.

This is how it happened:  tenant stopped paying rent in November, 2016 after moving in 3 months later.  We filed eviction on Nov. 18.  My property manager confirmed to me they check the property on weekly basis to see if tenant moves out, if so, they will transfer utilities under their name and make sure heat is on to prevent pipes frozen.  

Tenant shut off utilities on Dec. 1 (I guess they moved out on or before that date).  Property manager changed the lock on or before Dec. 9, but didn't turn on heat until Dec. 17.  When my friend went to check the property, he found there are 4 places that the pipes burst.  I spent $500 to fix them.

The explanation that property manager provided is the gas company won't turn on gas without  electricity being on, and the power company didn't turn on electricity until mid December.  I asked him why it took so long, he said it's on them and he has email communication that they requested electricity to be on in early December.  When I asked him today to forward the email to me, he said he has done that in December and refused to resend it.  

I feel that even though the property manager requested electricity to be on in early December, they should have followed up with the power company if it was not on the next day (the power company "Indianapolis Power and Light Company" has been very responsive and always turned on electricity within 24 hours for my other properties).    

The property manager charges regular monthly management fees when the property is vacant, so I think they should be at least partially responsible for the cost of plumbing fix.

Please kindly share your thoughts or experience, really appreciate it.

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Ben Leybovich
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
9y

Let's see - a CA investor buying a property in the Mid-West because the numbers looked great on paper.  But, from paper to real life, the tenant skipped, the pipes froze, and now the numbers don't look so great... is that about the size of it? 

OK, here's the problem - it doesn't matter what anyone here thinks relative to your question. What's important is this: Are you willing to spend money to force the PM to pay for any of it (and likely fail), and if you are willing to spend money - how much are you willing to spend?

You see how this works now? 

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  • Billy Smith
    Shawnee Mission, KS · Member since 2016 · 716 posts · 313 votes
    9y

    Cary is correct have all your utilities notify you when they are going to be shut off.

    That is how I have my rentals.

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y

    Annie, mostly the people I see mention tenant friendly as compared to Cali are the cheap area out of state sellers.  What could be better is tenants who pay rent because they have good jobs and the rental market is so tight they don't dare have an eviction on record or risk only being able to rent in the total crap areas. Tenant friendly is a non sequitur in the bigger pockets picture imo. With that the average eviction in LA County takes six weeks.

    As far as the frozen pipes, I had good luck with pex plumbing. I think they can take the freezing part better.  Also some power companies have a revert bill back option so if power is not paid it goes back to owners name instead of shut off. This is definitely needed in a freeze zone area. 

    Good luck!

    0Reply
  • Patti RobertsonBusiness Member
    Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
    9y
    One point that hasn't been brought up is that even when the power and heat are on, sometimes pipes STILL freeze. I had two instances of this last month in century old house I manage that have little to no insulation and plumbing in outside walls. In some instances if it is cold enough for long enough, pipes are going to freeze no matter what with no fault of the tenant or PM because the owner chooses not to spend money on more or better insulation.
    757-472-2547
    3Reply
  • Colin B.
    Rental Property Investor · Astoria, NY · Member since 2011 · 16 posts · 11 votes
    9y

    Annie - As someone who invests out of state frequently, I understand your challenge well and I'm sorry that you're going through it. I went through a similar challenge on my first out of state property - about six years ago, I bought a decent but old three unit in a transitional neighborhood. The cash flow was (and still is) great but I had to go through two property managers before finding the right one. I'm hopeful that your current arrangement will be more fruitful but I have had mixed luck with family and friends in similar contexts. 

    As far as whether or not you or your PM is responsible for the pipes, do you have a formal PM agreement with them? If so, it's worth understanding whether the PM has breached any of its provisions. One provision to be weary of is a provision limiting the liability of the PM which, in my experience, is common in PM agreements. Then, absent a breach of any other applicable provision in the agreement (i.e., a provision limiting what the PM can spend without your approval) or the applicability of any state law to the contrary (for instance, in New York like many states, a liability waiver is ineffective for fraud), the question will be whether or not the PM's conduct falls outside of the liability limitation provision (many of them provide that the PM is nonetheless liable for, i.e., its gross negligence, bad faith, fraud, etc.). 

    My gut reaction is that it probably isn't worth the time and the headache for a possible $500 recovery if the PM won't work with you amicably and out of court, even if they did breach any PM agreement (believe me, I spent more than that learning my lessons about ineffective PMs so consider yourself lucky) but do review them on Yelp, report them to Better Business Bureau, etc. to help the rest of us. Good luck! (No legal advice here.) 

    2Reply
  • Annie Li
    OP
    Rental Property Investor · La Puente, CA · Member since 2015 · 87 posts · 20 votes
    9y

    @Cary P. @Billy Smith Great suggestion!  I didn't know I have this option so I'll call the utility companies on Monday to set it up.  Thanks for sharing.

    @Ray Lai Thanks for the warm words.  Some people have privately messaged me to ask for the name of the PM company, I have no problem sharing this info.  2016 is my first year to try real estate investment; I'm proud of what I've accomplished so far - bought 6 rentals, 4 of them with complete interior rehabs, 2 filled with great rent to own tenants, and most importantly, gained tons of knowledge and experience.  Because I bought all my properties at great price and I tried to be hands on afterwards, my returns aren't too bad in spite of working with those PMs.    

    @Michael Noto @Robert Herrera My PM and I have mutually agreed to terminate our PM contract before the pipe incident happened (see my reply to Zach and Andraw yesterday).

