Filing lawsuit against property management company

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Filing lawsuit against property management company

Danielle Levy
Investor · Southfield, MI · Member since 2016 · 3 posts · 2 votes

We are extremely unhappy with our property management company. They failed to rent a unit in a great location/condition and a hot market for 4 months, and the rehab expense reports don't line up with the estimates they provided. We don't believe they are stealing, but their negligence has cost us a lot of money.

* Is this enough to file suit in small claims court? 

* What types of evidence would we need?

* And most importantly, does it open us up to counter lawsuits? 

We would of course switch properties to another company in advance. We have a standard management agreement with a hold-harmless clause but nothing mandating arbitration. 

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
1y

Nothing you've stated merrits a lawsuit. Simply fire them and hire someone else.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    1y

    Nothing you've stated merrits a lawsuit. Simply fire them and hire someone else.

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  • John WilliamsBusiness Member
    Property Manager · Clarksville, TN · Member since 2018 · 443 posts · 210 votes
    1y

    Anyone can sue anyone for anything. But should you? Probably not. Save your time/money move on. Pick your battles. 

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  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    1y

    Good grief you're wanting to sue because your unit didn't rent? Don't own real estate then. Sell and buy QQQ. This board sometimes lol...

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    1y

    This would be a waste of everyone's time and money. Incompetence is generally not litigable. What makes you an expert that the unit is in a great location & condition and the market is hot, relative to the property manager? That's the first question you'd have to answer. Just because something didn't rent doesn't mean there's anything actionable. Now if you could prove they were purposely steering qualified candidates to other units, or failing to market the unit at all, those would possibly be acts of fraud or gross negligence, which can be litigated. 

    Of course, you should switch companies if you are unhappy with their services. 

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    1y

    @Danielle Levy a lot of questions regarding your accusations:

    1) What are the average Days On Market (DOM) for rentals in this "hot" market?

    2) What is the average rent in this market and how does your asking price compare?

    3) How well prepped was your property?

    4) How do the finishes & amenities of your property compare to competitive properties?

    5) What Placement Fee did you negotiate with your PMC?

    6) Where is your property being advertised for rent?

    7) How professional do the marketing pics look?

    8) Is there a 3-D Tour or floor plan layout?

    9) How are showing requests handled?

    10) How often have you authorized a price reduction or incentive?

    Recommend you have a great understanding of the answers to these questions before thinking about a lawsuit.

    You'll also want to use these questions as discussion points with any new PMC you interview.

    If you post the address, everyone here will be able to give you more feedback about the quality of the listing and perhaps more insights.

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  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    1y

    Agreed with everyone on this thread, this does not warrant a lawsuit due to those things that could have been controlled by you as the homeowner. You could tell them to cancel the listing and you will find someone else to list it after a month not 4 months (the market take is subjective too, all dependent on what your house has compared to others, where it is located, the size of it, and so many other factors). The rehab expenses don't line up but they are not stealing, I would suggest having a zoom call or sit down with their PM or account manager to see what is not lining up and where you see issues compared to what they have on their sheet. 

    These things going to court you have to Steel Man the argument and if you can do that with a good base for your side being in the right/wining the argument then you may be able to win in court. For example, they have not sent us the rent they owned us for the last three months, and here is paperwork to show it is not in our account, here is the contract with them stating they would pay on this day each month, and here is the title of the house in my LLC/name to show you we own the property too.

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  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    1y

    Could it be that your unit is not as updated or doesn't provide as many amenities as similarly-priced competition? Your PM should be making recommendations on updates you could make to get it rented, or recommending to lower the rent. I agree with the others that nothing you've stated here seems to justify legal action. I'd recommend communicating more with the PM directly. Let them know that you're unhappy with them and see if the two of you can right the ship together and if not then self-manage or find a new PM. This year has been harder than previous ones to fill units quickly and rents have been declining in many markets. 

    2Reply
  • Danielle Levy
    OP
    Investor · Southfield, MI · Member since 2016 · 3 posts · 2 votes
    1y

    Hi all, thank you very much for the replies. 

    We are not large scale but we do own properties in multiple states and are aware of the limitation of a subjective line like "should have rented in a hot market". We consulted here because we're certain they truly were negligent. 

