The professional property manager needs to be aware that business relationships can be
clouded, and personal—as well as personnel—decisions have ethical ramifications.
routinely addressed, and problems were not
disclosed in the Smith Apartment Company
Public Offering Statement (POS). Additionally,
these issues were not shared with either Smith’s
“developer” board or with the homeowners’
post board. Smith had performed all maintenance during their holding period and refused
to provide maintenance records.
The first conversion resulted in the board of
directors instructing Johnson Management—
through the community association/property
manager—to hire an attorney to represent them
in negotiations with Smith Apartment Company
for repairs of a number of defects. Fortunately,
the claim was small and Smith finally settled
with the board. The second conversion did not
have the same outcome, however; and neither
did the third or following conversions.
The original property manager had consistently worked with all parties to resolve issues
before they became serious contractual or legal
problems, and kept Johnson Management’s brokers updated about issues on a daily basis. Even
though the manager had developed a direct relationship with the Smith site employees and with
the vice president for Smith conversions at the
company’s corporate office, Smith Apartment
Company instructed Johnson Management to
fire the property manager. Serious issues were
developing regarding disclosures and representations. When the property manager asked
one of the Johnson partners for clarification
regarding who the customer was, the property
manager was told that the boards of directors
of each condominium were the “legal customer
and that Smith Apartment Company was the
actual customer.”
LAWSUITS
In time, Johnson did fire the property manager
and did not reassign this manager to other condominium properties, as could have easily been
done within the company. At least three subsequent Johnson managers experienced similar
situations and also resisted pressure to remain
silent on issues. Johnson eventually realized that
they couldn’t continue to fire experienced managers at Smith Apartment Company’s demand
and “procedures” have now been “tightened” at
Johnson Management.
There are currently several lawsuits filed
against Smith Apartment Company by Johnson
Management’s client condominium associations, with the potential for more. These
suits may extend to include the management
company itself. Present and previous property
managers for Johnson Management have been
deposed.
ETHICS AND FACING THE DILEMMA
The main ethical questions suggested in this
case study involve issues of “who the client is;”
the managers’ and the management company’s
fiduciary responsibilities; what type of disclosures should be made; and when disclosures
should be made to clients and the general public. These dilemmas are common and can be
complex.
There are normally conflicts in prioritizing
ethical, legal and confidentiality issues in everyday management. The professional property
manager needs to be aware that business relationships can be clouded, and personal—as well
as personnel—decisions have ethical ramifications.
