When a Texas Property Manager May Be Liable for the Debts of the Property Owner

Texas Property Management Companies

Property managers routinely contract for services to properties on behalf of the owner. Commercial real estate projects including apartment complexes, retail centers, and office buildings need a variety of services for things such as landscaping and janitorial. Service agreements are often signed and orders are placed without much thought as whether the property manager has any liability in event of the property owner failing to pay for services.

Whether a management company has any exposure for the debts of the owner can be answered through an examination of Texas principal/agency law. Many management companies are surprised to receive a legal demand or be served with a lawsuit naming them personally for services rendered to the property. The answer to potential liability lies in the agent properly disclosing its agency relationship to the principal. In the management context, the agent is the property manager and the principal is the property owner.

For an agent to avoid liability, the agent must disclose that he is acting in representative capacity and the identity of the principal. Nadeau Painting Specialist, Ltd. v. Dalcor Prop. Mgmt., Inc., No. 03-06-00060-CV, 2008 WL 2777724, at *7 (Tex. App. July 18, 2008). Additionally, “The test for disclosure is the other party's knowledge, or reasonable grounds to know, of the principal's existence or identity, irrespective of the source from which the other party obtains it.” Burris, 714 S.W.2d at 435 (citing Johnson v. Armstrong, 83 Tex. 325, 18 S.W. 594, 595 (Tex.1892) & Carter v. Walton, 469 S.W.2d 462, 471 (Tex.Civ.App.-Corpus Christi 1971, writ ref'd n.r.e.)). “The other party's actual knowledge of the principal, not just the other party's suspicion, is the test.” Id.

The safest way for a property manager to avoid liability is to fully disclose agency and the name of the principal. By way of example, a signature line in service agreements that indicated full disclosure under the law might read “XYZ Property Management Company, Agent for ABC Real Estate Owner.” Without clear disclosure the trier of fact would need to resolve whether disclosure might exist in other ways. Fact finders may look at cancelled checks, invoices from vendors, or written contracts governing the services.

Determination of liability of an agent by analysis of agency/principal law is a complex process. If you have been sued or are considering bringing an action, it is important to consult an attorney familiar with Texas agency/principal law.

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