The Property Management Shop

by Marc Wilson

Q. My wife and I own a 16-unit apartment building in the Marina. We live in Marin, but we keep an apartment in the building for ourselves; we usually visit the city one or two weekends a month. We have never had a resident manager because we have never needed one. We consider ourselves to be the resident managers. Are we in compliance with the law? Do we need a resident manager?

A. Your obligations regarding resident management are defined in the California Code of Regulations, Title 25, Article 5, Section 42, Page 105: “that a manager... or other responsible person shall reside upon the premises and shall have charge of every apartment house in which there are 16 or more apartments.” That’s it. That’s the sum total of the written rules and regulations with regard to whether you need a resident manager and as to what duties this person is to perform. And this section, like all poorly written, needlessly ambiguous code sections, is subject to interpretation. Our job today is simply to interpret “reside upon the premises.” What in the world does reside upon the premises mean? Is that like a principle place of residence? If so, you’re in good shape. Anyone who has appeared before the Rent Board on a Section 1.21 Petition (a.k.a. a principle place of residence issue) will tell you that you can, and many tenants often do, successfully argue that your apartment is your principal place of residence. Therefore, you should take the position that you reside upon the premises, whatever that means, and call it a day.

The bad news is that owners of apartment buildings with 16-plus units are also required to have a responsible person who has “charge” of the apartment house (i.e. a resident manager). Once again, the good news is that no one knows what that means. We can talk about the easiest way to comply with this regulation in a minute – but first, let’s belittle it. Who’s the genius that came up with the idea that a 21-unit apartment building requires a resident manager and a 15-unit apartment building does not? I manage lots of properties that are larger than 16 units and not a single one of them requires someone who fits the description of “a responsible person who shall reside upon the premises and have charge.” There is simply nothing for a resident manager to do at any property that I own or manage.

If there is a plumbing leak, I call a plumber. If a light fixture is broken, I call an electrician. If the hallways need cleaning, I call my janitorial/cleaning vendor. If the roof is leaking, I call my roofer. If a vacant apartment needs renting, I call my leasing agent. What exactly is a resident manager, this responsible person who shall reside upon the premises and have charge, supposed to do all day? In a well-managed property, resident managers have nothing to do, no jobs to perform. Your only job as an owner is to absolutely minimize, if not completely eliminate, any and all resident manager chores and responsibilities.

I don’t want my tenants calling the resident manager if the building is on fire; I want them to call the fire department. I don’t want my tenants calling the resident manager if they are locked out of their apartments; I want them to call the locksmith (and pay for it). I don’t want my tenants calling the resident manager if there is a weirdo in the hallway; I want them to call the police. I don’t want my tenants calling the resident manager with their routine repair requests, I want them to write down their requests and fax them to the property management office. Are you getting the picture?

Did you know that there are law firms that specialize exclusively in the representation of resident managers who sue their employers (i.e., you and me)? Oh yes, it’s a big business. Resident managers sue their employers frequently and profitably for wrongful termination, wrongful eviction, breach of contract, minimum wage violations, wage and hour violations, “apartment-as-compensation” violations, overtime violations and much, much more. Your relationship with your resident manager is a legal minefield. And, believe it or not, your relationship with your resident manager is dysfunctional. How else can you describe a relationship whereby you provide housing and wages and your employee provides “a responsible person who shall reside upon the premise and have charge,” whatever that means? What happens when you want to sever this relationship? Now you’re taking his job and his livelihood all in one swoop – a sure recipe for hard feelings and lawsuits. Like all dysfunctional relationships, your job is to minimize, minimize, minimize.

The first and foremost golden rule with resident managers is to be absolutely sure that they have as few responsibilities as possible. There should be no circumstance, no set of facts, whereby your tenants’ best and most appropriate course of action is to contact your resident manager. All necessary and ordinary management functions – like cleaning, renting, plumbing repairs, electrical repairs, painting jobs, serving of three-day notices – must be performed by outside, third-party vendors. Third-party vendors are easy to manage and easy to hire and fire with virtually no legal risk. All non-emergency tenant communications should be with your management office and should be in writing. What should your tenants do in the event of an emergency? They should pick up the phone and dial 9-1-1. Last time I checked, the government takes 50% of your money; you should absolutely insist that your tenants call the government in a real emergency. Fire? Call 9-1-1. Bum sleeping in the hallway? Call 9-1-1. Water pouring through your ceiling? Call 9-1-1 (the fire department will simply turn off the water supply valve in the sidewalk). Neighbor selling drugs? Call 9-1-1.

Once you’ve minimized your property manager’s responsibilities, it’s just a matter of complying with the myriad minimum wage and apartment-as-compensation rules and regulations. I don’t want to bore you with the details, but there are three primary rules that you need to be aware of: 1) you have to pay a minimum wage, (2) your resident manager can pay you rent of no more than two-thirds of the market value of the apartment, and (3) the one-third rent value that you are giving to the manager can account for no more than $381.20 towards your manager’s wage compensation. In other words, once your manager performs more than $381.20 worth of hourly, compensated work, you need to start paying a salary. Items 1 and 3 are easy because, as you might recall, our resident manager doesn’t perform any duties. In fact, my resident managers are not authorized to work more than one hour a month without my expressed written permission. As you can imagine, it’s kind of hard to buttress a minimum wage complaint when working only one hour per month. When you hire/appoint a resident manager, you can define his job description as (1) serving written notices on tenants when requested by owner and (2) calling 9-1-1 in the event of a building emergency.

So, now we have taken care of the job description and any minimum wage issues, the only thing left is the requirement that you give the manager a one-third reduction off of his rent. I’ve got an idea; why don’t you hire one of your seriously below-market-rate tenants? You know who I’m talking about, the guy who is paying $600 for a studio that’s worth $950 or more. Call him up and tell him you have a job that pays $200 a month and that all he has to do is dial
9-1-1 in the event of an emergency (something he would do for free if the building was on fire). It’s free money! Believe me when I say that I have never been turned down.

If you remember nothing else, you should remember that your relationship with your resident manager is, by definition, dysfunctional. No matter what strategy you employ in your pursuit of compliance with the California Code of Regulations, Title 25, Article 5, Section 42, Page 105, you should be very, very careful. Whenever you are in the business of providing housing and wages, you need to dot your i’s and cross your t’s. Your relationship with a resident manager is very easy to initiate, but it is difficult to manage and incredibly difficult to terminate. These kinds of relationships demand special attention. They demand legal scrutiny and written documentation. I can’t think of any other property management relationship that has more potential for problems. Never, ever take this relationship lightly. Always consult an attorney when you hire a resident manager.

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. Marc Wilson has specialized in the brokerage of San Francisco apartment buildings for 20 years. He can be reached at 415-229-1275. Copyright © 2007 by SF Apartment Magazine. All rights reserved.