    1Reply
  • Annie Li
    OP
    Rental Property Investor · La Puente, CA · Member since 2015 · 87 posts · 20 votes
    9y

    @Account Closed CA is not just tenant friendly, its return is just too low.  You can use the same amount of money that you buy in CA to buy in Indy, and your total rent income is at least doubled.  Furthermore, even if I can evict tenants in 6 weeks, if the rent is $2000/month, that's $3k rent loss immediately.  While in Indy, the monthly rent is half of it and you can get tenant out in 3 weeks easily, and this rent amount is not for a low end property, so as long as you do good screening, your chance of eviction is not bigger than CA.  In regards to pex plumbing, I fixed the frozen pipes this time using pex pipes, now since I'm only buying newer houses, and I'll choose the revert bill back option as Cary and Billy suggested, I think I'll have better luck on frozen pipes in the future. 

    0Reply
  • Annie Li
    OP
    Rental Property Investor · La Puente, CA · Member since 2015 · 87 posts · 20 votes
    9y

    @Patti Robertson That's true but this is not the case with my property.  I don't buy houses that are too old so I won't get surprises all year long. :)

    @Colin B. Yes I have a formal PM agreement and just as you anticipated, below is what's in the agreement:
    "(a) Manager shall exercise due care in the performance of its duties hereunder. However, Manager and its corporate officers, employees and subcontractors assume no responsibility in connection with the performance of Manager's duties hereunder for actions taken in good faith.

    (b) Manager shall indemnify, defend and hold harmless Owner and its directors, officers and employees from and against any and all claims, actions, suits, proceedings, losses, costs, expenses and attorneys' fees to the extent resulting directly from the negligence, willful misconduct or fraud by Manager or its employees in the performance of Manager's duties hereunder."
    As previously mentioned, this is about whether I will deduct my final payment to PM for partial of the plumbing repair cost, so it's more like whether PM should fight for it, not me.

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y

    Right on. The evictions can be as short as 3 weeks in LA but average length is 6 weeks and I get your point/math. I would disagree with having higher returns in Indy historically. LA was #1 nationally for total returns ( cash flow + equity) since 2000. There is a difference in rent growth and appreciation that overtime is rather significant. Good luck in all areas you like!

    0Reply
  • Amy A.
    Portland, ME · Member since 2012 · 616 posts · 550 votes
    9y

    As people have said, it would be time-consuming and difficult for you to get a judgement for $500 against the PM.  However, remember that likewise it would be difficult for him to get a judgement against you for what he says you owe.  I'd tell him that you'll call it even.  

    By the way, it's amazing that it was only $500 to fix.  I've seen it cost $40K+ due to water damage and mold.  I hope you have somebody over there to check it out and make sure it's dried out.

    0Reply
  • Annie Li
    OP
    Rental Property Investor · La Puente, CA · Member since 2015 · 87 posts · 20 votes
    9y

    @Matt R. I'm a cash flow investor but will consider appreciation at a later time.  Good luck in CA!

    @Amy A. That's what I think too, so I plan to deduct half of the plumbing repair cost in my final payment to PM, and I don't think he will bother to sue me for $250 which he may probably lose anyway.  The repair cost is low because water was off until after we turned on heat, so it didn't cause too much of water damage.  This property has been rented out to a great rent to own tenant so I'm sure they will take care of the remaining issues if there are any.    

    0Reply
  • Patrick Squires
    Investor · Oxford, MI · Member since 2016 · 110 posts · 41 votes
    9y
    500 (or maybe your 250 plan) is a dirt cheap way to find out that you need a new PM. Did they find the bad tenant too?
    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Annie Li:

    @Matt R. I'm a cash flow investor but will consider appreciation at a later time.  Good luck in CA!

    @Amy A. That's what I think too, so I plan to deduct half of the plumbing repair cost in my final payment to PM, and I don't think he will bother to sue me for $250 which he may probably lose anyway.  The repair cost is low because water was off until after we turned on heat, so it didn't cause too much of water damage.  This property has been rented out to a great rent to own tenant so I'm sure they will take care of the remaining issues if there are any.    

    Awesome.  Then you might be aware on average LA has a lot more cash flow overtime than Indy. Rents have tripled in LA since 2000.  More initial cash flow on paper is not always how some real estate investments get evaluated entirely. If they do Detroit is #1 for that. 

    I have owned out of state too in Colorado and Texas. Unfortunately I was partly ignoring the future cash flow bigger picture to creating bigger pockets. It is when I took a step back the real future cash flow realities were understood better. 

    Good luck!

    1Reply
  • Chris K.
    Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    @Annie Li

    Before you do anything, check the agreement for two things. First, check to see what it says about the venue of the lawsuit. If a competent attorney drafted the agreement, it will likely specify that all lawsuits relating to the contract must be brought in the area where the PM resides. Second, check to see what it says about attorney's fees. 

    One other factor to consider is whether this PM has an attorney contact that's willing to do legal work for free or for a very low fee. I've seen many folks wiling to bring otherwise pointless lawsuits based on the fact that they have a family member or close friend who is an attorney. If that happens, you may end up in a position where you have to hire a lawyer to defend a $250 case in Indiana. 

    0Reply
  • Annie Li
    OP
    Rental Property Investor · La Puente, CA · Member since 2015 · 87 posts · 20 votes
    9y

    @Chris K. Thanks for the tips.  I will be cautious about these risks and try to resolve this matter with PM peacefully.

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