    In terms of renting it out - we saw the unit was offline on Zillow and other listing websites depsite the fact it was supposed to be on, and we were the ones who notified them of it. We were told explicitly that they don't want have time to do more showings bc they think a tenant is comitting, and that tenant fell through in the end. And in terms of the unit - we own 4 others in a 3 mile radius and are very familiar with comps. We ran the numbers and saw what rented and know the price was okay. We also put $10K into rehab at turnover right before.

    In terms of the expenses, we're honestly not sure if they are stealing or just imprecise. Rehab contractor charged $10K, the online report says $16K. We asked for receipts but haven't received them, even though according to contract they're mandated to share them.  


    Most importantly, they are disrespectful and bad business people. It's a small shop and we deal with the owner, no one to escalate to. 

    Of course we can cut our losses and switch. We just really wanted to see if we can get something back because they are really bad at the job and have cost us many thousands of dollars (if not more).   

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    1y

    I think you should change PMs because you have multiple complaints.  However, i want to address placing a tenant.

    My market has a low vacancy rate.  My estimate is 90% of the time we obtain a tenant in our first open house.   We had a unit that was ready for open house this mid November that took 4 open houses to get a tenant moving in Christmas day (i know strange move in day, chose by the tenant).  This is a challenging time to place tenants.  6 weeks is my second longest ever with the longest being a unit that was ready mid December and took over 8 weeks. 

    4 months is long.  I also do not stop marketing unit including open houses until i have a holding deposit.  However, recognize there are challenges placing tenants at this time of the year.

    good luck

    1Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    1y

    Another reason I’m not a property manager.

    3Reply
  • Nathan GesnerBusiness Member
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    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    1y
    Quote from @Danielle Levy:

    Lesson learned: provide the full story up front and you'll get better advice.

    If you feel there's a case, put together all the evidence. Give the PM a demand to make you whole. If they refuse, file a complaint with the state commission. That will typically generate a response from the PM to negotiate a settlement and avoid an investigation. If it doesn't spur them to make you whole, then consider a lawsuit. The one with evidence wins.

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  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    1y
    Quote from @Nathan Gesner:
    Quote from @Danielle Levy:

    I agree with Nathan, you should bring more to the table and lay it all out there so that we can give you the exact detailed answers you are looking for to be successful. Not knowing the full story will only give us responses from generalities. 

    Good luck! 

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  • Phillip AustinPro Member
    Property Manager · Denver, CO · Member since 2023 · 236 posts · 204 votes
    1y
    Quote from @Nathan Gesner:
    Quote from @Danielle Levy:

    Lesson learned: provide the full story up front and you'll get better advice.

    If you feel there's a case, put together all the evidence. Give the PM a demand to make you whole. If they refuse, file a complaint with the state commission. That will typically generate a response from the PM to negotiate a settlement and avoid an investigation. If it doesn't spur them to make you whole, then consider a lawsuit. The one with evidence wins.

    As always, @Nathan Gesner coming through with the most solid and practical advice.

    If you have issues with your PM, be very direct and state your case. If they’re violating the management agreement, state your case plainly and try to work it out. If they refuse to cooperate and you can clearly identify breaches in the management contract, file a complaint with your states real estate commission. PMs are forced to respond and are more likely to settle. It saves you time and money by not having to hire an attorney.

    0Reply
  • Jake KnightPro Member
    Property Manager · Indianapolis · Member since 2017 · 303 posts · 146 votes
    1y

    (Not a lawyer so this is not legal advice) 

    You've listed all the reasons why people fire property managers, it sounds like they've just done a poor job of meeting your expectations.  PM's are rarely sued for such things.  If you suspected they did something illegal, that may warrant a lawsuit but if they just did a poor job - I don't think you'll have much of a case.

    1Reply
  • Andrea Russin
    Investor · Member since 2024 · 13 posts · 8 votes
    1y

    Filing a lawsuit would cost you way too much money. Find another management company and move on.

    0Reply
  • John Gillick
    Investor · San Diego, CA · Member since 2016 · 35 posts · 21 votes
    1y
    Quote from @Danielle Levy:

    Hi all, thank you very much for the replies. 

    We are not large scale but we do own properties in multiple states and are aware of the limitation of a subjective line like "should have rented in a hot market". We consulted here because we're certain they truly were negligent. 

