We all know that the field of property management is fraught with risk of lawsuits whether it is from Fair Housing claims, a disgruntled property owner, accounting mismanagement, or a vendor injured at a rental property. However, most property managers NEVER consider other risks.

1. Employee Risk
We don’t usually think of our employees as a real risk but there is the potential for a lawsuit stemming from wrongful termination, embezzlement, sexual harassment, a toxic work environment, drinking on the job, sabotage of company information, theft of client identity. The disgruntled employee making false accusations to Dept. of Real Estate that causes an audit or reports to EDD, which will also launch an investigation.

So, how do we protect ourselves and manage the risk? First, have a Policy & Procedure Manual where you outline the expectations of the company in dealing with clients and employees. This sets the rules and allows you to communicate with new and existing employees expectations of them while in your employ. Employees should sign off annually that they have read and agree to the Policy & Procedure Manual.

Another level of protection is to have an Employee Manual, which is a specific set of Policies and Procedures as it relates to being an employee of the company and the expected behavior and performance if to remain employed. Again, have the employee sign off annually that they have read and agree to the Employee Policy Manual.

Communication on a regular basis is vital to a successful office and team. Regular education keeps everyone on the same page. Typical classes would be Sexual Harassment training, Fair Housing training, internal training on matters of company policy and conduct and Red Flags training.

2. Red Flag Policy
What is a Red Flag Policy? Simply put it is the policy that states how you will protect your clients’ personal information such as: address, social security numbers, bank account numbers, birthdates etc. In this era of cloud computing it isn’t uncommon for companies to get hacked and sensitive client information is compromised. There have been situations where large companies and government agencies have had their data locked and held hostage until payment is made and then the data is released.

How do we protect ourselves from this area of risk? Install a security alarm system. Today you can purchase cameras at very little cost and add monitoring. Insurance is vital; a rider policy for Cyber Insurance is available. Make sure your data is backed up often and stored offsite as well as within the office, have firewalls and change passwords regularly. Have your computers or networks managed by a professional who can make sure the latest anti-virus software is in place.

Have systems in place within the office for how sensitive information is kept and provide regular training to employees about how to handle this information. Examples might include shredding paperwork, blacking out social security numbers, having archived files locked in a closet. Procedures that include locking away all files at the end of the day and desks cleared in case there is unauthorized entry into the office after hours.

3. What does it mean to be a Company or LLC?
Many property management companies are LLC’s or Sub-Chapter S Corporations. This is done to create a firewall so-to-speak for the business in case of a lawsuit. The assets of the business might be at risk but not the company owner’s personal assets such as a home. There are also tax benefits.

However, there are rules that must be followed if you have a Corporation or LLC. Many aren’t aware that you need to keep quarterly and annual minutes of the Company? The minutes need to be signed off by the President, Secretary, and Treasurer of the Company. If you are a one-person show then you will be signing as all three entities. Recording and keeping the minutes may seem trivial but if you DON’T do the minutes and you get sued the entire protection of being a corporation will be lost. The veil of protection will be pierced and now the lawsuit can go after all the assets of the business owner including personal assets.

Risk Management is vital to ensuring a business is successful and profitable. Plus, if done properly it is Peace of Mind. An assessment or audit should be done annually so that any necessary changes can be made. Ask your team of professionals such as attorney, CPA, insurance agent of changes to implement to keep you and your business protected.


Kathleen Richards, is the owner of PM Made Easy and The Property Management Coach. With her 13 years as a broker/owner of a property management company she speaks from experience. Kathleen authored, Property Management A-Z and teaches regularly at community colleges and conferences on property management topics. She is active in her field and holds professional designations as Master Property Manager (MPM®) and Residential Management Professional (RMP®) and her company held the coveted, Certified Residential Management Company (CRMC®) designation from NARPM®. She is currently a National Instructor for NARPM® and is honored to be sharing best practices with other NARPM® professionals. Kathleen has served at the local and state level on the boards for NARPM® (National Association of Residential Property Managers)