A trend to hold managers of residential real estate responsible for dangerous conditions seems to be in the making. The Worcester Superior Court’s decision earlier this year in Goodman v. First Horizon Loans (WOCV2011-2221) denied SingleSource Property Solutions, LLC’s motion to dismiss claims filed by a tenant at property managed – but not owned – by SingleSource.
The judge, Hon. John S. Ferrara, quickly determined that the tenant’s claims that both the landlord and SingleSource had discriminated against her because she was a Section 8 tenant survived the motion to dismiss. Judge Ferrara then considered claims for breach of the covenant of quiet enjoyment and failure to provide utilities. M.G.L. c. 186, §14, provides that a covenant of quiet enjoyment runs from “any lessor or landlord of any building or part thereof occupied for dwelling purposes ….” SingleSource argued that it could not be liable for breaching that covenant because it was not the owner or lessor of the property. This argument was shown the door by Judge Ferrara: “Ownership is one element to be considered in determining whether the relationship of landlord and tenant exists, but one who has possession and exercises control of the leased premises may be a landlord although he is not an owner.” Here,
the actions of SingleSource establish that it was the de facto landlord with control of the premises and broad authority to act as agent for the owner.
As a result, SingleSource could be liable for breaching the covenant of quiet enjoyment. Judge Ferrara also found that negligence claims for emotional distress asserted against SingleSource were viable.
The trend to hold residential management companies liable is also evident in a 2012 decision by the Supreme Court of New Hampshire, Mbahaba v. Morgan. There, a tenant sought to hold the defendant, Morgan, responsible for lead exposure despite the fact that he didn’t own the building but rather was the manager of the LLC hired to manage the building.
The court reasoned that individuals are not excused from liability for their own misconduct as a matter of tort law. Therefore, it rejected Morgan’s argument that, although the landlord “contractually delegated duties to his LLC, he himself asumed no duty to the plaintiff.” The court emphasized that “the property owner’s duty does not arise solely by virtue of its contractual relationship to the tenant and neither the LLC’s duty nor the defendant’s duty arises solely from the property management agreement.” Rather, under New Hampshire law, a duty to act in a non-negligent fashion was imposed on Morgan by virtue of his superior knowledge of the the apartment’s hazardous condition and his management of the unit. Thus, a motion to dismiss this claim was properly denied.
The New Hampshire Supreme Court also held that Morgan might be individually liable for his LLC’s debts by virtue of his shuttering one LLC and moving his largest clients to a new LLC that he also managed while the case was pending. The court was particularly taken with the fact that Morgan’s explanation for his “unusual and ostensibly arbitrary business decision” was that he “[j]ust wanted to start fresh.”
Mbahaba is a wake up call for individuals involved both as managers and owners of rental property that – in New Hamsphire at least – they may be individually liable for negligence regardless of any formal corporate or LLC ownership or management of the property. Both cases are a reminder that owning and managing residential real estate can be a risky proposition.