Whether done intentionally or unintentionally, the unauthorized practice of law can land a property manager in hot water. Not only could a manager’s job be on the line, but there are also legal issues associated with practicing law without a license. Therefore, rather than addressing legal matters on their own, managers should instead turn to counsel, said Denise Becker, Senior Vice President of Homestead Management Services, Inc. in Pine Brook and Hillsborough, New Jersey.
So what types of issues fall in the category of “legal matters.” One concern is drafting contracts and resolutions. Although a manager might think he or she is saving money for the association by drafting these documents, he or she might omit or incorrectly state information that could cost the association money in the long run. For example, the contract may be poorly written or the resolution might conflict with the governing documents, explained Becker. Additionally, Becker advised that managers should never use another’s contract as their own. Attorneys can recognize if their contract has been plagiarized and that could cause trouble for the manager who essentially “stole” that property.
To avoid unwanted stress and unforeseen costs, legal counsel should always review contracts before they are signed by the association. This is also true for contracts drafted by vendors. Attorneys will ensure there are items included in these contracts, such as a proper termination clause. They will also make sure the association is represented fairly and can take the appropriate recourse if necessary. Becker noted that failure to include specific language can prevent an association from terminating a contract with a vendor or force the association to pay for services that are no longer desired until the end of the original term.
In addition to drawing up contracts and resolutions on their own, managers could also get into trouble for improperly handling collection issues. “Managers should not give advice as to collection matters nor should they try to handle collection efforts,” Becker noted.
Becker explained that it’s common practice for a property manager to send an initial collection letter to a unit owner who has missed a payment. However, once the fees begin to add up and the problem escalates, it should be turned over to legal counsel, she said. If the association decides to take the homeowner to court, any mistakes made by the property manager, such as incorrectly completed paperwork, can cause the filing to be rejected. In addition, Becker noted that managers should ensure they are in compliance with the Fair Debt Collection Practices Act whenever a collection matter arises.
Another issue that should be addressed by the association’s attorney is interpretation of the governing documents. Becker explained that there are some gray areas that may need clarification which should be provided by legal counsel. “If there is a question on how to interpret the governing documents, that is best served by asking the attorney,” she said.
“In addition, in the event of an insurance claim, the claim should be turned over immediately to the association’s insurance agent to protect the best interests of the association. Also, if a homeowner retains legal counsel, that matter should automatically be turned over to the association’s counsel to handle,” Becker noted.
One example of a situation that a manager should not try to address on his or her own is a slip and fall case. “That’s where you have the largest gray area, and that’s when you need to send the matter to the insurance company immediately because they’re going to ask the proper questions. They’re going to come out and do the proper investigation. And, if the person who fell is going to sue the association, the insurance company provides counsel. It’s part of their policy,” said Becker.
Having written rules regarding legal counsel can greatly assist a property manager in determining the correct procedure to follow in a specific situation. For example, a collection resolution is necessary to ensure proper actions are taken for collection efforts beyond a simple late notice, for both the manager and the homeowner. The collection resolution will provide the timeline to follow for delivery of the late notice, followed by the attorney demand letter and potential property lien. “The collection resolution is important because it allows the homeowner to know what the steps will be,” said Becker.
Becker also noted that a policy should be put in place that dictates when a contract must be drafted, such as when a project reaches a certain dollar amount. For instance, the association could set a rule that a contract must be written for any work that costs over $5,000. “Work that is performed for a specified amount of time, such as pool maintenance or landscaping, should also have a properly written contract outlining the expectations, specifications of the job and the termination clause,” Becker said.
The policy surrounding an association’s criteria for Alternative Dispute Resolution (ADR) should also be outlined in writing, noted Becker. The purpose of ADR is to attempt to resolve a problem with alternative methods other than litigation. A written ADR policy establishes parameters so that all parties know what is to be expected throughout the process.
To avoid being accused of the unauthorized practice of law, managers should not give any legal advice no matter how many years they have been working in the industry. Even if they are sure they know the answer an attorney might give, managers should play it safe and refer the matter to counsel when a legal question or issue arises, suggested Becker. “You have to put these things into perspective, and stay within your skillset,” she advised.
In addition, counsel should be invited to attend meetings where it is expected that an issue might be brought up that requires the analysis of documents or legal advice, Becker said. She also noted that it is prudent to have the attorney present during an association’s annual election. “It’s money well-spent,” said Becker, “because you could say something wrong and then be on the hook for it.”
Another way managers can protect themselves is by receiving everything in writing. “That’s paramount,” said Becker. “If someone has a complaint, say ‘Can you put your issue in writing?’ Because then, you’re not paraphrasing for them and you can take their exact words to the board for action,” she explained. “The board can then make the decision to respond to the complaint or send it to counsel.”
Becker also said this helps to avoid issues where homeowners deny they ever made a complaint and filters out anonymous complaints as well. “No anonymous complaints should be accepted and everything should be documented. If it’s in writing, it can’t be denied,” noted Becker.