Rental Management Is Good Business, Until It Isn't

Several years ago I wrote an article called “The Rental Manager Will Be King”. I really meant that, and by and large, it has come true. There are more rental units on the market today than ever before, and the management of those units has become ever more legalistic, complicated, and more lucrative. As a result, there are more professional rental managers. This article addresses some ideas to make the lives of those in that business just a little less threatening.

Nine years ago I began the defense of a rental manager for allegedly breaching its contract with one of the owners whom the manager represented. The breach involved only a few dollars and should have been resolved quickly and inexpensively. I have won every hearing before every court the case has come to. But it is now 9 years since the matter started, many thousands of dollars have been spent, and the case is still not over. How can that happen?

Some of you will know the drill without being told. The case was filed as a class action. The theory of such a case is that a legal error was made once, but duplicated many times, involving, they say, every contract this manager had over several years. The several hundred dollar case became several hundred times more important, more complicated, and more expensive. Those of you hooked on John Grisham will remember the King of Torts. Class actions get out of control overnight and often they serve the lawyer a whole lot more than any good they do for the parties. This one is no different.

About one month before this article will be seen for the first time, a circuit court in Florida, sitting in an appellate capacity, made a ruling that was interesting, and could be salvational, for rental managers. The case came down in another setting, involving a bank. But the essence was that a contract with depositors (or in this case, a rental manager’s contracts both with owners and tenants), can legally adopt arbitration (this was not a surprise). But the approved contract also contained a waiver of class action litigation.

Think about the utility of that.

When the case I’m still involved in first came up, I spoke with the lawyer who brought the case. I told him early in the case that if my client had done something wrong in administering his contract, to tell us what they think that is, and we’ll correct it. But the purpose of the suit was never to correct an honest difference between business people. The purpose was instead to capitalize on alleged accounting errors, solely for the benefit of the law firm bringing the action. There is a handful of national law firms that bring these actions; their purpose is to benefit the lawyers, with no regard for the impact on an honest business, or the good to come from such a lawsuit. The plaintiff, even if he were able to win, would never get more than a few dollars.

There is a lesson here. Rental agents (and all businesses with repetitive contracts), change your contracts. Whether or not your contract should require arbitration is debatable. But there can be no debate that you will sleep better the rest of your business life if you incorporate into your agreement a waiver of class actions. Business owners can’t afford to be victimized by off-the-shelf contracts. In the very few ways that you hold the upper hand you should use it. Since you draft your contracts, change them to provide a waiver of class action lawsuits.