Manager’s Liability for Owner’s Debts

This case settled in 2013, but the lessons are worth repeating as the situation is timeless.  Property managers often order work to be done on the buildings they manage.  These work orders are generally routine, and a part of the management agreement.  The work done is financed by the property owner, but the manager is often in charge of writing the check.  However, a situation arose in Georgia where the owner did not pay for the work being done and the manager had no funds in the property’s account to pay.  The property manager was then sued and asked to pay the money due.

The matter arose at an apartment building being managed.  The property manager ordered work to be done on a unit.  The contractor hired completed the work and invoiced as usual.  Shortly after this, the apartment building was foreclosed upon and the bill was left unpaid. The contractor sued the property manager citing that the manger knew the owner lacked the funds to pay.  He went on to further state that the timing of the work and the subsequent bankruptcy indicated that the work was ordered solely to obtain free services.

The matter went to court and the judge found in favor of the property manager.  A court of appeals affirmed this position.  In the court’s brief, they explained that the property manager lacked the intent to defraud in this case.  Because of this, the manager was not found liable.  The court went on to explain that the property owner always paying bills on time previously, and giving no indication of a forthcoming foreclosure on the property.  This gave the manager every right to assume that the contractor’s bill would be paid.

For property managers who often order work to be done, this is a good formula to follow to avoid personal liability for debts. Contact us to discuss other ways to protect your firm.