February 2013

Some of our clients have recently been seeing an inordinate amount of small claims or Justice Court lawsuits from tenants suing the management company for the return of their security deposit.  If certain requirements are met in the parties’ lease agreement though, management companies can generally be released from liability from these sorts of lawsuits because the refund and accounting of the security deposit is the obligation of the property owner even if the management company provides that service under the terms of their Property Management Agreement.

Under Arizona Law, A.R.S. § 33-1322, the owner of the premises must be disclosed on the lease agreement.  If the owner of the premises is not disclosed, then the party entering into the agreement on the owner’s behalf, the property manager becomes liable for the obligations of the owner, i.e. the refund and accounting of the tenant’s security deposit.

We advise that when disclosing the name of the owner of the premises, that property managers disclose the entire name of the owner and not just the last name of the owner.  If the premises is owned by an LLC or other corporation, the LLC’s or the corporation’s name should be disclosed as opposed to the principal individual of that LLC or corporation who you do day to day business with.

Under Myers-Lieber Sign Company vs. W.L. Weirich, 2 Ariz. App. 534, 410 P. 2d 491 (1966), the Court has also previously held that a disclosed agent cannot be held liable for the obligations of the principal.  You should therefore make sure that in your lease you not only correctly identify the name of the owner, but also your identity as a managing and leasing agent for the owner.  Some of our clients have gone so far as to cite Myers-Lieber Sign Company vs. W.L. Weirich in their lease agreements when disclosing the name of the owner in order to clearly spell out the owner’s liability and the property manager’s lack of liability.

It may additionally be beneficial to ensure that the property owner is registered with the County Assessor’s Office under A.R.S. § 33-1902, which mandates that owners of residential rental property keep on file with the Assessor’s Office contact information and statutory agent information.  If your owner is correctly registered, you can include further verbiage in the disclosure section of your lease that the tenant may find contact information for the owner in public records in accordance with A.R.S. § 33-1902.  Often times, disputes arise when tenants demand the contact information of the owner of the premises for service of process, and property managers who feel it’s their duty to shield the owners from the tenants do not always want to provide that information.  Spelling out what is required by the law in the lease and referring the tenant to that lease, may be a way to mitigate that dispute.

When accounting for a tenant’s security deposit, which many management companies do on behalf of the owner, you may want to further clarify your agency status for the owner.  If your security deposit statement simply states that you, the management company, are withholding funds from the security deposit and making demand for additional payment, many tenants will simply go down to the local Justice Court and file suit against you since the notice is from you.  Additionally, make sure that sure that if you are preparing the security deposit statement that you include the appropriate Fair Debt Collection Practices Act language in the security deposit statement.

Ensuring that you have this extra verbiage in your lease agreements and security deposit statements will help reduce the number of lawsuits you see filed against you.  If you have any questions about suggested lease clauses or would like a review of your current verbiage on your lease agreement or security deposit disposition statements, please contact our office.  Keep in mind that disclosing the owner’s name does not release you of all possible liability surrounding a potential lawsuit, but it will increase your ability to be released from the lawsuit. 

You should also keep in mind that there are currently twenty-six Justice Court precincts in Maricopa County, all with separate elected Justices of the Peace who run and operate their Courts in different fashions.  So a lawsuit that you are able to be dismissed from in one precinct with the filing of a Motion to Dismiss based on your lack of liability and the disclosure of the owner’s name in the lease, may not ring true in another precinct depending on how that Justices of the Peace normally operates.  You still may be required to jump through some additional hoops or even attend a Trial before you are released of liability.

Finally, we have a note on fair housing where recently, we had an interesting scenario.  A husband and wife wanted to renew their lease.  They had lived on-site for several years and always paid on time.  However, a few months before their rental agreement expired, the husband left for Russia, his nation of origin.  The landlord required both a husband and wife to sign all leases.  Can the landlord refuse to renew the lease because the husband is unable to come into the office and sign the lease?

The answer is no.  The landlord must allow the husband to execute the lease in Russia and have his signature notarized.  Additionally, there may be a fair housing issue had the landlord refused to allow this alternative method of executing a lease if the landlord would have allowed a U.S. citizen living, working or vacationing in another state or country to execute a lease in that alternative manner.  Remember national origin is a protected class.