    In terms of renting it out - we saw the unit was offline on Zillow and other listing websites depsite the fact it was supposed to be on, and we were the ones who notified them of it. We were told explicitly that they don't want have time to do more showings bc they think a tenant is comitting, and that tenant fell through in the end. And in terms of the unit - we own 4 others in a 3 mile radius and are very familiar with comps. We ran the numbers and saw what rented and know the price was okay. We also put $10K into rehab at turnover right before.

    In terms of the expenses, we're honestly not sure if they are stealing or just imprecise. Rehab contractor charged $10K, the online report says $16K. We asked for receipts but haven't received them, even though according to contract they're mandated to share them.  


    Most importantly, they are disrespectful and bad business people. It's a small shop and we deal with the owner, no one to escalate to. 

    Of course we can cut our losses and switch. We just really wanted to see if we can get something back because they are really bad at the job and have cost us many thousands of dollars (if not more).   


    Negligence is only a cause of action when there is a legal duty owed. The only duty the management company owes you is the contractual one. It sounds like they breached their contract so you may have a case. It's not worth hiring a lawyer but as you suggested, small claims court may be an option IF you hired them in your personal capacity OR if your jurisdiction allows LLC owners to go to small claims and represent the LLC in court (many, most?, do not allow that as you are not the LLC and only a lawyer can represent an entity in court, while non lawyers can only represent themselves in court). Best to move along.

    0Reply
  • Sofia Komrskova
    Real Estate Agent · Cleveland, OH · Member since 2025 · 60 posts · 54 votes
    1y

    This isn't enough to file a lawsuit, and even if it was you would be wasting your money. Fire them and find a better PM.

    1Reply
  • Jeremy Jareckyj
    Real Estate Agent · Salt Lake City, UT · Member since 2020 · 490 posts · 205 votes
    1y
    Quote from @Danielle Levy:

    We are extremely unhappy with our property management company. They failed to rent a unit in a great location/condition and a hot market for 4 months, and the rehab expense reports don't line up with the estimates they provided. We don't believe they are stealing, but their negligence has cost us a lot of money.

    * Is this enough to file suit in small claims court? 

    * What types of evidence would we need?

    * And most importantly, does it open us up to counter lawsuits? 

    We would of course switch properties to another company in advance. We have a standard management agreement with a hold-harmless clause but nothing mandating arbitration. 


     Unfortunately , I don't believe this is a lawsuit, just poor management.

    1Reply
  • Jim Lynch
    Investor · Nashville, TN · Member since 2022 · 7 posts · 7 votes
    1y

    I don't want to rehash anything already written in this thread (955 of which I agree with). I would maybe add that, with your portfolio spanning several states, you may want to research/interview a national PM that could cover all your properties with one contract. That would certainly provide added leverage should problems arise with bookkeeping, receipts, estimates, etc.

    2Reply
  • Greg WeikBusiness Member
    Property Manager · Denver, CO · Member since 2020 · 263 posts · 327 votes
    1y
    Quote from @Danielle Levy:

    Hi all, thank you very much for the replies. 

    We are not large scale but we do own properties in multiple states and are aware of the limitation of a subjective line like "should have rented in a hot market". We consulted here because we're certain they truly were negligent. 

    In terms of renting it out - we saw the unit was offline on Zillow and other listing websites depsite the fact it was supposed to be on, and we were the ones who notified them of it. We were told explicitly that they don't want have time to do more showings bc they think a tenant is comitting, and that tenant fell through in the end. And in terms of the unit - we own 4 others in a 3 mile radius and are very familiar with comps. We ran the numbers and saw what rented and know the price was okay. We also put $10K into rehab at turnover right before.

    In terms of the expenses, we're honestly not sure if they are stealing or just imprecise. Rehab contractor charged $10K, the online report says $16K. We asked for receipts but haven't received them, even though according to contract they're mandated to share them.  


    Most importantly, they are disrespectful and bad business people. It's a small shop and we deal with the owner, no one to escalate to. 

    Of course we can cut our losses and switch. We just really wanted to see if we can get something back because they are really bad at the job and have cost us many thousands of dollars (if not more).   


     My take on this is that you need to take responsibility for not doing your due diligence with hiring the right PM. 

    Almost anyone can say, "We do property management," but very few can say (and prove) that they do it well. 

    Your education has cost you money, as education tends to. Being litigious about it tells me you're not owning your error. 

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